Brian Rogers' T. Rowe Price Equity Income Fund Q1 Commentary
The Equity Income Fund returned 11.19% in the quarter compared with 10.61% for the S&P 500 Index and 10.59% for the Lipper Equity Income Funds Index. For the 12 months ended March 31, 2013, the fund returned 17.20% versus 13.96% for the S&P 500 Index and 15.05% for the Lipper Equity Income Funds Index. The fund's average annual total returns were 17.20%, 5.53%, and 9.04% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 0.68% as of its fiscal year ended December 31, 2011.
At the end of the quarter, financials constituted the largest sector weighting in the portfolio, followed by industrials and business services and energy stocks. The portfolio's sector weightings are the result of bottom-up stock analysis in our search for attractive investments. The portfolio benefited from many solid investments in the first quarter of 2013 and struggled with a few others that were disappointing. On a positive note, stock selection in consumer staples contributed most to results, followed by our stock selection in the consumer discretionary sector. Conversely, holdings in energy and financials were a drag on performance.
Considering the strong run in stocks during the past few months, we would not be surprised to see a short-term correction. That said, the positives outweigh the negatives in our view. The U.S. economy should continue to expand at a moderate pace with contained inflation, propelled by housing and growing strength in the labor market. The U.S. is in a good position relative to other developed markets. The industrials sector is performing better, and Congress and the Obama administration appear less contentious than at the end of last year. The Federal Reserve is likely to keep its stimulus programs in place a while longer. Eurozone risks remain, but they could decline in the months ahead. We rarely make dramatic changes to our investment strategies based on macroeconomic concerns. Rather, we prefer to focus on individual companies whose price/earnings multiples and dividend yields look attractive.