T. Rowe Price Small-Cap Value (PRSVX) is an actively traded mutual fund that invests at least 80% of its net assets in companies with a market capitalization that is within or below the range of companies in the Russell 2000 Index, notes John Persinos, editor of Personal Finance.
Small businesses represent more than 99.7% of all U.S. employers. They employ half of all private sector workers. They account for up to 80% of the new jobs created annually in the country. Every portfolio should have exposure to these dynamos. The beginning of 2018 is a good time to start.
Overall the changes to the taxation of pass-through entities will be beneficial to many small business owners. That’s a big shot in the arm for the country’s entrepreneurs and innovators.
Another future advantage for small companies is the likelihood that Trump’s laissez-faire cabinet members and agency heads will lessen regulations against the financial services sector. That in turn will make it easier for regional banks to give loans to small companies.
About 93% of PRSVX’s holdings are in U.S. stocks. Trump’s “America First” protectionist policies pose a threat to expert-dependent giants, but they’d actually benefit U.S. small caps.
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The majority of these small caps derive the bulk of their sales domestically, which means that trade wars and a strong U.S. dollar tend to hurt them less. Recent sharp declines among overvalued large-cap stocks highlight the wisdom of seeking small-caps, which are poised to outperform in 2018.
T. Rowe Price Small-Cap Value’s holdings skew toward the market valuations of the Russell 2000, the most common benchmark for mutual funds that identify themselves as “small-cap.” The weighted average market capitalization for a company in the index is about $2.4 billion; the median market cap is $861 million.
PRSVX’s portfolio is well diversified. Holdings are spread among several sectors. The top five sectors are financial services (29.7%), industrials (12.8%), real estate (9.5%), consumer cyclical (9.2%), and technology (8.4%).
Lead manager J. David Wagner emphasizes value. He looks for small companies that are trading at a bargain relative to their industry peers. The median market capitalization within the fund is $1.5 billion.
The recent stock market correction underscored the danger of investing in momentum stocks that are overvalued based on unrealistic earnings assumptions. In what’s shaping up to be a tough year ahead, small-cap companies could bring sanity to your portfolio, especially the value-oriented picks in PRSVX.
