T. Rowe Price US Smaller Companies Equity

T. Rowe Price US Smaller Companies Equity has a flexible approach. The manager looks for both growth and value opportunities in the small and mid-cap space, to build a diverse portfolio of the best ideas from the vast analyst resource at his disposal. The manager will allow his winners to run as long as he still believes there is a return opportunity. As such, the portfolio is likely to have more of a mid-cap bias than its peers and it will also invest in areas such as biotech, which other generalist funds often avoid.

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Our Opinion

This fund differs from the usual T. Rowe Price mould in that it is a more balanced core portfolio, with value names in addition to the usual growth focus. This approach has borne fruit, with considerable performance coming from stock selection. Matt's approach is very detail-orientated and he has been working at T. Rowe Price as a specialist analyst for several years. He was also an analyst on the fund before becoming co-manager with Curt Organt, who retired in September 2024, and we believe the should continue to prosper under Matt's leadership.

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Matt Mahon, Portfolio Manager Matt Mahon is portfolio manager of the US Smaller Companies Equity Strategy at T. Rowe Price. He also serves on the advisory committees of the firm's US Small-Cap Core Equity and US Mid-Cap Growth Equity strategies. He joined the firm in 2016, bringing experience from his previous roles at Water Street Capital and Morgan Creek Capital. Matt holds an MBA from the University of Pennsylvania's Wharton School, where he was a Palmer Scholar and Henry Ford II Fellow, and a BS in finance, summa cum laude, from Wake Forest University, where he received the Wall Street Journal Achievement Award.

Matt Mahon, Portfolio Manager Matt Mahon is portfolio manager of the US Smaller Companies Equity Strategy at T. Rowe Price. He also serves on the advisory committees of the firm's US Small-Cap Core Equity and US Mid-Cap Growth Equity strategies. He joined the firm in 2016, bringing experience from his previous roles at Water Street Capital and Morgan Creek Capital. Matt holds an MBA from the University of Pennsylvania's Wharton School, where he was a Palmer Scholar and Henry Ford II Fellow, and a BS in finance, summa cum laude, from Wake Forest University, where he received the Wall Street Journal Achievement Award.

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T. Rowe Price US Smaller Companies Equity

Matt Mahon

Quote from the Fund Manager

I try to focus on the quality of the business. In good times, that’s important. In tough times, it’s essential.

Matt Mahon

Portfolio Manager

Investment process

T. Rowe Price has a very defined approach to fund management. It has a large and experienced in-house analyst team that is dedicated to sectors and geographies to provide in-depth fundamental research. This fund is a ‘best ideas’ strategy that levers off this research (as well as that of industry contacts and external brokers), building a portfolio of the strongest ideas from across a range of sectors in the US across the small and mid-cap space. This means that the manager will buy a diverse set of stocks that have both value and growth characteristics, but are likely to be the winners over the next 5 plus years.

Matt, with the support of around 40 analysts, will conduct intense fundamental analysis, looking at different factors for different types of stocks. This work has a heavy emphasis on free cash flow generation with sound or improving financial leverage. Matt will also want management teams whose goals are aligned with shareholders, a solid plan for the business and a track record of delivering in the past. On top of this, he will need to see a near-term catalyst to improve the fundamentals of the business, either in its earnings or its valuation. Matt will have the highest conviction in ideas were there is a compelling investment opportunity due a combination of the company’s prospects and its current valuation.

For the value ideas, he will look at what the company’s issue is, the time frame for resolution and the absolute and relative valuations. These stocks won’t be those that are structurally challenged, but those that are under pressure for cyclical reasons. They will be firms that still have an enduring competitive advantage, but are cheap for an external factor, such as industry related reasons. The growth names are more likely to be those with a stable growth outlook and sustainable underlying growth drivers, rather than riskier aggressive plans.

Given the fund’s large scope for finding ideas, the final portfolio will be reasonably diverse at around 150-200 stocks. This also helps with risk management by limiting the impact of any one name on the portfolio and allows Matt to buy firms such as biotech companies and a group of regional banks to take exposure to certain themes, without adding single stock risk which can occur in these names.

Risk

The portfolio will have broad sector diversification to manage the risk and volatility usually associated with small-cap investing, with bottom–up stock selection determining sector weights. The flexible approach helps mitigates style concerns, with the fund able to perform in both value and growth markets.

ESG

ESG - Integrated

The manager of this fund actively considers environmental, social and governance factors to enhance investment decisions, but they are not the sole driver of an investment decision, nor are they considered separately from more traditional analysis. T. Rowe aims to strike a balance between risk and return in its investment process, and the company approaches ESG considerations in the same manner, considering both financial and non-financial risks.

The strategy’s portfolio manager works collaboratively with investment analysts and with T. Rowe’s internal ESG resources to develop an understanding of the key ESG considerations, and to weigh their significance against other aspects of the investment opportunity. The foundation of the analysis is a proprietary flagging tool called the Responsible Investing Indicator Model (RIIM) which covers approximately 14,000 securities, for potential inclusion in the portfolio.

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