US Smaller Companies Equity

Hello, I'm Michelle Ward and I'm one of the portfolio specialists here at T. Rowe Price. My focus is on smaller companies in the United States and I'm here today to talk about our US Smaller Companies Equity Strategy. T. Rowe Price was founded in 1937 and we have one business investing assets on behalf of our clients. Today we have over US$1.5 trillion of assets under management and small cap investing has been part of our DNA since 1960. Today, we have over US$70 billion in small and mid-cap assets invested in the United States alone. The investment case for US smaller companiesSmall cap stocks are often perceived as more risky than their larger counterparts, and to some extent that's true. There is a little bit more downside risk when you are talking about smaller companies than their larger counterparts, but there's also significantly more upside potential. This data looking back over nearly a century shows the prevalence of up and down capture in the various components of the markets and small cap stocks can have big potential upside, and that's what an investor gets by adding a complimentary allocation to smaller companies to an S&P 500 type mandate. The recent performance trends in the large cap universe, particularly the S&P 500, have meant that the S&P has gotten extremely concentrated, concentrated to a degree we haven't seen since 1973 or 2000, both of those points. In the past, we had similar examples of times when the top five stocks in the S&P 500 commanded an outsized share of that particular index. In those periods of time, small cap stocks became very undervalued relative to their larger counterparts and that ended up creating great opportunities for long term investors. T. Rowe Price Funds SICAV – US Smaller Companies Equity FundThe US Smaller Companies Equity Strategy invests across the full spectrum of small and midcap stocks. We look at value stocks, core stocks, growth stocks, and have nearly 50 analysts looking for ideas. The universe is huge. Over 3000 companies are potential investments, and these analysts go and look for the best ideas that they can bring then to the portfolio managers. The Strategy is broadly diversified, meaning we're always invested in every sector and in all the important industries incorporated in each one of them. We make sure we have this broad exposure to ensure that investors have access to not just the US small and midcap equity market, but to the US economy as well. This approach yields a very high active share, meaning we're different from the passive benchmark and a strong ten year upside / downside capture ratio meaning we keep up with the markets when times are good, but we protect capital when markets are more challenged. To sum up, since 2001 the US Smaller Companies Equity Strategy has provided investors with the opportunity to complement their S&P 500 allocations. It creates the opportunity to participate in some of those exciting things that small and midcap companies bring to the table and today's valuations are compellingly attractive. We haven't seen valuations like this for more than 20 years and so for long term investors this is a great time to think about this.

Smaller-cap valuations have been relatively attractive versus their large cap peers for some time now. But valuation alone is not a catalyst for outperformance. You need valuation, but you also need fundamentals. Over the coming years, we’ve seen an inflection in small-cap fundamentals as industries like industrials and the energy complex improve relative to the past. Those inflecting fundamentals support many of the smaller companies and in aggregate will help small-cap earnings on a relative basis versus their large-cap peers, providing a tailwind to the fundamentals for these businesses. Today, we're finding attractive opportunities in the energy complex as falling energy productivity, the unwinding of the shale revolution, is creating the need for greater investment in the energy industry, and in suppliers that help combat falling productivity. As well, we're finding attractive areas of opportunity in health care, as the next generation of medicine takes hold in some of the most innovative companies that are driving that change. We're seeing an extreme bifurcation where parts of a given industry are performing very well, as in the AI companies within the semiconductor universe. But within semiconductors, there's also parts that are experiencing deeply recessionary volumes, like analog and microcontrollers and diodes.