Global Value Equity Fund

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Overview

Manager's Outlook

Investors have had to radically reappraise their outlook for the paths of interest rates and inflation, and the accompanying impact on markets and economies. As we noted earlier in this report, over the last nine months or so by increasing the allocation to more defensive parts of the value universe we have implemented a more balanced profile in the portfolio, and we believe that this is currently appropriate given the current material uncertainties. Valuation spreads in the marketplace remain reasonable and relative valuations of value versus growth are relatively attractive versus history, but both suggest a more subdued value opportunity set than the abundant situation of one-to-two years' ago. There may also be scope for market worries on rates and inflation to subside somewhat.

A changed landscape is possible over the next decade ? materially higher levels of capital expenditure may be required to address the capacity requirements in many industries as a result of both the desired decarbonization of industries and economies as well respond to threats posed to supply chains, specifically in energy but also more broadly as "deglobalization" may well continue. Further, governments may be more willing in engage in higher levels of fiscal spending to meet future economic shocks and fulfil a social agenda, and electorates have seen how effective such spending can (appear to) be within the pandemic. This combination of both higher capex and fiscal spending is likely to be beneficial, in our view, not only to many value-oriented companies but is also likely to put ongoing upwards pressure on inflation and interest rates.

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In the U.S., we continue find opportunities in well-run, quality companies but are mindful of valuations. The health care sector provides ample strong ideas for the long-term. European economies have been more deeply impacted by Russia's invasion of Ukraine and we find more dislocation in these markets. Fiscal stimulus measures continue to be rolled out and monetary policy remains accommodative. Plans are progressing for the Next Generation European Union (EU) Fund, which aims to support EU member countries in their recovery from the impacts of the pandemic. We continue to find opportunities in companies with more cyclical characteristics, which we believe stand to emerge on the other side of the pandemic in positions of strength, as well as defensive names that offer some level of protection in a market downturn.

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We have become incrementally more cautious on the near-term outlook for Japan but remain optimistic. There has been significant fiscal stimulus response to aid the economic recovery. Crucially for investors in the market, corporate governance in Japan has been improving in recent years, with companies becoming more shareholder friendly. We continue to identify stocks with compelling valuations befitting of our value perspective.

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Elsewhere in Asia, we continue to uncover ample compelling opportunities in China's broad market, despite market setbacks in recent months. Concerns over regulatory developments, on-off domestic movement restrictions, and continued strict restrictions on international travel, have all weighed on stock prices in recent months. However, our well-resourced research team finds plenty of opportunities in good companies with compelling valuations.

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We concentrate on the bottom-up view and our strategy continues to invest across the value spectrum in the best ideas from our global research platform. We aim to balance our exposure to economically sensitive and "deep value" names; also holding companies with strong free cash flow generation not yet fully appreciated by the market and with the scope to increase shareholder returns; as well as looking for pockets of controversy where fundamentally sound, well-run businesses face unwarranted investor skepticism. Given our robust research platform and collective experience, we are confident in our ability to find these unique opportunities before their potential for substantial prosperity becomes obvious to other investors.

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Strategy

Fund Summary

We employ a relative value approach that looks holistically across the value spectrum to identify companies with durable free cash flows that are not fully appreciated by the market. We aim to maintain a core portfolio of quality companies but will also pursue attractive risk/reward opportunities in out-of-favour cyclical companies and deep-value turnaround situations. The promotion of environmental and/or social characteristics is achieved through the fund's commitment to maintain at least 10% of the value of its portfolio invested in Sustainable Investments, as defined by the SFDR. Additionally, we apply a proprietary responsible screen (exclusion list). The manager is not constrained by the fund’s benchmark, which is used for performance comparison purposes only.

OUR VIEWS ON GLOBAL EQUITIES

30-Jun-2022 - Sebastien Mallet, Portfolio Manager, Global Value Equity Fund,

Over the course of 2021 we began to shift the portfolio to a more neutral/balanced stance by increasing our allocation to our defensive holdings. In early 2022, we continued to reduce the cyclical exposure and by the end of the second quarter, the portfolio was broadly balanced between defensive and cyclical names.� �On a sector basis, we added to health care and IT, as well as marginally increasing our energy exposure.� We trimmed our financials holding while also reducing our communication services holdings.� We also made a number of changes within our industrials and business services holdings.

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At the end of June, our largest overweight sector positions were in health care, utilities, and financials while the largest underweight sector positions included IT and consumer discretionary. On a geographic basis, we remain cautious about valuations in the U.S. Although the country represents the largest position in the portfolio on an absolute basis, we retain a significant relative underweight. Despite this, we made a number of adjustments in this large market, eliminating holdings where our investment case no longer held or where valuations had become less compelling as well as adding new positions where we identified compelling reasons for investing.

On a country basis, our largest relative overweight positions by the end of June were in China, the Netherlands, and Japan. Valuations in China are attractive, in our view, but we are mindful of geopolitical and regulatory risk. We raised our exposure over the review period and are hopeful that the regulatory crackdown is largely behind us and many stocks in this market are trading below their cash/book value. In Japan, we are seeing continued signs of improving corporate governance, however macroeconomic and currency concerns weigh on sentiment. We reduced our exposure to the country over the review period. Within emerging markets, we see interesting investment opportunities in India but this is an expensive market.

Financials

We retain our overweight position in financials but decreased the extent of this position over the quarter. Over the past year we have become incrementally more cautious on some of our U.S. positions and have shifted our exposure within this space. In the second quarter we reduced our exposure to U.S. banks as we believe opportunities are more attractive elsewhere in the sector, namely insurers. Our broad-based move out of U.S. banks has now largely played out. We are worried about the credit cycle and believe it is too early to buy back into the sector.

We eliminated the holding in U.S.-based Huntington Bancshares, a diversified large regional bank as we felt the valuation was beginning to price in higher interest rates. The U.S. bank has one of the more cautious interest rate risk strategies amongst peers.
We sold out of our position in Equitable Holdings, a large financial services company whose main business is life insurance. Although U.S. insurers as a group still have good pricing power and will likely benefit from higher interest rates, the sector was looking expensive in our view. In addition, we had concerned that Equitable is very sensitive to equity market movements.
We used part of the proceeds of these sales to purchase a position in Ping An Insurance Group, the largest insurer in China by market capitalization. The company trades at a very low valuation in both absolute terms and on a historical basis following a sharp decline in value of new business (VNB) in 2019.� Our investment thesis is that VNB will gradually accelerate within the next three-to-five years, which should drive a re-rating of the stock.

Health Care

The portfolio has an overweight position in the health care sector, reflecting our preference for defensive sectors currently, and we raised our exposure further. Over the quarter, we identified a new opportunity in the U.S. and in France. Last year, in 2021, as the country's economy reopened and investors focused on cyclical growth stocks, health care stocks were left behind; we believe valuations have now reached very attractive levels and the sector looks cheap. Uncertainty over health care reforms in the U.S by the Biden administration have also weighed on the sector, despite the fact that this space is home to many companies with good growth prospects. Our bias remains to high-quality names.

We bought a position in Johnson & Johnson, a diversified health care company engaged in the development, manufacturing and sale of pharmaceuticals, medical devices, and consumer health care products. Its share price has de-rated due to the ongoing mix shift towards pharmaceuticals. However, the majority of its key franchises have begun to show significant recoveries from the impact of COVID-19 and we expect this trend to continue.
Sanofi is France-based diversified multinational health care company, which is engaged in the development, manufacturing and sale of pharmaceuticals, vaccines, and over-the-counter (OTC) health care products. Sentiment towards the name has been held back recently by disappointing trial results from its drug to fight breast cancer, leading investors to question Sanofi's R&D capabilities. We initiated a position in Sanofi as we believe the company has a number of promising drugs in the pipeline, including treatments for hemophilia and multiple sclerosis.
We largely funded these purchases through our elimination of Roche Holding; we believe the company is fully valued at present and it has a number of drugs going off-patent within the next few years.

IT

IT remains the portfolio's largest relative underweight sector position. However, at a global level the sector sold off very sharply over the quarter, leading us to identify what we believe to be compelling investment opportunities within this space. As a result, our relative weighting to the sector increased.

We initiated a position in FPT, a Vietnam-based IT services company. The Vietnamese stock market fell sharply in April and May and we felt some valuations had reached attractive levels. We believe the company's long-term growth potential is materially better than what current valuation multiples imply. Country-specific factors support the company, in our view, driving a cost advantage versus global competition and favorable pricing for its customers. Vietnam also hosts an IT-relevant labor pool that is undergoing rapid development which is, in turn, key to the company's growth runway.
Broadcom is a U.S.-based semiconductor company that makes products for the�wireless and broadband communication industry. We bought a position in the company because the stock offers an attractive free cash flow yield and, in our view, the company's earnings durability and growth are underappreciated by the market.

Japan

On a country basis we reduced our exposure over the quarter although retain a modest overweight. This is partly due to bottom-up stock-specific factors but we are also concerned by the impact of a yen and the slow pace of change at a corporate level.

We eliminated the holding in Keisei Electric Railway. We had bought the stock on expectations of meaningful capital allocation changes among Japan's railway companies, but this investment thesis has not played out and we cut our position to invest in more compelling opportunities elsewhere.
We sold out of our position in Panasonic. Our investment case was for it to increase its electric battery (EV) capacity and for this business to become a significant profit contributor. However, this turnaround has not taken place and we believe the pace and magnitude of the EV battery business expansion is unlikely to be as good as we previously believed. We exited our position.

Team

Sebastien Mallet,
Portfolio Manager, Global Value Equity Fund

Sebastien Mallet is a portfolio manager in the Equity Division managing the Global Value Equity Strategy.

Portfolio Manager, Global Value Equity Fund since

2012

Years at
T. Rowe Price

Years investment experience

Laurence Taylor,
Portfolio Specialist

Laurence Taylor is a portfolio specialist in the Equity Division at T. Rowe Price, representing the firm's global equity portfolio managers to institutional clients, consultants and prospects.

Years at
T. Rowe Price

Years investment experience

Andrew Clifton,
Portfolio Specialist

Andrew Clifton is a portfolio specialist in the Equity Division at T. Rowe Price.

Years at
T. Rowe Price

Years investment experience

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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.

Hedged share classes (denoted by 'h') utilise investment techniques to mitigate currency risk between the underlying investment currency(ies) of the fund and the currency of the hedged share class. The costs of doing so will be borne by the share class and there is no guarantee that such hedging will be effective.

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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.

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Financials

Health Care

IT

Japan

Risks

Typical Investor

Commentary for