T. Rowe Price Associates Inc. said yesterday that it is indefinitely closing its popular Small-Cap Value Fund to new investors.
"The fund is at a size that is about as big as I think it can be to actually invest the money comfortably," said Preston Athey, president of the fund and its manager for 4 1/2 years.
The fund's total assets have shot up by $590 million in the past 14 months to $1 billion. Net cash inflows, the amount of money investors have put into the fund minus withdrawals, have jumped to $480 million over the same period.
The Small-Cap Value Fund stopped accepting investments at the close of business yesterday. It will continue to take additional investments from existing shareholders and new accounts from participants in employer-sponsored retirement plans administered by T. Rowe Price Retirement Plan Services.
The Small-Cap Value Fund invests in companies with market values of up to $250 million and that it considers under-valued. It returned 29.3 percent on investment last year compared with the Standard & Poor's stock-index's 37.6 percent and the Russell 2000 Index's 28.4 percent.
This is the fourth time in T. Rowe Price's 59-year history that a fund has been closed. Small-Cap Value was closed in March 1993 to investors because it grew too rapidly, but it was reopened on Jan. 31, 1995.
Leaving the fund open would have caused problems, Mr. Athey said, because small-cap stocks have "relatively low trading volumes; large cash inflows cannot be readily invested."
Mr. Athey said securities laws also prevent mutual funds from owning more than 10 percent of a company.
"The only way around that is to buy more companies or buy bigger companies," he said. "What happens when you do that, the character of the fund changes. It becomes kind of a mid-cap fund. We run a small-cap value fund, we are going to stay small cap."
James P. Hanbury, an analyst with Schroder Wertheim & Co. in New York, said mutual funds are challenged with deploying the flood of money coming through their doors, and they are looking for ways to put it to work. He doesn't think adding new companies is the answer.
"If you have a $10 billion small-cap fund, it would be a contradiction in terms," he said. "It is hard to follow that many companies."