November 2023 / VIDEO
An Introduction to the Global Technology Equity Strategy
Portfolio Manager Dominic Rizzo outlines his approach to investing in technology companies and companies enabled by technology
What are the key elements of your investment approach?
Hi, everybody. My name is Dominic Rizzo. I'm the portfolio manager on the Global Technology Equity Strategy here at T. Rowe Price.
For the Global Technology Equity Strategy, there are four things that we are looking for in order to generate consistent alpha over time. The first thing is we are looking for companies that are linchpin technology companies. That means that they are mission critical to the success of their customers or make their users lives dramatically better. The second thing is that those companies should be innovating in secular growth markets, that means that they should be growing faster than fast-growing end markets and taking share. The third thing is to make sure that those companies have improving fundamentals. So that means revenue that's accelerating or growing faster than it did the year before, operating margins that are expanding or free cash flow conversion that's improving. And then finally, we want to make sure that those companies have reasonable valuations.
If we do all four of those things, I think we can achieve my goal for the strategy going forward, which is to generate alpha in all different regions of the world: US, Europe and Asia. All different market caps; small cap, mid-cap and large cap. And all different subsectors of tech; hardware, software, internet and payments.
What are the key differentiators and drivers of the Strategy?
T. Rowe Price has a unique global platform. We have expert analysts all over the world, whether it's Hong Kong, Singapore or Japan, in Asia or London in Europe or here in the US, where we have team members in Baltimore, DC, California, New York. Those analysts are scouring all the different information they can find in order to come to us with insights. And those insights should be able to be differentiated. Not only do we have a great horizontal platform of analysts all over the world, but we also have a great vertical platform. Many of the portfolio managers at T. Rowe Price were analysts themselves at one point in their career on our platform. That means that we have a lot of history with these companies. Take a name like ASML, there are four different generations of ASML analysts still at the firm today. And with that, we're able to dig into the deep history and rich knowledge that we have with the company, connect the dots with our team in Asia who covers their customers like TSMC or Samsung, and our team in the US who covers their customers like NVIDIA or AMD or Apple, and we're able to build a picture that should be differentiated from all of our competition.
Can you describe the Strategy’s risk management framework?
When I look at our portfolio, I always try to make sure that we are benchmark aware, not benchmark centric. Let's look at all the mega-cap companies all around the world. Those companies got to their privileged place in size, profitability, market share and growth because in many ways they are the ultimate linchpin technology companies. That's why what we try to do in the Global Technology Equity Strategy is make sure we have a relative balance in the Strategy. We want to make sure that we have enough of the mega-cap companies. We want to make sure that we have enough of the small cap, fast growing companies. We want to make sure we have enough of the profitable companies, and we want to make sure that we have enough of the unprofitable companies. This balance, whether it's across subsectors, say, semiconductors and software or market cap, mega-cap and small cap or profitability, hyper profitable or unprofitable, should result in us being relatively defensive in down markets and relatively offensive in up markets. And that's what we're trying to do with the Strategy going forward.
Thank you so much for your time today and your interest in T. Rowe Price. I believe between our unique global platform and our differentiated framework, where we're looking for linchpin technology companies, innovating in secular growth markets with improving fundamentals and reasonable valuations, that we should be able to navigate the technology sector regardless of any economic environment that we may see.
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