Australian Equity Fund | T. Rowe Price

AUT

Australian Equity Fund

Seeking high-quality Australian companies undervalued by the market.

Class S PDS

Class I PDS

APIR ETL0328AU

PERFORMANCE REPORT

PDS

FUND PROFILE

QUARTERLY REVIEW

The performance report as of the previous month end is not available. Please check back soon.

The Product Disclosure Statement for this fund is not currently available. Please check back soon.

The Quarterly Review report is not available. Please check back soon.

Risk & Reward?

Low Med High

Data as of: 28-Feb-2021

1YR Return
(Annualised)

-5.00%

Data as of: 31-Jan-2021

NAV
(AUD)

$1.42

Data as of: 28-Feb-2021

3YR Return
(Annualised)

5.64%

Data as of: 31-Jan-2021

Overview

Strategy

Fund Summary

Seeks long-term capital appreciation in a diverse portfolio of Australian equities.

OUR VIEWS ON AUSTRALIAN EQUITIES

SMALL-CAP

MID-CAP

LARGE-CAP

36
Holdings

Style
Quality Growth

Risk & Reward Data

Information Ratio

-0.03

Sharpe Ratio

0.70

Historical Tracking Error

3.12%

Performance - Net of Fees

Current Year Performance

MTD

2.03%

Benchmark

1.45%

Excess Return

0.58%

QTD

2.77%

Benchmark

1.77%

Excess Return

1.00%

YTD

2.77%

Benchmark

1.77%

Excess Return

1.00%

Data as of 26-Feb-2021

1 Month

0.73%

Benchmark

0.31%

Excess Return

0.42%

3 Months

10.64%

Benchmark

11.89%

Excess Return

-1.25%

Data as of 31-Jan-2021

Annualised Performance

1 YR

-5.00%

Benchmark

-3.11%

Excess Return

-1.89%

3 YR

5.64%

Benchmark

7.00%

Excess Return

-1.36%

5 YR

9.94%

Benchmark

10.03%

Excess Return

-0.09%

Inception

9.49%

Benchmark

9.30%

Excess Return

0.19%

Manager Inception

9.49%

Benchmark

9.30%

Excess Return

0.19%

Data as of 31-Jan-2021

Benchmark : S&P/ASX 200 Index

Fund Inception: 26-Apr-2012

Manager Inception: 26-Apr-2012

Important Information

Holdings

Total
Holdings

Largest

Bhp

9.47%

Was ( 30-Sep-2020 )

8.76%

Top 10

49.88%

Contributor
Bhp

By 3.03%

% of fund

9.48%

Detractor
CSL

By -1.92%

% of fund

5.94%

Purchase
OZ Minerals (N)

2.61%

Was ( 30-Sep-2020 )

0.00%

Sale
CSL

5.94%

Was ( 30-Sep-2020 )

10.19%

Data as of 31-Dec-2020

Important Information

31-Dec-2020 - Randal Jenneke, Head of Australian Equities,

The portfolio is well positioned in cyclical growth, recovery growth, and high-quality stocks that we believe will benefit as economic conditions continue to improve. We have tilted our holdings toward more domestic exposed companies, to reflect the stronger performance of the Australian economy. To fund these portfolio changes, we have taken profits on defensive growth names and reduced our exposure to offshore earners.

As a result of these shifts, as of the end of December 2020, by far our largest relative sector overweight position was in consumer discretionary.� The portfolio had more modest overweight exposures to communication services and materials.� Our key underweights were in financials, real estate, and energy.

Materials

The portfolio retains a small overweight position in materials.� Over the course of the quarter, we made a number of changes to our holdings, identifying a new opportunity and switching some of our existing positions.� �

We initiated a position in Oz Minerals, a copper and gold producer with assets in Australia and Brazil. The outlook for commodities has improved and remains supportive for earnings upgrades and the share price. The company is increasing production at lower costs, while capital expenditure is stabilizing, both of which are driving higher returns. We also believe that low-risk jurisdictions are providing potential growth opportunities.

�

We also made a number of adjustments within the portfolio's mining holdings.� For example, we continued to reduce our position in Rio Tinto, switching our mining exposure to BHP.� We believe BHP provides exposure to some of the highest quality mining assets in the industry and is our preferred diversified large-cap mining holding. In our view, iron ore prices have likely peaked and so will Rio Tinto's near-term earnings. By contrast, we believe that BHP's earnings profile will be buffered from a cyclical improvement in non-iron ore exposure such as coal, copper, and oil.

Consumer Discretionary

Consumer discretionary is by far the most significant overweight sector position in the portfolio and over the course of the fourth quarter we further raised our exposure, in part to reflect the more positive outlook for the Australian domestic economy. We initiated a position in Eagers Automotive and raised the size of our positions in online retailer Kogan and Star Entertainment.

Car dealer group Eagers Automotive, in our view, has a range of factors that should drive strong earnings growth over the next few years. These include material synergy benefits from its merger with Automotive Holdings Group. We expect the industry to improve materially from the dual effects of supply disruptions and greater demand, which should produce margin expansion. We also expect Eagers Automotive to fare better than smaller competitors that do not enjoy the same scale, which should allow the company to gain market share through the downturn and emerge stronger when new vehicle sales eventually pick up again.
In the case of Star Entertainment, this large casino operator should, in our view, benefit as the economy continues to reopen.�There is also the possibility of further consolidation within the industry, which could lead to significant synergies and create shareholder value.

Utilities

The portfolio moved from the small overweight at the start of the fourth quarter to a modest underweight. This reflects our strategy of reducing the extent of our exposure to defensive growth stocks.

We eliminated our position in APA, an energy infrastructure business developing, owning and operating a portfolio that includes gas transmission pipelines and distribution networks. A prolonged impact of COVID-19 may depress oil and East Coast gas prices for longer, which will delay new energy project investment decisions and adversely impact the growth capital expenditure profile of APA.�

Energy

As the fourth quarter began, we had a modest underweight position in industrials and business services. Over the course of the period, we eliminated our holding in an energy stock where our investment thesis had played out. As a result, the portfolio moved further underweight over the review period.

Earlier this year, Woodside Petroleum's share price suffered amid sharp declines in global oil prices and disruptions to its operations in Western Australia caused by tropical cyclone Damien. We believed that the market would rebalance production and adjust back towards the incentive curve; price weakness provided us with an opportunity to buy the stock anticipating a recovery in the coming months and when these themes played out, we sold out of our position.

Switch From Defensive to Domestic Growth

Beyond the individual sectors above, we made a number of other adjustments to the portfolio, which reflect our strategy of gradually shifting away from defensive names toward companies that stand to benefit from an improvement in the Australian economy.�

For example, we reduced our exposure to the traditionally defensive health care sector, selling plasma specialist CSL and respiratory product specialist Fisher and Paykel. The proceeds of these sales were redeployed into raising the size of existing positions in Domain Holdings and SEEK.� Domain is a real estate technology and services company, with a focus on the Australian property market. SEEK, meanwhile, is a job search website and stands to be an early beneficiary of an improvement in the Australian economy.

Sectors

Total
Sectors

Largest

Consumer Discretionary

23.49%

Was ( 31-Dec-2020 )

20.59%

Contributor
Communication Services

By 0.71%

Sector

0.01%

Selection

0.70%

Detractor
Financials

By -1.48%

Sector

-0.82%

Selection

-0.66%

Data as of 31-Dec-2020

Over
Consumer Discretionary

By 15.71%

Fund

23.49%

Benchmark

7.78%

Under
Financials

By -8.49%

Fund

19.80%

Benchmark

28.29%

Data as of 31-Jan-2021

Benchmark : S&P/ASX 200 Index

Team

Randal Jenneke,
Head of Australian Equities

Randal Jenneke is a portfolio manager and head of Australian equities in the International Equity Division.

Head of Australian Equities since

2012

Years at
T. Rowe Price

Years investment experience

Samuel P. Ruiz,
Portfolio Specialist

Samuel P. Ruiz is a Portfolio Specialist in the Equity Division at T. Rowe Price, representing the firm's global and Australian equity portfolio managers to clients, consultants and prospects.

Years at T. Rowe Price

Years investment experience

How to Invest

APIR	Minimum Initial Investment (AUD)	Minimum Subsequent Investment (AUD)	Buy / Sell Spread	Management Fees¹
ETL0328AU	$500,000	$100,000	Buy +0.10%/Sell -0.10%	0.60% pa

Risk/Return (5 Years)	Fund	Benchmark
Alpha	0.17%	0.00%
Beta	0.98	1.00
R-Squared	0.98	1.00
Annualized Std. Deviation	14.85%	14.61%
Information Ratio	-0.03	0.00
Sharpe Ratio	0.70	0.71
Tracking Error	3.12%	0.00%

2012	2013	2014	2015	2016	2017	2018	2019	2020
11.83%	25.28%	-1.10%	5.67%	12.38%	14.29%	-6.28%	25.78%	-0.82%	Fund
9.92%	20.20%	5.61%	2.56%	11.80%	11.80%	-2.84%	23.40%	1.40%	Benchmark
+1.91%	+5.08%	-6.71%	+3.11%	+0.58%	+2.49%	-3.44%	+2.38%	-2.22%	Value added

Contributors ( 31-Dec-2020 )

Quarter end:

Contributors	% of Fund	% Value Add	Industry	Country
Bhp	9.48	N/A	Metals & Mining	Australia
National Australia Bank	6.44	N/A	Banks	Australia
Macquarie Group	5.36	N/A	Capital Markets	Australia
James Hardie Industries	4.31	0.2%	Construction Materials	Australia
Wesfarmers	4.19	N/A	Multiline Retail	Australia

31-Dec-2020 - Randal Jenneke, Head of Australian Equities,

Australian bank shares performed strongly in the fourth quarter on a combination of global and domestic factors. On the former, the Pfizer vaccine announcement supported a rotation to value and expectations of a steeper yield curve, which would be beneficial for the banks. On the latter, the Australian banking regulator proposed relaxing responsible lending rules in order to increase the flow of credit to households and businesses. As a result, the portfolio's underweight positions in Commonwealth Bank of Australia, Australia and New Zealand Bank, and Westpac all detracted from relative performance. Despite this, we remain underweight banks as we believe they face a number of sector-wide as well as bank-specific headwinds.
In the case of Westpac, for example, our lack of exposure reflected our concerns about management uncertainty, cost inflation and what we believe to be an inferior customer proposition. However, we also acknowledge many of these concerns have been priced in and given its underperformance versus peers it may present an opportunity in the sector.
The position in QBE Insurance also hindered returns. The property and casualty insurer's quarterly results, released in December, disappointed the market with weaker-than-expected earnings guidance for fiscal 2020 despite a rise in premium income, and a write-down of intangible assets.� We retain our view that QBE provides the portfolio with good exposure to both inflation in insurance premiums and an upturn in the insurance cycle.
Kogan's underperformance was due to a combination of market style rotation (from growth stocks toward value names) as well as growth deceleration. The online retailer's latest results showed that while topline growth is still very strong, it is moderating on a year-on-year basis. �Nevertheless, we remain positive on the company and see years of structural growth to come, driven by higher e-commerce penetration, as Kogan will likely be a significant beneficiary of the ongoing secular shift to online retail.
In the case of IDP Education, the stock underperformed in part due to concerns over increasing coronavirus-related restrictions and lockdowns in the UK, which may disrupt international students studying in this market for the upcoming university semester. This is likely to largely be a short-term issue that we believe will dissipate over the course of 2021 as vaccines are rolled out. We expect international student flows to return to previous levels over the next few years and to benefit from longer-term structural growth in the future.
Altium provides design software for printed circuit boards and recently reiterated its guidance for FY21. However, investors were concerned by management's warning that the macroeconomic environment remains "challenging" and by signs that adoption of the company's cloud-based collaboration tool appears to have decelerated.
Megaport helps enterprises located in data centres that do not have the cloud to connect to other data centres with the cloud. Its shares fell after the company posted a slightly disappointing profit result. Megaport has been a very strong performer over the past year, and market expectations had correspondingly increased over time. We believe the business remains well positioned to continue its strong growth.�
Online website operator SEEK performed well on evidence that the jobs market continues to recovery, with job ads at the end of October 2020 up to 90% of their pre-pandemic levels.�
oOh!Media is also a COVID-19 recovery beneficiary. The latest update from the out-of-home advertising and media company showed that revenues are continuing to recover from their second-quarter lows, driven by improving advertising spending and consumer confidence.
In the case of Oz Minerals, investors were also encouraged by the release of a pre-feasibility study of the miner's nickel-copper project in Western Australia that showed a larger ore reserve than previously declared as well as a higher throughput rate.
Our lack of exposure to Newcrest Mining was also beneficial as its shares fell sharply on the back of a more negative outlook for the gold price, which tends to decline as investor risk appetite increases.

Detractors ( 31-Dec-2020 )

Detractors	% of Fund	% Value Add	Industry	Country
CSL	5.94	N/A	Biotechnology	Australia
Transurban	4.02	N/A	Transportation Infrastructure	Australia
Aristocrat Leisure	3.29	N/A	Hotels Restaurants & Leisure	Australia
QBE Insurance	2.91	-0.3%	Insurance	Australia
Kogan.com	2.74	N/A	Internet & Direct Marketing Retail	Australia

Sector Diversification ( 31-Jan-2021 )

Data as of:

Sector	% of Fund	Benchmark
Consumer Discretionary	23.49	7.78
Materials	20.56	20.03
Financials	19.80	28.29
Health Care	8.78	10.44
Communication Services	7.24	4.08
Industrials & Business Services	6.80	7.04
Consumer Staples	5.11	6.04
Information Technology	4.25	4.46
Real Estate	2.93	6.67
Energy	0.00	3.78
Utilities	0.00	1.39

Benchmark Data Source: Standard & Poor's. Benchmark returns are shown with gross dividends reinvested.

Source for performance: T Rowe Price. Net of fees performance is based on end of month redemption prices after the deduction of fees and expenses and the reinvestment of all distributions. Daily performance (MTD, QTD, and YTD) data is based on the latest available NAV minus one business day.

¹The Management Fee for the T. Rowe Price Australian Equity Fund is 0.60% p.a. and the Indirect Cost is 0.00% p.a. Indirect costs are calculated and incorporate estimated amounts with reference to the relevant costs incurred during the previous financial year ended 30 June. Please refer to the Product Disclosure Statement for the Fund which is available on this page for further details.

The specific securities identified and described in this website do not represent all of the securities purchased or sold for this fund. This information is not intended to be a recommendation to take any particular investment action and is subject to change. No assumption should be made that the securities identified were or will be profitable.

Unless otherwise specified, all fund ratings, awards and data are as of 31-Jan-2021 and sourced from T. Rowe Price.

The Morningstar rating is sourced from Morningstar.

©2021 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Equity Trustees Limited (“Equity Trustees”) (ABN 46 004 031 298 AFSL 240975) is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Stock Exchange (ASX:EQT). Equity Trustees and T. Rowe Price Australia Limited ("TRPAU") (ABN: 13 620 668 895 and AFSL: 503741) are, respectively, the responsible entity and investment manager of the T. Rowe Price Australian Unit Trusts.

For Wholesale Clients only.

Past performance is not a reliable indicator of future performance. The price of any fund may go up or down. Investment involves risk including a possible loss to the principal amount invested. For general information purposes only, does not take into account the investment objectives, financial situation or needs of any particular investor. For further details, please refer to each fund's product disclosure statement and reference guide which are available from Equity Trustees (www.eqt.com.au/insto) or TRPAU (www.troweprice.com.au).

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

Materials

Consumer Discretionary

Utilities

Energy

Switch From Defensive to Domestic Growth

Risks

Typical Investor

How to Invest