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Extreme Avoidance: T. Rowe Price Small Cap. Value Fund
Not to sound like a broken record about poor financial journalism, but he lost me when he said that low turnover helps keep the expense ratio down. Turnover affects brokerage costs and also has market impact (i.e. moving market prices upward as you buy, and downward as you sell). But neither effect is included in the expense ratio. Rather, they're hidden performance costs, which is one reason why one needs to look at turnover in addition to looking at expense ratios.
The writer makes it sound like this fund has higher than average market cap for a small cap fund, because it will let winners ride. The opposite is the case. The fund does not have to "conform" (read: buy) stocks with market caps within the Russell 2000 range, but rather stocks with market caps within the Russell 2000 range or below. Read the prospectus (Principal Investment Strategies section). That's why over 1/3 of the fund is in microcaps, and only 1/6 is in midcaps, and why this fund can serve as a good entry into microcaps for someone who does not want to hold a separate microcap fund.
This fund is an index hugger. It was not performing badly, but I lost patience with it. It is doing well these days again, along with its other TRP small-cap sibling, OTCFX.
IMHO PRSVX is an index hugger in only a narrow technical sense - that its coefficient of determination with respect to the Russell 2000 (its best fit index over three years) is 98.71% (per M*). However, its alpha with respect to the same index is 1.62 and beta is 0.91, which you can't do with a hugging portfolio. (You can tweak the beta by adding cash or leveraging, but you're not going to boost alpha that way.) Not to mention that its turnover ratio is 1/4 that of the index (again meaning that its portfolio isn't coming particularly close to that of the index).
On a year by year basis, the performance has been within 1% of the index in only one year in the past ten, with differences as large as 18.72% (in 2002); most recently it outperformed by 3.58% in 2011.
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http://online.barrons.com/article/SB50001424053111903857104577462373175753012.html
The writer makes it sound like this fund has higher than average market cap for a small cap fund, because it will let winners ride. The opposite is the case. The fund does not have to "conform" (read: buy) stocks with market caps within the Russell 2000 range, but rather stocks with market caps within the Russell 2000 range or below. Read the prospectus (Principal Investment Strategies section). That's why over 1/3 of the fund is in microcaps, and only 1/6 is in midcaps, and why this fund can serve as a good entry into microcaps for someone who does not want to hold a separate microcap fund.
On a year by year basis, the performance has been within 1% of the index in only one year in the past ten, with differences as large as 18.72% (in 2002); most recently it outperformed by 3.58% in 2011.