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SICAV

European High Yield Bond Fund

Research-driven, targeting consistent high income.

ISIN LU0596125814 Bloomberg TREHYBI:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(EUR)

-1.85%
€204.8m

1YR Return
(View Total Returns)

Manager Tenure

-6.77%
8yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

-0.33
2.12%

Inception Date 20-Sep-2011

Performance figures calculated in EUR

Other Literature

30-Apr-2020 - Mike Della Vedova, Portfolio Manager,
European high yield bonds could face ongoing volatility in the coming weeks as the full scale of the impact from the coronavirus becomes clearer. However, we do not expect the same heightened liquidity concerns that we saw in March. Greater discrepancy between strong and weak credits could also create potential opportunities for research-based investors. European high yield valuations remain attractive, with spreads at levels that historically have delivered strong returns over one- and three-year time periods.
Michael Della Vedova
Michael Della Vedova, Portfolio Manager

Mike Della Vedova is a global high yield portfolio manager in the Fixed Income Division. He is a portfolio manager for the Europe High Yield Bond Strategy and co-portfolio manager for the Global High Yield Bond Fund and Global High Income Bond Strategy. He is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price International Ltd.

Click for Manager Outlook
 

Strategy

Manager's Outlook

The coronavirus outbreak will continue to drive markets in the near term, with volatility likely to remain high. The impact on both the supply and demand sides of the economy will likely result in weakening corporate fundamentals, particularly in services and other exposed sectors. The economic outlook hinges on how the coronavirus outbreak evolves. If the outbreak eases in the first half of the year, we could see growth rebound later in 2020. However, we are aware of the risk of a more sustained spread.

The concerted global central bank actions as well as increased fiscal stimulus could help limit the damage from a recession. The ECB's bond purchases could exceed EUR 80 billion per month, a substantial portion of which could go to corporate bonds. This could help mitigate further spread widening in European credit markets.

While uncertainty will remain high for the coming months, volatility can create opportunities over the medium to longer term. Valuations are attractive on a historical basis. European high yield spreads reached levels at the end of March that historically have produced strong positive returns over one-year and longer time horizons.

This selloff in European high yield was unprecedented in that it occurred over such a short time period, and we are aware the current environment remains highly uncertain. However, we believe a bottom-up approach can identify specific companies and sectors with strong fundamentals that could show relative stability through the current volatility. Once it is clear the situation is improving and societal restrictions are lifted, these names could represent attractive long-term opportunities when credit markets rebound. Overall, we believe it is essential for investors to remain selective through disciplined credit research while maintaining a long-term outlook.

Investment Objective

To maximise the value of its shares through both growth in the value of, and income from, its investments. The fund invests mainly in a diversified portfolio of high yield corporate bonds that are denominated in European currencies.

Investment Approach

  • The fund focuses primarily on European currency-denominated corporate debt issued by below investment-grade companies.
  • Invests mainly in BB and B rated bonds, with the ability to purchase lower-quality securities when compelling valuation and risk/reward opportunities arise.
  • The fund integrates fundamental proprietary research at the corporate bond, sovereign, and equity levels. This integral collaboration provides a holistic view of a company’s capital structure and management team, as well as its position in the larger market environment unique to each country.
  • Research focuses on quantitative and qualitative factors that drive an independent credit rating. Analysts look to identify long-term potential for balance sheet and external rating improvements while adhering to strict risk management practices.
  • Target excess-return will be primarily driven by individual security selection and, secondarily, by relative sector and credit quality allocations.

Portfolio Construction

  • At least 80% of assets will be invested in securities denominated in European currencies—mainly the euro and the pound.
  • Currency exposure is fully hedged back to the euro.
  • Up to 20% of assets may be invested outside of European currencies, including U.S. dollar high yield and investment-grade corporate bonds.
  • Target tracking error: 200–400 basis points

Performance (Class I)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Since Manager Inception
Annualised
Fund % -6.77% -1.85% 1.31% 6.20% 6.20%
Indicative Benchmark % -5.86% 0.11% 2.01% 6.15% 6.15%
Excess Return % -0.91% -1.96% -0.70% 0.05% 0.05%

Inception Date 20-Sep-2011

Manager Inception Date 20-Sep-2011

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Data as of  30-Apr-2020

Performance figures calculated in EUR

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % -10.71% -3.45% 0.20% 5.47%
Indicative Benchmark % -9.87% -1.44% 0.97% 5.50%
Excess Return % -0.84% -2.01% -0.77% -0.03%

Inception Date 20-Sep-2011

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Data as of  31-Mar-2020

Performance figures calculated in EUR

Recent Performance

  Month to DateData as of 01-Jun-2020 Quarter to DateData as of 01-Jun-2020 Year to DateData as of 01-Jun-2020 1 MonthData as of 30-Apr-2020 3 MonthsData as of 30-Apr-2020
Fund % 0.00% 11.05% -7.02% 6.60% -10.64%
Indicative Benchmark % 0.35% 9.50% -6.40% 5.91% -9.59%
Excess Return % -0.35% 1.55% -0.62% 0.69% -1.05%

Inception Date 20-Sep-2011

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Performance figures calculated in EUR

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.

30-Apr-2020 - Mike Della Vedova, Portfolio Manager,
The European high yield market saw positive returns in April as risk markets rebounded sharply from the sell-off in March. Spreads ended April tighter as unprecedented global monetary and fiscal stimulus measures helped stabilise market conditions despite sharp drops in economic data. Within the portfolio, our holdings in the capital goods sector made the largest contribution, led by a U.S.-based small-cap industrial conglomerate, which maintains healthy liquidity that we believe can help it weather the current challenging backdrop. Our security selection in the basic industry and banking sectors also helped performance. The retail sector faces specific challenges in the current environment. However, our focus on names with stable business models and relatively healthy fundamentals helped our holdings outperform amid the improved backdrop. Conversely, our holdings in the transportation sector weighed on relative returns, including our exposure to names within the rental car industry which is suffering due to the coronavirus restrictions.

Holdings

Issuers

Top
Issuers
10
Top 10 Issuers 29.92% Was (31-Mar-2020) 32.13%
Other View Top 10 Issuers

Monthly data as of 30-Apr-2020

Holdings

Total
Holdings
84
Largest Holding Cabot Financial Luxembourg 3.42% Was (31-Dec-2019) 3.04%
Top 10 Holdings 24.92%
Other View Full Holdings Quarterly data as of 31-Mar-2020

Quality Rating View quality analysis

  Largest Overweight Largest Underweight
Quality Rating B Rated BB Rated
By % 17.68% -47.04%
Fund 43.30% 21.86%
Indicative Benchmark 25.62% 68.90%

Average Credit Quality

B

Monthly Data as of 30-Apr-2020
Indicative Benchmark:  ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Sources for Credit Quality Diversification: Moody's Investors Service and Standard & Poor's (S&P) split ratings (i.e. BB/B and B/CCC) are assigned when the Moody's and S&P ratings differ. Short-Term holdings are not rated.

Maturity View maturity analysis

  Largest Overweight Largest Underweight
Maturity 7-10 Years 1-3 Years
By % 5.47% -9.83%
Fund 16.58% 7.20%
Indicative Benchmark 11.11% 17.02%

Weighted Average Maturity

5.75 Years

Monthly Data as of 30-Apr-2020
Indicative Benchmark:  ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Duration View duration analysis

  Largest Overweight Largest Underweight
Duration Cash Holdings 5-7 Years
By % 4.87% -10.91%
Fund 4.87% 8.75%
Indicative Benchmark 0.00% 19.66%

Weighted Average Duration

3.92 Years

Monthly Data as of 30-Apr-2020
Indicative Benchmark:  ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

31-Mar-2020 - Mike Della Vedova, Portfolio Manager,

The primary market remained active early in the period with record levels of issuance across January and February. However, as uncertainty escalated in February, the primary market came to a standstill over the final five weeks of the quarter.�We remained committed to identifying businesses with strong fundamentals that can weather a recessionary environment.�

Long-term credit convictions drive industry allocation

We maintain an overweight position in the cable and satellite TV sector, which benefits from secular trends in media consumption and stable revenue streams. This should help many names in the sector continue to withstand the near-term volatility and potentially be among the first to rebound when markets improve.� Conversely, we continue to hold a corresponding underweight to wirelines. We recognize that the current backdrop contains unique performance drivers and some sectors may behave differently to our long-term expectations. However, we do not chase short-term performance and believe that maintaining our convictions will deliver superior relative returns when markets normalize.

Elsewhere, we are underweight to the automotive sector as it too faces heightened pressure amid the coronavirus disruption as well as longer-term industry disruption. We also maintain an underweight to many industries most at risk from government efforts to limit the spread of the coronavirus, such as retail and transportation.

B rated names continue to offer attractive relative value

While the coronavirus may lead to ongoing risk aversion in the near term, we believe some names, particularly in the B rated space, may become dislocated from their fundamentals, creating longer-term performance potential. Therefore, we maintain an overweight in B rated securities as we believe it is important to stay focused on identifying opportunities for alpha generation over the longer term.

Sovereign views and policies are key in current environment

While our investment process is primarily driven by bottom-up credit selection, proprietary sovereign views serve as a key input in our overall risk assessment. Our research-based flexible approach will be particularly important going forward. As different fiscal, monetary and health responses play out between countries, our ability to capture dislocations can help avoid further volatility while being best positioned for a potential recovery. �

We expect to see an increase in European corporate defaults as the economic environment becomes more challenging. An additional layer of complexity is divergent bankruptcy policies and recovery rates across countries, highlighting the importance of an active approach to high yield investing. We believe our research in this area helps us account for the different levels of risk related to variance in default and recovery policies and where spread levels offer the best compensation for these risks. Our holistic view of capital structures and willingness to invest in holding companies is reflected in an allocation to companies domiciled in Luxembourg. Any non-euro-denominated bonds are fully hedged back to the euro.

Industry

Total
Industries
25
Largest Industry Cable Operators 17.52% Was (31-Mar-2020) 19.30%
Other View complete Industry Diversification

Monthly Data as of 30-Apr-2020

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Largest Overweight

Cable Operators
By13.55%
Fund 17.52%
Indicative Benchmark 3.97%

Largest Underweight

Other Telecommunications
By-8.00%
Fund 1.50%
Indicative Benchmark 9.50%

Monthly Data as of 30-Apr-2020

30-Apr-2020 - Mike Della Vedova, Portfolio Manager,
We maintain an overweight position in the cable and satellite TV sector, which benefits from secular trends in media consumption and enjoys stable, recurring revenues even during a more difficult macroeconomic backdrop. We remain underweight the automotive sector. Although the sector recovered from first-quarter weakness and outperformed in April, it faces heightened pressure linked to the coronavirus in the short-term as well as longer-term industry disruption.

Countries

Total
Countries
19
Largest Country United States 23.05% Was (31-Mar-2020) 24.50%
Other View complete Country Diversification

Monthly Data as of 30-Apr-2020

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Largest Overweight

United Kingdom
By9.12%
Fund 22.28%
Indicative Benchmark 13.17%

Largest Underweight

Italy
By-9.21%
Fund 3.37%
Indicative Benchmark 12.58%

Monthly Data as of 30-Apr-2020

30-Sep-2017 - Mike Della Vedova, Portfolio Manager,
We do not expect to add value via currency management and typically hedge our non-euro exposure back to euros to limit volatility, keeping the focus on credit selection.

Currency

Total
Currencies
5
Largest Currency euro 99.44% Was (31-Mar-2020) 99.37%
Other View complete Currency Diversification

Monthly Data as of 30-Apr-2020

Indicative Benchmark : ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Largest Overweight

euro
By 10.43%
Fund 99.44%
Indicative Benchmark 89.00%

Largest Underweight

British pound sterling
By -10.62%
Fund 0.37%
Indicative Benchmark 11.00%

Monthly Data as of 30-Apr-2020

The fund is fully hedged back to euro, although direct exposure may total less than 100%. It is important to note that there can be no assurances that the currency hedging employed will fully eliminate the shareholder's exposure to exchange rate fluctuations.

31-Jul-2017 - Mike Della Vedova, Portfolio Manager,
We do not expect to add value via currency management and typically hedge our non-euro exposure back to euros to limit volatility, keeping the focus on credit selection.

Team (As of 21-May-2020)

Michael Della Vedova

Mike Della Vedova is a global high yield portfolio manager in the Fixed Income Division. He is a portfolio manager for the Europe High Yield Bond Strategy and co-portfolio manager for the Global High Yield Bond Fund and Global High Income Bond Strategy. He is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price International Ltd.

Mike’s investment experience began in 1994, and he has been with T. Rowe Price since 2009, beginning in the Fixed Income department. Prior to this, Mike was cofounder and partner of Four Quarter Capital, a credit hedge fund focusing on below investment-grade European corporate debt. Mike also was employed by Muzinich & Company as a senior analyst and assistant portfolio manager in London.

Mike earned an LL.B. and a B.Com. in finance from the University of New South Wales and a Graduate Diploma in Legal Practice (GDLP) from the University of Technology, Sydney. He also was admitted as a solicitor to the Supreme Court of New South Wales.

  • Fund manager
    since
    2011
  • Years at
    T. Rowe Price
    10
  • Years investment
    experience
    26
Michael Lesesne

Michael Lesesne is a global high yield portfolio specialist in the Fixed Income Division at T. Rowe Price. He supports the High Yield, Bank Loan, and Credit Opportunities Strategies, working closely with clients, prospects, and consultants. Mr. Lesesne is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price Associates, Inc.

Mr. Lesesne has 28 years of investment experience, seven of which have been with T. Rowe Price. Prior to joining the firm in 2012, Mr. Lesesne was a partner and director of credit research at Lord Abbett and, before that, a senior high yield credit analyst at Weiss, Peck & Greer and TIAA-CREF.

Mr. Lesesne earned a B.A. in business economics from Brown University  and an M.B.A. in finance from Columbia Business School.

  • Years at
    T. Rowe Price
    8
  • Years investment
    experience
    29

Fee Schedule

Share Class Minimum Initial Investment and Holding Amount (EUR) Minimum Subsequent Investment (EUR) Minimum Redemption Amount (EUR) Sales Charge (up to) Investment Management Fee (up to) Ongoing Charges
Class A €1,000 €100 €100 5.00% 115 basis points 1.28%
Class I €2,500,000 €100,000 €0 0.00% 60 basis points 0.67%
Class Q €1,000 €100 €100 0.00% 60 basis points 0.71%
Class Sd €10,000,000 €0 €0 0.00% 0 basis points 0.10%

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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