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By  Michele A. Ward, CFA

Strategy Overview – US Smaller Companies Equity


In this video, Michele Ward, Portfolio Specialist, outlines the case for a strategic allocation to US smaller companies, highlighting their ability to complement larger cap stocks and provide a more complete exposure to the US.

In addition, Michele talks to the T. Rowe Price US Smaller Companies Equity Strategy, including the importance of an active approach and the firm’s long-term heritage of investing in the US small cap space.

Watch now to find out more.
 

Transcript

Why consider an allocation to US small caps?

Small cap stocks provide a really important complement to their larger counterparts in the United States. Typically, over the long term, the large cap stocks have represented about 80% of the US market and smaller companies about 20%.

There have been periods of time where large cap stocks have dominated, like the last decade. Other times where small cap stocks have been the leaders, such as in the early 1970s or the time after the turn of the century. So it's important to think about the US equity market not just as a large cap environment, but one that can have periods where small cap stocks dominate. If you don't participate in those periods of time, you can really underperform the potential of the US equity market. Now, those periods of time can come in very unpredictable ways, and so it's important to always have a strategic allocation there.

Why not just take a passive approach?

While many investors take a passive approach for large cap investing in the United States, it's a lot more challenging to take a passive approach in small cap. Over the past 25 years, the number of publicly traded U.S. companies has declined substantially. There were over 7000 companies 25 years ago. Today there's less than 4000. And as a result, the quality of the small cap benchmark has eroded over time. There's a lot more non earners, many companies that have high levels of debt. These represent part of a passive portfolio. Well, active managers can pick and choose among them. They can find a company that may not be earning money today but stands to gain a lot into the future.

What are the aims of the US Smaller Companies Equity Strategy?

The goal is to provide the best thinking of our analyst team across the small and lower part of the midcap range in the United States growth to value. We're agnostic about size, we're agnostic by style, but we're looking for the best insights our analysts have that provides investors outside the United States with the opportunity to get exposure to this part of the equity market, but also importantly to this part of the US economy.

We make sure we are always invested in every part of the market. Every sector is represented as well as every important industry within them. This allows us to hedge out a lot of the macro factors and allow the strength of our stock picking to show through.

Finally, why consider T. Rowe Price for your small cap allocation?

T Rowe Price is one of the oldest investors in small cap stocks in the United States. Our first small cap fund was launched in 1960 and Thomas Rowe Price was its first portfolio manager. This has allowed us to learn through the decades about some of the things that make small cap investing challenging, but how to be successful in that environment.

T Rowe Price is not only one of the oldest investors in small cap assets in the United States, we're the largest active manager of small cap portfolios today. This gives us unparalleled access to companies. The companies we invest in know of our long term commitment to the asset class. They know of our long term partnership with companies that we invest in and as a result if we need to talk to companies, we're going to be able to do that. This provides our team of analysts - 50 strong - with the ability to get in, talk to any company we want to and that kind of insight that they gain from those meetings allows us to get conviction on the names in our portfolio.

IMPORTANT INFORMATION

This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.  

It is not intended for distribution to retail investors in any jurisdiction.

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T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. T. Rowe Price has been independently verified for the 27-year period ended June 30, 2023, by KPMG LLP. The verification report is available upon request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. Verification does not provide assurance on the accuracy of any specific performance report.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

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