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SICAV

Emerging Markets Discovery Equity Fund

Formerly Emerging Markets Value Equity Fund

Utilises a contrarian approach to invest in undervalued emerging markets companies positioned to benefit from a re-rating thesis for change.

ISIN LU1244138340 Valoren 29636631

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

-2.62%
$100.9m

1YR Return
(View Total Returns)

Manager Tenure

-17.18%
4yrs

Information Ratio
(3 Years)

Tracking Error
(3 Years)

-0.50
4.89%

Inception Date 14-Sep-2015

Performance figures calculated in USD

Other Literature

31-May-2020 - Ernest Yeung, Portfolio Manager,
We remain constructive toward emerging market equities as we weigh the risks and rewards in a post-pandemic recovery. Within the asset class, we think there are oversold cyclical stocks that are likely to benefit from a potential market recovery, emerging in a stronger position once conditions normalise. With the extreme valuation divergence between growth and value stocks, we think there is a good chance that value may outperform growth as we emerge from the trough.
Ernest C.  Yeung
Ernest C. Yeung, Portfolio Manager

Ernest Yeung is a portfolio manager for the Emerging Markets Discovery Equity Strategy at T. Rowe Price. He was the co-portfolio manager for the International Small-Cap Equity Strategies from 2009 to 2014. Mr. Yeung is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price Hong Kong Limited.

Click for Manager Outlook
 

Strategy

Manager's Outlook

We remain constructive toward emerging market equities. We view the coronavirus-induced market weakness as an opportunity to continue positioning ourselves in cyclical names with strong balance sheets which are likely to weather this period of market and economic stress and emerge in a stronger position.

We think that these attractive cyclical stocks in EM will likely benefit should markets recover in the second half of this year. While opportunities within sectors and countries are considerable, we are mindful that the path to recovery may not be quick. The near-term outlook is highly uncertain, but the significant monetary and fiscal measures that have been put in place to stem the impact of the coronavirus provide encouragement.

With the extreme valuation divergence between growth stocks and value names, we believe there is a good chance that value may outperform growth as we emerge from the trough.

The oil price has always been a key risk for our diversified portfolio. With the Saudi Arabia-Russia oil price rift in the quarter, we may have seen the worst and we look forward to a period of greater price stability.

We continue to see EM as fertile terrain for finding "forgotten" pockets of opportunities in stocks with asymmetrical risk-return profiles, wherein fundamental changes or operational improvement may drive a rerating while at the same there is potential downside support in terms of a strong balance sheet and healthy dividends. A recovery in the capex-to-sales ratio, which has been at depressed levels in EM since 2015, should lead the next leg of growth, in our view. We think EM companies are still focused on better capital allocation and cash flow generation after years of reckless spending.

Within Asia, we see China as a deep and diversified opportunity set where we are focused on domestic-oriented businesses and "old economy stocks". We view state-owned enterprises which have implemented reforms and put in place share incentives as interesting areas of opportunity. China's economic transformation story remains a key positive for us.

Investment Objective

To increase the value of its shares, over the long term, through growth in the value of its investments. The fund invests mainly in a widely diversified portfolio of stocks of emerging market companies.

Investment Approach

  • Aim to exploit the valuation anomalies that arise across the diverse and inefficient emerging market opportunity set.
  • Employ a contrarian approach using fundamental research, quantitative screen and industry contacts to identify companies that are out of favour, undervalued and that offer an attractive risk and reward profile.
  • Minimize the risk of value traps by focusing on companies offering yield or a book value anchor to the valuation, and where we have identified re-rating thesis that can lead to an expansion in valuation over time.
  • Risk management is an integral part of the portfolio construction process.

Portfolio Construction

  • Typically 50-80 stock portfolio
  • Expected 4-8% tracking error
  • Individual position typically 0.5% to 5%, position sized by prospective risks
  • Country ranges +/-10% absolute deviation from the benchmark
  • Sector ranges +/-15% absolute deviation from the benchmark
  • Reserves are normally less than 5%, max 10%

Performance (Class I)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Since Manager Inception
Annualised
Fund % -17.18% -2.62% N/A 4.31% 4.31%
Indicative Benchmark % -4.39% -0.15% N/A 5.42% 5.42%
Excess Return % -12.79% -2.47% N/A -1.11% -1.11%

Inception Date 14-Sep-2015

Manager Inception Date 14-Sep-2015

Indicative Benchmark: MSCI Emerging Markets Index Net

Data as of  31-May-2020

Performance figures calculated in USD

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % -26.83% -4.29% N/A 2.32%
Indicative Benchmark % -17.69% -1.62% N/A 3.43%
Excess Return % -9.14% -2.67% N/A -1.11%

Inception Date 14-Sep-2015

Indicative Benchmark: MSCI Emerging Markets Index Net

Data as of  31-Mar-2020

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 02-Jul-2020 Quarter to DateData as of 02-Jul-2020 Year to DateData as of 02-Jul-2020 1 MonthData as of 31-May-2020 3 MonthsData as of 31-May-2020
Fund % 3.60% 3.60% -15.51% 0.33% -9.90%
Indicative Benchmark % 3.01% 3.01% -7.07% 0.77% -6.95%
Excess Return % 0.59% 0.59% -8.44% -0.44% -2.95%

Inception Date 14-Sep-2015

Indicative Benchmark: MSCI Emerging Markets Index Net

Indicative Benchmark: MSCI Emerging Markets Index Net

Performance figures calculated in USD

Past performance is not a reliable indicator of future performance.  Source for fund performance: T. Rowe Price. Fund performance is calculated using the official NAV with dividends reinvested, if any. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested. It will be affected by changes in the exchange rate between the base currency of the fund and the subscription currency, if different. Sales charges (up to a maximum of 5% for the A Class), taxes and other locally applied costs have not been deducted and if applicable, they will reduce the performance figures. 

Where the base currency of the fund differs from the share class currency, exchange rate movements may affect returns.

Index returns shown with reinvestment of dividends after the deduction of withholding taxes. 

Effective 1 July 2018, the "net" version of the indicative benchmark replaced the "gross" version of the indicative benchmark. The "net" version of the indicative benchmark assumes the reinvestment of dividends after the deduction of withholding taxes applicable to the country where the dividend is paid; as such, the returns of the new benchmark are more representative of the returns experienced by investors in foreign issuers. Historical benchmark performance has been restated accordingly. 

31-May-2020 - Ernest Yeung, Portfolio Manager,
Emerging equity markets rose in May buoyed by the monetary and fiscal support measures, the gradual easing of lockdown restrictions and a recovery in commodity prices. Emerging markets in Asia, however, bucked the trend due to escalating tension between U.S. and China. Within the portfolio, stock selection in Chinahurt relative performance. For example, shares of China Overseas Land & Investment fell as first-quarter results disappointed due to slower bookings; however, we think its healthy balance sheet should help it through periods of slowdown. Our stock preferences in consumer discretionary, particularly not owning JD.com, also worked against us as ecommerce companies benefitted from the coronavirus. In contrast, our stock selection in Taiwan and our underweight position in this lagging market lifted relative returns. In particular, not owning Taiwan Semiconductor helped amid renewed U.S.-China friction over Chinese telecom Huawei Technologies that will affect Taiwan-based suppliers. Our stock selection in consumer staples, such as Tsingtao Brewery, also helped the fund’s performance as the beer maker’s first-quarter results were better than the industry. Investors also looked favourably on the company’s proposed share incentive scheme along with its increased focus on profits and efficiency efforts.

Holdings

Total
Holdings
65
Largest Holding Samsung Electronics 6.34% Was (31-Dec-2019) 6.73%
Other View Full Holdings Quarterly data as of 31-Mar-2020
Top 10 Holdings 26.37% View Top 10 Holdings Monthly data as of 31-May-2020

Largest Top Contributor^

Vipshop Holdings
By 0.84%
% of fund 3.07%

Largest Top Detractor^

Samsung Electronics
By -4.53%
% of fund 6.35%

^Absolute

Quarterly Data as of 31-Mar-2020

Top Purchase

Postal Savings Bank of China (N)
2.48%
Was (31-Dec-2019) 0.00%

Top Sale

Postal Savings Bank of China (E)
0.00%
Was (31-Dec-2019) 1.97%

Quarterly Data as of 31-Mar-2020

31-Mar-2020 - Ernest Yeung, Portfolio Manager,

During this quarter, we took the market weakness due to the coronavirus as an opportunity to build positions in some cyclical stocks with strong balance sheets and share prices that have overcorrected and hence provided attractive downside support. We think they will survive through the downturn and emerge as attractive sources of outperformance once the coronavirus outbreak passes and market and business conditions return to normal.

We believe that as the oil price stabilizes, some heavily sold-off EM currencies should recoup their losses. The oil price may be poised to climb out of its trough. Hence, we turned less underweight to the energy sector during the quarter. In conjunction with our belief in the recovery of cyclicals and based on our bottom-up investment process, we added new consumer discretionary names and turned less underweight to the sector. Elsewhere, we reduced our overweight allocation in financials, our largest sector position. From a country perspective, China remains our largest position in absolute terms.

We Turned Less Underweight Consumer Discretionary and Energy

As we sought to increase cyclical bets in the portfolio, within the energy sector we initiated positions in Petrobras and Lukoil, which as previously discussed were contributors to relative outperformance during the quarter. With the oil price breaking cash costs at current levels, we think that it will soon hit its trough. Should the oil price recover, these companies will benefit not just from the oil price rebound but also from the foreign exchange impact. Lukoil has a net cash balance sheet and generates a 5%-6% free cash flow yield. We also initiated a position in Tenaris, an Argentina-based leading producer of seamless and welded pipes for the oil and gas industry. The company has a solid balance sheet and its focus on efficiency should lead to future gains in market share.

While we invested in these energy names, we eliminated Saudi Aramco, which we viewed as a U.S. dollar cash proxy. Proceeds of the sale were used to build more positions in cyclicals.

In the consumer discretionary space, we reduced our underweight allocation by establishing a position in Mr Price Group, a South African retailer known for its focus on value, which we believe underpins its long-term growth prospects. We are positive about the company's distinct business model, good capital allocation, and strong management execution. The company's strong cash position and improved free cash flow generation provides a lot of room to return cash to shareholders over time. To fund this acquisition, we closed our position in South Africa's Nedbank, a well-managed lender but one lacking in positive internal catalysts.

We started a position in Galaxy Entertainment, one of Macau's casino operators that has a stronger balance sheet compared to its rivals and which may benefit from pent-up demand once the coronavirus outbreak subsides.

We also invested in Tongcheng-Elong Holdings, a Chinese online travel agency which counts Tencent and Trip.com as its strategic shareholders. We think that the company will recover faster than the overall travel industry in China due to its domestic and lower-tier city focus as the country returns to normal following the coronavirus outbreak. In the medium term, it will likely continue to benefit from users in lower-tier cities learning to book tickets online during COVID-19. Moreover, the company's management has a good history of execution.

Financials Overweight Reduced; Exposure to CEE Banks Trimmed due to Regulatory Concerns

In financials, we exited Bank Polski, the largest universal bank in Poland, and South Africa's Nedbank and Absa Group, resulting in a reduced overweight allocation to the sector. Financials emerged as the largest sector position in absolute and relative terms. We have reduced exposure to some CEE financials, which have healthy balance sheets but have suffered due to concerns about the coronavirus outbreak and falling long-term yields. There are also concerns about regulatory risks with dividend payouts being put on hold.

We exited Absa, a financial services company, as despite the high yield, it remains a value trap. We eliminated the position as it has reached the three-year incubation period that we allow for fundamental changes to materialize but the stock has yet to re-rate.

In Asia, despite closing positions within the financial sector, we also initiated new ones such as India's Shriram Transport, a nonbank financial company that will likely benefit when India's economic cycle turns along with an improvement in the commercial vehicle cycle.

In the insurance sector, we started investments in Poland's Powszechny Zaklad, which has a strong balance sheet, and a smaller position in South Africa's Sanlam. We owned Sanlam in the past but sold it when it became expensive to own. We liked the insurer for is high-quality management team and strong position in the domestic market. It has become attractive after the recent selloff and remains a good franchise and a market share gainer with an attractive yield.

We Turned Overweight in China

In China, we closed our underweight position and turned overweight during the quarter. We established new positions in Baidu, the country's dominant search engine, China Mobile and the abovementioned Tongcheng-Elong. Baidu has underperformed the Chinese internet space due to poor execution by management. However, the company, which has net cash on its balance sheet, is cutting costs and restructuring. Moreover, Baidu is selling non-core assets and we think that any stock buyback it undertakes will be a positive surprise to the market. We also added China Mobile to the portfolio, the dominant mobile service provider in a three-player market in China, due to its stable dividend and historically low valuation. With the addition of Baidu and China Mobile to the portfolio, we reduced our underweight in communication services during the quarter.

We exited Fosun International, one of the largest privately-owned conglomerates in China and a stock that we had owned for more than three years. We think the management has lost direction as restructuring stopped after its initial attempt to unlock asset value through potential deals. Despite a strong balance sheet, it has become a value trap.

Brazil Allocation Increased; Overweight in Mexico Reduced

In Latin America, we became more overweight in Brazil with our new position in the abovementioned Petrobras. We also took the opportunity to add to our existing holdings in Banco BTG Pactual, Bradesco and BRF, laggards during the quarter as previously discussed.

In Mexico, we exited Promotora y Operadora de Infraestructura (PINFRA), which owns and operates concessions for infrastructure projects, and Alpek, a polyester chemical company. We eliminated PINFRA as it disappointed us on dividend and capital allocation despite its net cash position. Mexico's sensitivity to the U.S. economy may also negatively affect the company. We closed our position in Alpek due to the oil price weakness and the U.S. economic slowdown, which weighed on the stock. These trades decreased our overweight in Mexico.

We Pared Our Overweight in Russia But Raised Positions in Attractive Dividend-Yielding Names Outside of Energy

Elsewhere in EM, we reduced our overweight to Russia, as we trimmed our position in energy company Gazprom, locking in some of last year's hefty gains. However, we increased our exposure to stable domestic companies which are non-oil related names that have a strong dividend yield, such as Moscow Exchange and Mobile Telesystems (MTS). MTS is one of the top three telecommunication companies in Russia, where sector competition is stable and improving. We like that it is one of the few domestic companies that yields high dividends and is not driven by oil and commodity prices. Moscow Exchange is a trading platform that may benefit from a recovering economy and capital markets. It may also gain from a lower rate environment as investors chase dividend-yielding stocks. We also increased our position in Sberbank, Russia's dominant bank and one of the best-managed large companies in the country, taking advantage of its attractive level. The bank's returns on equity are very attractive relative to other EM banks and especially so compared to developed market peers. As earlier discussed, we initiated a position in Lukoil during the quarter.

Sectors

Total
Sectors
11
Largest Sector Financials 20.58% Was (30-Apr-2020) 22.26%
Other View complete Sector Diversification

Monthly Data as of 31-May-2020

Indicative Benchmark: MSCI Emerging Markets Index

Top Contributor^

Energy
Net Contribution 0.48%
Sector
0.65%
Selection -0.17%

Top Detractor^

Financials
Net Contribution -3.26%
Sector
-0.45%
Selection
-2.81%

^Relative

Quarterly Data as of 31-Mar-2020

Largest Overweight

Materials
By5.16%
Fund 12.29%
Indicative Benchmark 7.13%

Largest Underweight

Communication Services
By-4.82%
Fund 8.18%
Indicative Benchmark 13.00%

Monthly Data as of 31-May-2020

31-May-2020 - Ernest Yeung, Portfolio Manager,
In May, we increased our allocation to materials, our biggest sector overweight, as we continued to see opportunities among “forgotten” cyclical stocks with the recent flight to quality. Within materials, we added to our position in an Indian aluminium producer that had been excessively sold down but which will likely benefit from a rebound in aluminium prices. We increased our positions in an Indian cement maker and a Mexican gold and silver producer, both of which have healthy balance sheets.

Countries

Total
Countries
17
Largest Country China 38.03% Was (30-Apr-2020) 40.43%
Other View complete Country Diversification

Monthly Data as of 31-May-2020

Indicative Benchmark: MSCI Emerging Markets Index

Top Contributor^

Philippines
Net Contribution 0.60%
Country
-0.00%
Selection 0.60%

Top Detractor^

China
Net Contribution -3.38%
Country
-0.06%
Selection
-3.32%

^Relative

Quarterly Data as of 31-Mar-2020

Largest Overweight

Russia
By4.12%
Fund 7.71%
Indicative Benchmark 3.59%

Largest Underweight

Taiwan
By-6.73%
Fund 5.73%
Indicative Benchmark 12.46%

Monthly Data as of 31-May-2020

31-May-2020 - Ernest Yeung, Portfolio Manager,
We increased our allocation to Russia, our biggest country overweight in May, as we kept our bullish stance on energy. We added to our position in a leading Russian integrated oil and gas company and a highly cash generative name. We raised our position in a Brazilian integrated oil company that underperformed in the first quarter and whose recovery story will likely progress with continued deleveraging. As a result, we became more overweight in Brazil. We also boosted our holdings in an Argentinian producer of seamless and welded pipes for the oil and gas industry with a solid balance sheet.

Team (As of 02-Jul-2020)

Ernest C.  Yeung

Ernest Yeung is a portfolio manager for the Emerging Markets Discovery Equity Strategy at T. Rowe Price. He was the co-portfolio manager for the International Small-Cap Equity Strategies from 2009 to 2014. Mr. Yeung is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price Hong Kong Limited.

Mr. Yeung has 17 years of investment experience, 15 of which have been with T. Rowe Price. Prior to joining the firm in 2003, he was an analyst with HSBC Asset Management in London.

Mr. Yeung earned an M.A., with honours, in economics from Cambridge University. He also has earned the Chartered Financial Analyst designation and the Investment Management Certificate. 

  • Fund manager
    since
    2015
  • Years at
    T. Rowe Price
    17
  • Years investment
    experience
    19
Nick Beecroft

Nicholas Beecroft is a portfolio specialist in the Equity Division at T. Rowe Price, representing the firm's global equity strategies. He is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Mr. Beecroft has 18 years of investment experience, 14 of which have been with T. Rowe Price. He joined the firm in London in 2005 and spent many years working with our emerging markets equity team. Mr. Beecroft has been based in Hong Kong since 2011. Prior to joining T. Rowe Price, he was an investment analyst at Mercer Investment Consulting.

Mr. Beecroft earned a B.A, with honours, in contemporary European studies from the University of Southampton. He also has earned the Chartered Financial Analyst designation.

  • Years at
    T. Rowe Price
    15
  • Years investment
    experience
    19

Fee Schedule

Share Class Minimum Initial Investment and Holding Amount (USD) Minimum Subsequent Investment (USD) Minimum Redemption Amount (USD) Sales Charge (up to) Investment Management Fee (up to) Ongoing Charges
Class A $1,000 $100 $100 5.00% 190 basis points 2.07%
Class I $2,500,000 $100,000 $0 0.00% 100 basis points 1.10%
Class Q $1,000 $100 $100 0.00% 100 basis points 1.17%

Please note that the Ongoing Charges figure is inclusive of the Investment Management Fee and is charged per annum.

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GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®). TRP has been independently verified for the twenty one- year period ended June 30, 2017 by KPMG LLP. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

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