Success Achieved by Small-Cap Fund Adopting Unconventional Strategies
T. Rowe Price Small-Cap Value Fund Outperforms Market with Contrarian Strategy
In the midst of this year's market selloff, fund manager David Wagner of the T. Rowe Price Small-Cap Value Fund (PRSVX) adopted a contrarian investment strategy, focusing on buying undervalued small-cap stocks with strong fundamental prospects and differentiated business models.
Wagner's approach is characterized by long-term investing in companies with unique market positions or growth potential, and resisting arbitrary selling based on market cap changes. This strategy has proven successful, with Wagner's annualized return of 7.7% over the past decade outperforming 72% of his peers [1].
One of Wagner's notable investments was in shoe company Steven Madden (SHOO), which he purchased after its stock price had dropped by nearly 50%. Wagner saw the potential in Steven Madden's position as the leading women's shoe importer with significant China exposure. Since the low in April, this investment has recovered approximately 27%.
Another example of Wagner's contrarian approach is his purchase of Carvana (CVNA), a company that has "upended the way people buy used cars" [1]. Wagner bought Carvana stock as the firm teetered toward bankruptcy for $30 a share in late 2023; it recently traded for $327. Despite Carvana's shift from a small-cap to a large-cap company, Wagner has held onto his investment with a long-term horizon rather than selling when stocks exceed small-cap thresholds.
While Wagner does not view tariffs as a settled issue, he believes people were overreacting to potential changes. In line with his focus on economically sensitive and tariff-exposed names, Wagner trimmed stakes in utility stocks and real estate investment trusts (REITs) during the market's worst days.
The T. Rowe Price Small-Cap Value Fund (PRSVX) fared better than the market during this period, logging a slim, 1.2% gain over the past 12 months, while the Russell 2000 Index fell as much as 28% [1]. The fund's performance, particularly in the face of market volatility, has earned it a spot on the Kiplinger 25, a list of favourite no-load mutual funds.
In summary, Wagner's contrarian investment strategy, characterized by long-term investing in undervalued companies with unique market positions or growth potential, has proven successful in the T. Rowe Price Small-Cap Value Fund. His investments, such as Steven Madden and Carvana, have delivered solid recovery and growth since, contributing to the fund's notable outperformance.
[1] This information was first published in Kiplinger Personal Finance Magazine.
Investing in companies with strong fundamentals and unique business models, such as Steven Madden and Carvana, is a part of Wagner's long-term investment strategy in the T. Rowe Price Small-Cap Value Fund. This approach, characterized by buying undervalued stocks and holding onto them regardless of market cap changes, has led to successful returns, outperforming 72% of his peers in the past decade.
