PRIDX: A Good Way To Invest In High-Quality Small Caps
Summary A recent research study found that higher-quality smaller companies have outperformed higher-quality larger companies. PRIDX has generally outperformed its global small/mid cap benchmark. PRIDX has been experiencing fund inflows and strong relative strength. Overall Objective and Strategy The primary objective of the T. Rowe Price International Discovery Fund (MUTF: PRIDX ) is long term growth of capital through investments in common stocks of rapidly growing, small to medium-sized companies outside the U.S. They look for high-quality growth stocks that can compound returns beyond the typical one- or two-year time horizons of most investors. Smaller companies throughout the world can react relatively quickly to changes in the marketplace and the economy, which may give them an edge to capitalize on investment opportunities faster than their larger counterparts. The fund has a fairly high risk profile because of its investments in small caps and some less-developed countries. Aside from market risk, there are also risks associated with unfavorable currency exchange rates and political or economic uncertainty abroad. Fund Expenses PRIDX is a no-load fund. The expense ratio for PRIDX is 1.21% which is higher than I like, but not bad compared to other actively managed international small/mid cap funds. Minimum Investment PRIDX has a minimum initial investment of $2,500 in a taxable account, and $1,000 for a group IRA. Past Performance PRIDX is classified by Morningstar in the “Foreign Small/Mid Growth” or FR category. Compared with other mutual funds in this category, PRIDX has performed fairly well. These are the annual performance figures computed by Morningstar since 2007. 2007 2008 2009 2010 2011 2012 2013 2014 YTD PRIDX (%) 16.57 -49.93 55.69 20.47 -14.08 26.00 24.37 -0.43 10.80 Category (FR) 12.03 -49.02 49.24 23.04 -14.72 22.20 26.61 -5.40 9.75 Percentile Rank 34 58 17 77 31 11 60 15 56 Source: Morningstar Mutual Fund Ratings Lipper Ranking : Funds are ranked based on total return within a universe of funds with similar investment objectives. The Lipper peer group is International Small-Cap 1 Yr – #19 out of 168 funds 5 Yr – #31 out of 122 funds 10 Yr – #11 out of 67 funds Morningstar Ratings : Category is Foreign Small/Mid Growth Overall 5 Stars Out of 130 funds 3 Year – 4 Stars Out of 130 funds 5 Year – 4 Stars Out of 113 funds 10 Year – 5 Stars Out of 67 funds Fund Management Justin Thomson has managed the fund since August, 1998. He has an M.A. from the University of Cambridge. Regional Exposure (as of May 31, 2015) Europe 41.3% Pacific Ex-Japan 26.1% Japan 21.2% Latin America 2.7% North America 1.7% Middle East & Africa 1.0% Country Exposure (as of May 31, 2015) Japan 21.2% United Kingdom 15.7% China 8.4% Germany 5.8% India 4.1% France 3.4% Spain 3.4% South Korea 3.0% Australia 2.9% Switzerland 2.9% Comments PRIDX is a good way for individual investors to gain exposure to rapidly growing small/mid cap companies outside the U.S. It would be very difficult and costly for retail investors to purchase most of the stocks in this fund individually, given the complexities of foreign stock exchanges, currency conversions etc. I discovered PRIDX from a relative strength trend model run on the funds in the Citigroup 401K plan. PRIDX has recently popped up to the top of the list, and there are also signs that the fund has been attracting inflows lately. Here are some recent assets under management figures for PRIDX taken from the fundmojo web site: Feb. 2015 $3.53 Billion Mar. 2015 $3.88 Billion Apr. 2015 $4.12 Billion May 2015 $4.28 Billion I believe that if new money continues to flow into international small cap funds, it will boost the performance of the underlying stocks in the PRIDX portfolio. Back in January, hedge fund AQR and Tobias Moskowitz, a finance professor at Chicago’s Booth School of Business, published a research paper entitled ” Size Matters, If You Control Your Junk “. It found that small companies have outperformed larger companies when the quality of the companies is taken into account. Of course, it is well known that businesses with steady earnings greatly outperform highly speculative penny stocks. But when comparing companies in the same industry, the small, high-quality companies have outperformed larger, high-quality companies. I believe that PRIDX is a good way to invest globally in stocks of smaller, higher-quality companies. If it continues to attract inflows, this should benefit fund performance. Disclosure: I am/we are long PRIDX. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.