A Small-Growth Quant Fund With a Smoother Ride
By emphasizing cash flow and earnings quality over momentum measures, Silver-rated T. Rowe Price Diversified Small Cap Growth has turned in consistent, peer-beating performance.
By emphasizing cash flow and earnings quality over momentum measures, Silver-rated T. Rowe Price Diversified Small Cap Growth has turned in consistent, peer-beating performance.
Greg Carlson: The Morningstar Medalist of the Week is T. Rowe Price Diversified Small Cap Growth (PRDSX). This fund has been run since late 2006 by Sudhir Nanda. He has been the portfolio manager for eight and a half years now; he worked on T. Rowe Price's quantitative team for a while before that.
Yes, this fund is run by quantitative stock-picking models. That has been a troublesome area in the mutual fund market in recent years. A lot of quant funds did very poorly in 2008's sharp decline as well as in the ensuing rebound over the next couple of years. However, this fund has provided a smoother, more predictable performance record. The reason for that is that the models are a bit different. There is less reliance on momentum-based measures. Instead, the fund favors a valuation model that's based on cash flow, which Nanda believes is a more stable measure, as well as earnings quality. Momentum is a smaller piece of the pie here. It does exist, but portfolio turnover, as a result, is much lower here than at the typical quant fund, which tends to trade fairly rapidly.
The result has been, as I said, very consistent performance. The fund has beaten its typical small-cap-growth peer in all eight full-calendar years during Nanda's tenure. The fund has beaten more than 95% of its peers on both a total-return and risk-adjusted basis during his full tenure from October 2006 through March 2015. Costs are also pretty low here on a relative basis. The fund charges 85 basis points for the Investor shares, so it gets a Positive [rating] for price as well.
Overall, [the fund] earns a Morningstar Analyst Rating of Silver, and we think it's a solid long-term holding.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals
and individual investors. These products and services are usually sold through
license agreements or subscriptions. Our investment management business generates
asset-based fees, which are calculated as a percentage of assets under management.
We also sell both admissions and sponsorship packages for our investment conferences
and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.