Small-Cap Value Fund is closing at Price

Assets have doubled, making it more difficult to prudently deploy cash

May 24, 2002|By William Patalon III | William Patalon III,SUN STAFF

T. Rowe Price Associates Inc. will close its Small-Cap Value Fund to investors at the close of business today, a move aimed at keeping the fund from becoming too large to manage.

The Baltimore-based mutual fund company said the fund would continue accepting additional investments from existing investors, as well as direct rollovers from qualified retirement plans into new IRA accounts offered by Price.

Companies typically close their mutual funds to keep them from being unwieldy, since it is more difficult to beat the market averages with funds that are too large.

That's especially true of so-called "small-cap" funds, which invest in the shares of smaller public companies.

Small firms typically have fewer shares available. A fund manager with a mountain of cash to invest could be forced into buying big blocks of a thinly traded stock all at once - substantially boosting the share price, and reducing the potential future returns for the fund-holders, said Preston G. Athey, portfolio manager of the Price Small-Cap Value Fund.

Closing the fund avoids that problem, he said.

"Over the past year and a half, the fund's assets have doubled due to very positive investment results and substantial cash flows," Athey said.

"While we're pleased that the fund's favorable performance has attracted investors, continued large inflows could eventually impair our ability to invest effectively in undervalued small-cap stocks."

Small-Cap Value, opened in June 1988, has about $2.9 billion in assets. Net cash flows into the fund totaled $346 million in 2001 and $527 million in the first four months of this year.

The fund had a one-year total return of 26 percent as of April 30.

Investors have a habit of chasing the "hot" market sectors, and the hottest funds in those sectors, Athey said.

Over the past year and a half, small-cap value stocks have been among the hottest, while the small-cap growth sector has lagged.

Athey noted that Price's New Horizons Fund, which invests in small-company growth stocks, just reopened to new investors after being closed for nearly six years.

Withdrawals from the fund have outpaced inflows of cash in three of the past five years.

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