Global Structured Research Equity Fund

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Overview

Manager's Outlook

The current pushes and pulls in the market are incredibly complex. From a fundamental perspective, near- to intermediate-term economic and corporate data are likely�going to be exceedingly strong. We are still operating in a very low interest rate world, in any absolute sense, rates remain near historic lows, with a massive amount of central bank liquidity and fiscal stimulus at a time when real GDP growth is picking up and corporate earnings are likely to accelerate this year and next. While equity valuations are still more reasonable when compared with bond yields, they are clearly above average for a normal environment, which causes some concern.

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The ongoing health pandemic offers its own pushes and pulls. There has been a marked improvement in vaccine distribution within the U.S., with 2% to 3% of the country's population being vaccinated each week. However, the vaccine rollouts in parts of Europe and Asia have been rockier and the virus is likely to remain in the world for some time, particularly in some emerging market countries where we may be more than a year out before many people can obtain the vaccine, which amplifies risks of virus variants.�

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The Biden administration's emerging priorities offer positives and negatives for equity investors as well. Widespread fiscal stimulus has supported asset prices, but the increasing likelihood of rising corporate tax rates could put a damper on after-tax corporate earnings. Geopolitically, relations between the U.S. and China remain complex. The arrival of a new U.S. administration increased expectations for less adversarial relations, but it has become clear that underlying tensions between the two superpowers are real, structural, and unlikely to go away.

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We have also seen exuberance and extreme positive sentiment in markets. There has been an explosion in special-purpose acquisition companies and initial public offerings as well as retail investors with growing risk-seeking behavior driving price movements. While we think we have entered a new equity bubble with areas of the market looking frothy and irrational, it could be years before we experience a meaningful reversion, which means there could still be room for equities to move higher.

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Recognizing the challenging pushes and pulls in the market, we are trying to be more balanced with the portfolio, keeping the overall portfolio beta near 1.0, not overly offensive or defensive, while focusing on picking stocks broadly across sectors and regions. We think volatility is likely to increase, in part due to higher dispersion within factors, styles, and sectors, and think such an environment is well suited for active investment. While financial and market conditions have changed meaningfully, and will continue to do so, our investment philosophy, rooted in stock selection and a thoughtful approach to portfolio construction, has not. It is this consistent process that allows us to successfully navigate more challenging cycles.

Global

30-Sep-2020 - Scott Berg, Portfolio Manager,

Given the high degree of difficulty we are seeing in navigating today's market, we are focused on maintaining a broadly balanced portfolio and remain largely sector neutral in our positioning. We also want to be cognizant of heightened risk and a diversified portfolio helps us mitigate these risks and avoid high correlation and unintended bets. We still own a blend of structural winners, durable compounders, and higher yielding names that held up well during the March sell-off but lagged on the way back up.

Sector-wise, we are overweight consumer discretionary and financials, though not dramatically so. During the quarter, our allocations to industrials and business services and utilities increased, while our exposure to information technology and materials decreased as we trimmed or eliminated strong winners. From a regional perspective, the continued strong performance of developed equity markets relative to their emerging markets counterparts has led to our EM weighting trending modestly lower. However, in a low growth world, we continue to think investing in the fast growing emerging market countries, such as India, Indonesia, Philippines, Vietnam, and Peru, will be more important than ever.

Industrials and Business Services

The industrial economy is slowly starting to recover. Areas such as the airline industry remained challenged, but we are finding opportunities elsewhere within the sector, and are taking a long-term approach with our investments in the space. We remain focused on high-quality companies that can benefit from multiyear growth trends and increases in global trade and capital spending. We are attracted to less cyclical, durable earnings growers in industries with attractive growth dynamics and are largely avoiding companies with commodity capital expenditures exposure.

We began a position in global parcel and freight delivery service FedEx. We think FedEx offers a compelling cyclical opportunity due to a number of positive growth drivers that should coalesce over the near term. In particular, the coronavirus has increased demand and tightened capacity, leading to higher pricing for the industry. We also think there are company-specific tailwinds that should help drive accelerating earnings and margin improvement, including better cost synergies and prolonged capacity constraint and pricing strength in air freight, where FedEx has a dominant position.
We started a position in Chart Industries, which provides equipment and supplies for the industrial gas, energy, and biomedical industries. We think the firm's most compelling segments are in supplying industrial gases like hydrogen as well as cryogenics, and believe there are a number of growth drivers, both cyclical and structural, that could help fuel accelerating earnings over the long term. With a diversified business structure in an industry with high barriers to entry and little competition, we think Chart Industries is well positioned for growth over the long term.

Financials

With leading central banks having cut rates and ramped up quantitative easing measures to help counteract the negative economic impact from the coronavirus, we think we are in a lower rate environment for longer than we had anticipated. While we remain underweight developed market banks due to the challenging rate environment, we have found idiosyncratic ideas in the U.S., Europe, and Canada to add to the portfolio. Our bets within the sector are largely concentrated in capital markets names and emerging market banks. We also have exposure to high-quality insurance companies.

We moved on from our position in E*TRADE Financial. The stock has performed well in recent months, and the company is set to be acquired by Morgan Stanley. With upside limited, we chose to exit our position.
We eliminated our position in DNB, Norway's largest retail and commercial bank. The stock spiked on strong earnings results, so we chose to move on to higher conviction names.

Consumer Discretionary

In our view, there are more coronavirus beneficiaries in the consumer discretionary sector than anywhere else, but this has led to a dramatic demarcation between winners and losers. The coronavirus has pulled forward years of e-commerce share gains in the span of a few months and we have an expanded set of names levered to that trend.

We initiated a position in THG Holdings, participating in the firm's initial public offering (IPO). THG owns The Hut Group, which operates as a multi-website online retailer that provides health, beauty, fashion, lifestyle, and marketplace services. We think THG is an extremely compelling company that is only just beginning to develop a differentiated enterprise e-commerce platform to help brands and retailers build a global online direct-to-consumer footprint.
We initiated a position in Boohoo, a UK-based online fashion retailer that exclusively sells its own brands. We think Boohoo has an attractive business that offers a sizeable opportunity for further market share gains in Europe and the U.S. over the long term given the accelerated shift to online, an effective marketing and customer acquisition strategy, strong product and supply chain management, and a top-notch management team.

Materials

The coronavirus-induced economic downturn has, not surprisingly, had a negative impact on the materials sector. Historically, the time to increase exposure to materials is during a recession and we added several high-quality names that were out of favor between the first and second quarters. However, a number of those names performed extremely well, so we exited our positions in the third quarter as valuations became more reasonable. Our focus is mainly on high-quality companies that offer particularly attractive valuations and are more highly correlated to staples-like industries and secular growth trends, but we also have exposure to metals and mining companies as well.

We eliminated our position in Kirkland Lake Gold. The stock has done well and provided solid exposure to real commodities, but we chose to move on after strong performance to reallocate to names with greater upside potential.
We added a position in Lundin Mining, a Canadian base metals miner mainly focused on copper. As the best conductor of electricity, we think the demand for copper will remain strong for the foreseeable future given the growing electrification of the world driven by technology (electric vehicles, charging stations, power generation, etc.). We think it is beneficial to have exposure to metals with strong demand and an improving cost curve.

Team

Jonathan Matthews,
Co-Portfolio Manager

Jonathan Matthews is the director of research in the International Equity Division in Europe. Jonathan also is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price International Ltd.

Years at T. Rowe Price

Years investment experience

Ann M. Holcomb,
Portfolio Manager

Ann Holcomb is a director of research, North America, in the U.S. Equity Division. Ann is a member of the Equity Steering Committee, and she is co-portfolio manager of the U.S. Quantitative US strategy.

Years at
T. Rowe Price

Years investment experience

M. Kamran Baig,
Director of Equity Research

Kamran Baigis the director of Equity Research, EMEA and Latin America

Years at
T. Rowe Price

Years investment experience

Jason Nogueira,
Portfolio Manager

Jay Nogueira is a portfolio manager for the Global Consumer Strategy in the Equity Division.

Years at
T. Rowe Price

Years investment experience

Benchmark Data Source: MSCI. MSCI index returns are shown with reinvestment of dividends after the deduction of withholding taxes. MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Past performance is not a reliable indicator of future performance.

Source for 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.

Daily performance data is based on the latest available NAV.

The Funds are sub-funds of the T. Rowe Price Funds SICAV, a Luxembourg investment company with variable capital which is registered with Commission de Surveillance du Secteur Financier and which qualifies as an undertaking for collective investment in transferable securities (“UCITS”). Full details of the objectives, investment policies and risks are located in the prospectus which is available with the key investor information documents and/or key information document (KID) in English and in an official language of the jurisdictions in which the Funds are registered for public sale, together with the articles of incorporation and the annual and semi-annual reports (together “Fund Documents”). Any decision to invest should be made on the basis of the Fund Documents which are available free of charge from the local representative, local information/paying agent or from authorised distributors. They can also be found along with a summary of investor rights in English at www.troweprice.com. The Management Company reserves the right to terminate marketing arrangements.

Please note that the Fund typically has a risk of high volatility.

The specific securities identified and described in this website do not represent all of the securities purchased, sold, or recommended for the sub-fund and no assumptions should be made that the securities identified and discussed were or will be profitable.

A full list of the currently issued Share Classes including Distributing, Hedged, and Accumulating Categories may be obtained, free of charge and upon request, from the registered office of the Company.

Industrials and Business Services

Financials

Consumer Discretionary

Materials

Risks

Typical Investor

Commentary for