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SICAV

Emerging Markets Discovery Equity Fund

Formerly Emerging Markets Value Equity Fund

Utilises a contrarian approach to invest in undervalued emerging markets companies positioned to benefit from a re-rating thesis for change.

ISIN LU1244138340 Bloomberg TREMVEI:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

3.20%
$112.1m

1YR Return
(View Total Returns)

Manager Tenure

-9.61%
4yrs

Information Ratio
(3 Years)

Tracking Error
(3 Years)

-0.36
4.67%

Inception Date 14-Sep-2015

Performance figures calculated in USD

Other Literature

29-Feb-2020 - Ernest Yeung, Portfolio Manager,
Concerns over the coronavirus outbreak may continue to weigh down Emerging markets (EM) but we believe this pressure will only be short term. We are positive about a potential rally in cyclical stocks following their 2019 weakness, lean inventory levels worldwide, and continued supply discipline in EM. While oil price weakness raises the spectre of a global slowdown, the support by policymakers in terms of liquidity and stimuli augurs well for these cyclical names.
Ernest C.  Yeung
Ernest C. Yeung, Portfolio Manager

Ernest Yeung is a portfolio manager for the Emerging Markets Discovery Equity Strategy at T. Rowe Price. He was the co-portfolio manager for the International Small-Cap Equity Strategies from 2009 to 2014. Mr. Yeung is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price Hong Kong Limited.

Click for Manager Outlook
 

Strategy

Manager's Outlook

We remain constructive toward emerging market equities as EM countries are still at the early to middle stages of the recovery cycle. We think that the opportunity set continues to be undervalued. Concerns about slowing global growth and the China-U.S. trade conflict may have affected sentiment, but they have not derailed most EM countries and businesses from their recovery path. So far, the majority of the EM companies that we own have delivered healthy results even if their share prices may have been affected by the recent divergence between growth and value in favor of growth-oriented stocks.

We believe that the U.S. and China both recognize the harmful consequences of an all-out trade war and our base case is that both sides will seek to forge a compromise deal. While we hold the view that the trade dispute between China and the U.S. will eventually be resolved, we believe the rivalry over technology advancement will persist.

We continue to see EM as a fertile terrain for finding "forgotten" pockets of opportunities in stocks with asymmetrical risk-return profiles, wherein fundamental changes or operational improvement may drive a rerating while at the same there is downside support in terms of a strong balance sheet and healthy dividends.

The recovery in the capex-to-sales ratio, which has been at depressed levels in EM since 2015, should lead the next leg of growth, in our view. After years of reckless spending, EM companies have finally gained discipline and shifted their focus toward better capital allocation and cash flow generation, in our view.

Within Asia, we see China as a deep and diversified opportunity set where we are focused on domestic-oriented businesses and "old economy stocks". We view state-owned enterprises which have implemented reforms and put in place share incentives as interesting areas of opportunity. China's economic transformation story remains a key positive for us. We think the country will forge ahead with reforms while seeking to expand the economy at a more sustainable pace, balancing this against the impact of volatile trade relations with the U.S.

We recognize that the oil price is a key risk for our diversified portfolio. We are hoping for broadly stable oil prices in 2020 as extreme levels will have a knock-on impact on the whole asset class. We believe the portfolio is well positioned to take advantage of valuation anomalies in EM, where "forgotten" stocks that have promising potential can often be mispriced.

Investment Objective

To increase the value of its shares, over the long term, through growth in the value of its investments. The fund invests mainly in a widely diversified portfolio of stocks of emerging market companies.

Investment Approach

  • Aim to exploit the valuation anomalies that arise across the diverse and inefficient emerging market opportunity set.
  • Employ a contrarian approach using fundamental research, quantitative screen and industry contacts to identify companies that are out of favour, undervalued and that offer an attractive risk and reward profile.
  • Minimize the risk of value traps by focusing on companies offering yield or a book value anchor to the valuation, and where we have identified re-rating thesis that can lead to an expansion in valuation over time.
  • Risk management is an integral part of the portfolio construction process.

Portfolio Construction

  • Typically 50-80 stock portfolio
  • Expected 4-8% tracking error
  • Individual position typically 0.5% to 5%, position sized by prospective risks
  • Country ranges +/-10% absolute deviation from the benchmark
  • Sector ranges +/-15% absolute deviation from the benchmark
  • Reserves are normally less than 5%, max 10%

Performance (Class I)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Since Manager Inception
Annualised
Fund % -9.61% 3.20% N/A 7.04% 7.04%
Indicative Benchmark % -1.88% 4.89% N/A 7.46% 7.46%
Excess Return % -7.73% -1.69% N/A -0.42% -0.42%

Inception Date 14-Sep-2015

Manager Inception Date 14-Sep-2015

Indicative Benchmark: MSCI Emerging Markets Index Net

Data as of  29-Feb-2020

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 17.23% 12.50% N/A 11.55%
Indicative Benchmark % 18.42% 11.57% N/A 10.33%
Excess Return % -1.19% 0.93% N/A 1.22%

Inception Date 14-Sep-2015

Indicative Benchmark: MSCI Emerging Markets Index Net

Data as of  31-Dec-2019

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 27-Mar-2020 Quarter to DateData as of 27-Mar-2020 Year to DateData as of 27-Mar-2020 1 MonthData as of 29-Feb-2020 3 MonthsData as of 29-Feb-2020
Fund % -18.76% -31.21% -31.21% -8.64% -9.73%
Indicative Benchmark % -16.05% -24.19% -24.19% -5.27% -2.95%
Excess Return % -2.71% -7.02% -7.02% -3.37% -6.78%

Inception Date 14-Sep-2015

Indicative Benchmark: MSCI Emerging Markets Index Net

Indicative Benchmark: MSCI Emerging Markets Index Net

Performance figures calculated in USD

Past performance is not a reliable indicator of future performance.  Source for fund 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. 

Where the base currency of the fund differs from the share class currency, exchange rate movements may affect returns.

Returns shown with reinvestment of dividends after the deduction of withholding taxes. 

Effective 1 July 2018, the "net" version of the indicative benchmark replaced the "gross" version of the indicative benchmark. The "net" version of the indicative benchmark assumes the reinvestment of dividends after the deduction of withholding taxes applicable to the country where the dividend is paid; as such, the returns of the new benchmark are more representative of the returns experienced by investors in foreign issuers. Historical benchmark performance has been restated accordingly. 

29-Feb-2020 - Ernest Yeung, Portfolio Manager,
Emerging equity markets fell in February but outperformed their developed market counterparts as policy makers acted to cushion the impact of the coronavirus outbreak. Within the fund, our stock selection in China, the only major market to generate positive returns, drove the underperformance. Not owning Tencent and Alibaba Group hurt relative returns amid expectations their businesses will benefit from people staying and working from home more until the outbreak is contained. Among the stocks we owned, polyester chemical company Alpek curbed performance the most amid falling oil prices which negatively affect their business. However, we believe Alpek will benefit from the industry’s consolidation and its U.S. plants will gain should anti-dumping measures and the trade dispute lead to a ban on imports. Not owning Taiwan Semiconductor also hindered performance as its share prices gained on guidance that it will outperform foundry industry growth this year. In general, the divergence between EM growth stocks and value in favour of the former hurt the portfolio. In contrast, stock selection in India, notably Shriram Transport, helped due to its strong fiscal third-quarter results. We believe that Shriram will benefit when India’s economic cycle turns along with the improvement in the commercial vehicle cycle.

Holdings

Total
Holdings
61
Largest Holding Samsung Electronics 6.73% Was (30-Sep-2019) 6.45%
Other View Full Holdings Quarterly data as of 31-Dec-2019
Top 10 Holdings 26.16% View Top 10 Holdings Monthly data as of 29-Feb-2020

Largest Top Contributor^

Samsung Electronics
By 4.25%
% of fund 6.73%

Largest Top Detractor^

PKO Bank Polski
By -0.06%
% of fund 1.78%

^Absolute

Quarterly Data as of 31-Dec-2019

Top Purchase

Mobile TeleSystems PJSC (N)
1.67%
Was (30-Sep-2019) 0.00%

Top Sale

Nedbank
0.94%
Was (30-Sep-2019) 2.06%

Quarterly Data as of 31-Dec-2019

31-Dec-2019 - Ernest Yeung, Portfolio Manager,

During this quarter, the key changes to portfolio positioning included a reduced allocation to South Africa and China and increased exposure to Mexico and Russia. From a sector perspective, we reduced our relative underweight to communication services and consumer discretionary.

In South Africa, concerns about currency risk and the elimination of certain stocks that had reached the end of their two to three-year investment horizon without rerating prompted us to reduce our allocation. We found new opportunities in Russia and Mexico which provide us with a good downside anchor given their strong dividend distribution.

We continue to look for companies that the market may have "forgotten" or misunderstood but which have a wide margin of safety in terms of valuations or improving outlook. The "forgotten" stock opportunities we select have asymmetric risk/return profiles. Given the market's diminished expectations, they are unlikely to retreat much further on disappointing news, but with fundamental changes or catalysts, their upside potential could be substantial, in our view.

We also prefer stocks that will likely emerge as beneficiaries of supply consolidation and those that generate high free cash flow. We have a preference for stable companies which may have been overlooked by mainstream investors, but which have the potential for improvement. Once we have identified these triggers for fundamental change or operational improvement, we have a two- to three-year horizon to allow them to materialize and for the stock to rerate. We continue to find names that have limited impact from the U.S.-China trade strife, such as companies that are in the early stages of their self-help and turnaround stories.

We are firm about the three-year incubation period that we give companies to rerate as this steadfastness to our "sell discipline" will help us avoid value traps. We believe that waiting for mean reversion may be a flawed process in EM as it may not always transpire given the reduced efficiency of the markets compared with their developed counterparts.

We Reduced Our South Africa Overweight Relative to Benchmark

During the October to December quarter we reduced our allocation to South Africa, which was our largest overweight relative to the benchmark in the previous quarter. The tough reforms needed to galvanize Africa's most developed economy will likely take time. Its fiscal deficit is widening, and this deterioration is weakening the local currency. While growth is a concern, we are more perturbed about the currency risk. We continue to maintain our relative overweight to South Africa, but we are cognizant of the risks.

We trimmed our position in Absa Group, formerly Barclays Africa, which we have owned for more than three years but which has yet to exhibit a catalyst that could trigger a rerating of the stock.

We cut back our stake in Nedbank, a key player in the South African corporate banking space, and pared our holdings in Barloworld, a diversified industrial services group. The reduced positions in South African financials lessened our relative overweight to the overall financials sector during the quarter. Financials remained our biggest sector position.

We eliminated our position in Tsogo Sun Gaming as revenues of the South African casino operator are unlikely to turnaround given the challenging macro and political environment.

Despite these changes, the fairly depressed market sentiment and slower progress on reforms, our long-term case for investing in South Africa holds. Its domestic economy boasts of a young demographic, rich resources, and it has some of well-managed companies that have been through many cycles in the EM space. We added to our positions in Telkom, which was discussed earlier, and to Naspers, a global internet and entertainment company.

We Trimmed Our China Allocation

China was our largest country position in absolute terms, though we decreased our exposure over the period. We turned underweight China relative to the benchmark during the quarter. We remain mostly invested in H-shares, where we see underappreciated investment opportunities in many "old economy" companies where newly-introduced incentives have aligned the interests of management and shareholders. We kept our positive view on old economy names as their fundamentals remain strong. While the antigovernment protests in Hong Kong weighed on H shares in the third quarter, the negative sentiment eased the following quarter. We are not seeing any underlying deterioration in these stocks.

During the quarter we eliminated Uni-President China, realizing gains as the food and beverage company's margin improvement came through based on our investment thesis. However, we were disappointed with the lack of revenue growth. We also exited China Resources Power (CRP), a coal-fired power plant operator, following its poor capital allocation. CRP decided to forgo its dividend commitment and opted to use its capital to invest in wind power, which may weaken earnings.

Allocation to Russia and Mexico Increased

In a world of low growth, Russia's high dividend yield, falling interest rates and stable currency are sources of attraction to us. We consider Russia to be a classic "forgotten market." During the quarter, we initiated a position in Moscow Exchange, a trading platform that will benefit from a recovering economy and capital markets. We think it has good downside support given the strong yield. It may gain from a lower rate environment as investors chase dividend-yielding stocks. We also invested in a "forgotten" telecom provider Mobile TeleSystems, which has a strong dividend yield anchor of 10%. We think that regulation in Russia has been favorable to telecommunication incumbents.

From a bottom-up basis, we think Mexico offers attractive asymmetric risk/reward opportunities. Names we are invested in such as Grupo Mexico, a conglomerate with exposure to copper, provide us with a downside anchor. We switched out of Compa�ia de Minas Buenaventura, a Peruvian mining company, in order to invest in Grupo Mexico. We exited the Peruvian miner following a change in management, a decision to cut production in order to upgrade its mines, and weak results. It has outperformed the benchmark in the two years that we held the stock and was viewed as a gold proxy.

We also started a position in Fresnillo, one of the world's biggest silver and gold producers. The UK-listed stock has a proven track record of mine development, reserve replacement, and production costs were historically in the lowest quartile for both gold and silver. We like the fact that it has organic growth and a solid balance sheet.

We Reduced Our Underweight to Communication Services and Consumer Discretionary Names

Within the communication services sector, our biggest sector relative underweight, we started a position in TIM Participacoes, a Brazilian telecom service provider which we see benefiting form an improving competitive environment and a consolidating market. Moreover, Brazil's pro-market government managed to get the long overdue telecommunications reform approved. We had a slight relative overweight to Brazil at the end of the quarter.

The position in TIM along with the previously mentioned Mobile TeleSystems decreased our relative underweight to the communications services sector despite our decision to exit Mail.Ru Group, Russia's largest social network, during the quarter. The stock has not rerated in the three-year period that we owned it. Our strategy's "sell" discipline calls for us to close our position in companies that do not re-rate in a time horizon of two to three years despite a fundamental change or catalyst.

In the consumer discretionary space, we trimmed our relative underweight as we started a position in Paradise, a South Korean operator of casinos exclusive to foreigners. We are seeing signs of improving China visitor arrivals in South Korea and increased spending by Japanese gamers, which will likely benefit the company's revenues. This position lessened our relative underweight to South Korea over the quarter, where we continue to own Samsung Electronics and SK Hynix, beneficiaries of�a global semiconductor recovery.

We started investing in Hong Kong-listed Wynn Macau, one of the six casino operators in Macau. We like its high dividend and free cash flow yield.

Still within the consumer discretionary sector, we increased our holdings in Dongfeng Motor, one of China's largest automakers and the joint venture partner of Nissan, Honda and Peugeot in China. We see Dongfeng Motor fitting into our quest for state-owned enterprises undergoing reforms as its management had put in place a share incentive program last year to align the interests of management more closely with those of shareholders. The company is also closing down idle capacity plants. Moreover, we see Dongfeng benefiting from the big disparity between domestic and foreign brands in China. It has a healthy balance sheet and positive free cash flow. Lastly, the auto industry, which has been in a slump, may see a cyclical upturn in the next 12 to 18 months.

Sectors

Total
Sectors
11
Largest Sector Financials 30.78% Was (31-Jan-2020) 29.96%
Other View complete Sector Diversification

Monthly Data as of 29-Feb-2020

Indicative Benchmark: MSCI Emerging Markets Index

Top Contributor^

Financials
Net Contribution 0.51%
Sector
-0.15%
Selection 0.65%

Top Detractor^

Communication Services
Net Contribution -0.86%
Sector
0.16%
Selection
-1.03%

^Relative

Quarterly Data as of 31-Dec-2019

Largest Overweight

Financials
By7.30%
Fund 30.78%
Indicative Benchmark 23.48%

Largest Underweight

Communication Services
By-5.33%
Fund 6.59%
Indicative Benchmark 11.92%

Monthly Data as of 29-Feb-2020

29-Feb-2020 - Ernest Yeung, Portfolio Manager,
We increased our allocation to financials, our biggest sector position, as we initiated a position in a nonbank financial company in our search for cyclical recovery stories in India. In China, we started positions in the underappreciated A-shares of this underowned lender with an underutilised balance sheet, while exiting our Hong Kong-listed holdings of the bank. Elsewhere, we reduced our underweight in consumer discretionary by investing in a Chinese online travel agency, which counts a dominant social media platform and a bigger online travel company as its strategic shareholders. Its management has a good history of execution.

Countries

Total
Countries
19
Largest Country China 35.73% Was (31-Jan-2020) 32.78%
Other View complete Country Diversification

Monthly Data as of 29-Feb-2020

Indicative Benchmark: MSCI Emerging Markets Index

Top Contributor^

India
Net Contribution 0.96%
Country
0.34%
Selection 0.61%

Top Detractor^

South Africa
Net Contribution -1.15%
Country
0.01%
Selection
-1.15%

^Relative

Quarterly Data as of 31-Dec-2019

Largest Overweight

Russia
By3.84%
Fund 7.47%
Indicative Benchmark 3.63%

Largest Underweight

Taiwan
By-6.99%
Fund 5.12%
Indicative Benchmark 12.11%

Monthly Data as of 29-Feb-2020

29-Feb-2020 - Ernest Yeung, Portfolio Manager,
We turned less underweight to China, our biggest absolute country position, with the abovementioned new positions in financials and consumer discretionary names. We favoured domestic cyclicals and trimmed our underweight in India with the previously discussed position in a nonbank financial company. We became more underweight Saudi Arabia as we eliminated Saudi Aramco, which we viewed as a U.S. dollar cash proxy, and used the proceeds to build more positions in select cyclicals, taking opportunity of their low valuation and potential upside as fundamental changes may drive these names to rerate.

Team (As of 27-Mar-2020)

Ernest C.  Yeung

Ernest Yeung is a portfolio manager for the Emerging Markets Discovery Equity Strategy at T. Rowe Price. He was the co-portfolio manager for the International Small-Cap Equity Strategies from 2009 to 2014. Mr. Yeung is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price Hong Kong Limited.

Mr. Yeung has 17 years of investment experience, 15 of which have been with T. Rowe Price. Prior to joining the firm in 2003, he was an analyst with HSBC Asset Management in London.

Mr. Yeung earned an M.A., with honours, in economics from Cambridge University. He also has earned the Chartered Financial Analyst designation and the Investment Management Certificate. 

  • Fund manager
    since
    2015
  • Years at
    T. Rowe Price
    16
  • Years investment
    experience
    18
Nick Beecroft

Nicholas Beecroft is a portfolio specialist in the Equity Division at T. Rowe Price, representing the firm's global equity strategies. He is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Mr. Beecroft has 18 years of investment experience, 14 of which have been with T. Rowe Price. He joined the firm in London in 2005 and spent many years working with our emerging markets equity team. Mr. Beecroft has been based in Hong Kong since 2011. Prior to joining T. Rowe Price, he was an investment analyst at Mercer Investment Consulting.

Mr. Beecroft earned a B.A, with honours, in contemporary European studies from the University of Southampton. He also has earned the Chartered Financial Analyst designation.

  • Years at
    T. Rowe Price
    15
  • Years investment
    experience
    19

Fee Schedule

Share Class Minimum Initial Investment and Holding Amount (USD) Minimum Subsequent Investment (USD) Minimum Redemption Amount (USD) Sales Charge (up to) Investment Management Fee (up to) Ongoing Charges
Class A $15,000 $100 $100 5.00% 190 basis points 2.07%
Class I $2,500,000 $100,000 $0 0.00% 100 basis points 1.10%
Class Q $15,000 $100 $100 0.00% 100 basis points 1.17%

Please note that the Ongoing Charges figure is inclusive of the Investment Management Fee and is charged per annum.

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GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®). TRP has been independently verified for the twenty one- year period ended June 30, 2017 by KPMG LLP. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

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