T. Rowe Price Dynamic Global Bond Fund

Hi. I'm Scott Solomon, portfolio manager for the T. Rowe Price Dynamic Global Bond Strategy. I'm joined with my co portfolio manager Adam Marden, outside of our global headquarters here in Baltimore, Maryland. When I found out we were going to make a video for clients around the world, I was adamant that we shoot this video outside.

Baltimore remains an active port, and seeing these ships on a daily basis is a constant reminder of just how important trade, commerce and asset movement is around the world. And now we add tariffs into that dynamic.

Since the world shut down by Covid five years ago, we've seen a major disruption in how financial markets work around the world. And this is why we remain laser focused on our three primary goals. Repeatable performance, downside risk management and diversification.

Adam, you have an interesting take on what repeatable performance means to you. Would you mind sharing it?

Thanks Scott. I think when you think about repeatable performance, it also intertwines with one of our other goals, which is downside risk management.

I think in this industry, everyone spends a lot of time focusing on what their view is and trying to be right. And their view very well could be right. But people can be right and lose money in this industry all the time. We believe the Venn diagram overlap between being right and making money is much smaller than people in this industry really give it credit for.

And that's where our global research platform truly comes into play and provides us a competitive advantage across the street because we can distill through our platform what's truly being priced in the markets as a way to manage our portfolio, to protect against downside with things that could be fully priced in, or optionality in various types of scenarios that can truly provide this upside, and being able to connect those two of avoiding this downside and finding true option value over time within the portfolio is how we get to this repeatable performance over time.

Now, downside risk management. I think this is one of the most unique aspects of our strategy, and that's the ability to protect against rising yields and inflation. One of my favorite observations of recent inflation is on a very micro level. Most people don't know, but you and I actually stop at a diner very often before work to get breakfast together. A lot of times we see that the owner of the diner has gone in and overwritten prices in pen. Nothing to me screams inflation more than that. 

It's interesting you talk about inflation within the framework of terms of downside risk management. Because if you think from 2008 to 2020, downside risk management was effectively growth downside because inflation wasn't a worry post 2020 in this new regime that we see as we talk about with the port disruptions, you have not only inflation upside, growth downside, you could have real growth downside, but nominal growth stays high. You could have more geopolitical turbulence that throws all of this into question. This creates a scenario where managing your portfolio downside is not just one way in terms of risk and growth downside.

You have to be very thoughtful about various types of vectors and how it can affect performance and specifically how are these vectors being priced in the markets, because that's where we truly get to the way that you can harness downside protection over time by again making sure that you're not exposed to something that provides option value to the downside.

And now our third goal, diversification. We spent a lot of time talking about the role fixed income should play in a portfolio. And really from 1980 to about 2020, investors really got used to fixed income being a negative correlation to risky assets. Risky assets would fall, fixed income markets generally did well. Since 2020, that tenant has been flipped on its head.

So, as you talked about this correlation between risk and fixed income, again, it's been negative because over this time period inflation's tended to fall below 3%. Historically, if inflation's above 3% that negative correlation goes away and it's a positive correlation. So you're not hedging your portfolio by owning risk as well as fixed income.

It's just risk in the same direction. This changing correlation is very very important to take into portfolio management. So with Scott and I, when we look into what's priced in the risk markets, as well as rates markets, we also have to figure out how correlations are changing and this dynamic portfolio management strategy is something we focus on very clearly. And with inflation where it is right now, we believe it's even more important to focus on that for a dynamic strategy like ours. And in the current environment, as Scott mentioned with our diner’s experience, we think that inflation will continue to be higher than what the market expects going forward. 

We appreciate your time and we hope to see you on our travels sometime soon.