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SICAV

Middle East & Africa Equity Fund

Unconstrained, growth-orientated investing in the under explored markets of the Middle East and Africa.

ISIN LU0310188205 Bloomberg TRPMEAI:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

-5.55%
$3.9m

1YR Return
(View Total Returns)

Manager Tenure

-30.13%
8yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

-0.12
5.04%

Inception Date 04-Sep-2007

Performance figures calculated in USD

Other Literature

30-Apr-2020 - Oliver Bell, Portfolio Manager,
Middle East and African markets, along with the rest of the world, have been hit hard by the double impact of the global spread of the coronavirus and a plummeting oil price. The outlook has become increasingly uncertain. However, we continue to focus on the long-term fundamentals of our individual companies, their positioning, and the strength of their balance sheets to withstand these difficult times.
Oliver Bell
Oliver Bell, Portfolio Manager

Oliver Bell is a vice president of T. Rowe Price Group, Inc., associate head of Equity EMEA and the lead portfolio manager and chairman of the Investment Advisory Committee for the T. Rowe Price Middle East & Africa Equity Strategy and the Frontier Markets Equity Strategy. He is a member of the International Equity Steering Committee and a Board member of T. Rowe Price (Luxembourg) Management S.a.r.l.

Click for Manager Outlook
 

Strategy

Manager's Outlook

Middle East and African markets, along with the rest of the world, have been hit hard by the double impact of the global spread of the coronavirus and a plummeting price of oil. The outlook has become increasingly uncertain. However, we continue to focus on the long-term fundamentals of our individual companies, their positioning, and the strength of their balance sheets to withstand these difficult times. Over the longer term, the region is likely to be bolstered by a recovery in regional growth and meaningful country-specific improvements, including economic reform. Over recent years, we have been encouraged by policymakers' attempts to cut subsidies to fuel, electricity, and gas as part of fiscal consolidation plans.

In South Africa, we had existing concerns regarding the disappointingly slow path to reform. Markets were shaken over the period by a deteriorating fiscal position on account of weak growth and costly bailouts for struggling state companies. This was even before the country went into lockdown in an attempt to contain the spread of the coronavirus, and Moody's downgraded South African debt to junk status. While our outlook on the market has weakened, we focus on our highest-conviction ideas in well-run, quality companies.

In West Africa, sentiment in Nigeria has deteriorated due to a lack of reform leadership from President Muhammadu Buhari, which had been hoped for after his win of a second term in office. Economic growth has been struggling to outpace population growth. More recently, this situation has been exacerbated by the decline in the price of oil, and increasing concerns that capital controls may be introduced. In Kenya, the removal of the interest rate cap late last year was a positive catalyst for the market. We are able to find opportunities here, particularly given the recent market dislocation.

Egypt completed an International Monetary Fund-backed reform agenda and loan program in 2019. If the political situation remains stable, this should drive a material improvement to the country's economic backdrop. While challenges still exist, including those to the tourism sector during the current crisis, we are starting to see signs of easing inflation, an improving budget deficit, and currency stability.

In the Middle East, oil-exporting nations have been heavily impacted by the plummeting price of oil on account of reduced demand and oversupply. In Kuwait, structural domestic improvement and a government push on infrastructure projects had been key positives coming into 2020. The market's reclassification to emerging market status by MSCI has recently been pushed back to November 2020 due to the global spread of the coronavirus. We are selective here but may look to reduce positions in the run up to the reclassification. In Saudi Arabia, the IPO of Saudi Aramco, the world's largest integrated oil and gas company, late last year brought increasing attention to the market. We are selective on bottom-up ideas here but found some opportunities to add to our highest-conviction names given the recent market dislocation.

Overall, the long-term outlook for the Middle East and Africa region remains robust, despite the current global slowdown. Looking beyond the current crisis, growth in the region is likely to be driven by some of the world's most attractive demographics, rising urbanization and levels of infrastructure investment, and a strong asset base in natural resources. There is much scope for economic improvement, driven by reform implementation and growing structural domestic demand. This should translate into strong corporate earnings growth that we believe can be sustained by various businesses in the years ahead. We believe the fundamentals generally remain strong and that growth will resume on the other side of the crisis.

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 diversified portfolio of stocks of companies in the developing countries of the Middle East and Africa.

Investment Approach

  • The fund is growth oriented, unconstrained and designed to deliver strong absolute performance.
  • Stock selection is driven by fundamental analysis seeking to identify the best companies with attractive valuations and earnings that are growing faster than their local, regional or global peers.
  • In investment frontiers such as the Middle East and Africa market, inefficiencies are likely to be significant. One of the core tenets of our investment strategy is that stocks are frequently mispriced.
  • Focus on finding companies with above-average revenue growth, strong management and good corporate governance.
  • The bottom-up, stock specific approach is supported by a top-down perspective focusing on macro and micro-factors mainly at the country level.
  • Manager with a proven track record of investing in emerging markets supported by a dedicated analyst team.
  • Dedicated Portfolio Manager supported by a well-resourced analyst team.

Portfolio Construction

  • Typically 50-80 stocks
  • Individual positions typically range from 2.0%-8.0%
  • Country and sector weights unconstrained
  • Cash reserves typically 0%-5%

Performance (Class I)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
10 YR
Annualised
Since Manager Inception
Annualised
Fund % -30.13% -5.55% -6.18% 0.88% 3.16%
Indicative Benchmark % -25.82% -4.51% -5.55% 0.62% 0.95%
Excess Return % -4.31% -1.04% -0.63% 0.26% 2.21%

Inception Date 04-Sep-2007

Manager Inception Date 10-Oct-2011

Indicative Benchmark: Linked Benchmark Net

Data as of  30-Apr-2020

Performance figures calculated in USD

  1 YR 3 YR
Annualised
5 YR
Annualised
10 YR
Annualised
Fund % -28.77% -7.12% -6.30% 0.48%
Indicative Benchmark % -28.63% -6.93% -6.08% -0.21%
Excess Return % -0.14% -0.19% -0.22% 0.69%

Inception Date 04-Sep-2007

Indicative Benchmark: Linked Benchmark Net

Data as of  31-Mar-2020

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 27-May-2020 Quarter to DateData as of 27-May-2020 Year to DateData as of 27-May-2020 1 MonthData as of 30-Apr-2020 3 MonthsData as of 30-Apr-2020
Fund % 2.68% 8.87% -24.76% 6.03% -24.72%
Indicative Benchmark % 1.75% 12.31% -23.08% 10.38% -20.93%
Excess Return % 0.93% -3.44% -1.68% -4.35% -3.79%

Inception Date 04-Sep-2007

Indicative Benchmark: Linked Benchmark Net

Indicative Benchmark: Linked Benchmark 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.

Index 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. 

30-Apr-2020 - Oliver Bell, Portfolio Manager,
Middle East and African equities rebounded in April, outperforming their emerging market peers but slightly lagging developed markets. While the coronavirus continued to spread globally, some countries began to take steps towards reopening their economies amid falling daily new infection rates. Markets were also buoyed by the significant stimulus measures announced by governments and central banks to counter the economic disruption caused by the pandemic. Within the portfolio, stock selection in South Africa was the biggest area of weakness. Not holding Anglogold Ashanti hurt, as its shares rallied on the gold miner being granted permission for a limited restart of its surface operations in the country. Our overweight exposure to ShopRite also held back relative returns; the food retailer’s liquor and furniture businesses currently cannot trade which has eroded margins. On the other hand, positive contributors to relative performance included First Abu Dhabi Bank. The United Arab Emirates bank’s first-quarter results were marginally ahead of our expectations, and management said that the bank is well placed to absorb the shock of any deterioration in credit quality due to the impact of the coronavirus, and any expected credit losses arising as a result.

Holdings

Total
Holdings
46
Largest Holding Naspers 9.42% Was (31-Dec-2019) 4.85%
Other View Full Holdings Quarterly data as of 31-Mar-2020
Top 10 Holdings 49.72% View Top 10 Holdings Monthly data as of 30-Apr-2020

Largest Top Contributor^

Anglo American
By 0.12%
% of fund 0.74%

Largest Top Detractor^

Al Rajhi Bank
By -2.25%
% of fund 7.43%

^Absolute

Quarterly Data as of 31-Mar-2020

Top Purchase

Naspers
9.34%
Was (31-Dec-2019) 4.85%

Top Sale

Human Soft Holding (E)
0.00%
Was (31-Dec-2019) 2.57%

Quarterly Data as of 31-Mar-2020

31-Mar-2020 - Oliver Bell, Portfolio Manager,

Nigeria

We exited positions in Nigeria, selling out of Guaranty Trust Bank, Nestle Foods Nigeria, and FBN Holdings. Persistently low oil prices are likely to present significant challenges to the country's oil-exporting economy. Growth, fiscal, and debt dynamics are deteriorating fairly rapidly, which is especially challenging for a country with a young and growing population. The managed exchange rate is an impediment to releasing these pressures, and we have seen the re-emergence of a black market current rate with a widening spread. Implied yields are pricing in a 10% devaluation in the naira; however, if oil averages USD 40 per barrel (or lower) for an extended period, the currency will have to move by more than this. Capital controls could also be on the table.

Kuwait

We had been reducing our exposure to Kuwait to take profits ahead of the country's planned inclusion by MSCI in its Emerging Markets Index in June 2020. Shortly after quarter-end, MSCI made the decision to push back Kuwait's inclusion to November 2020, due to the global spread of the coronavirus. We are selective here and will continue to look to reduce positions in the runup to the eventual reclassification.

We eliminated our holding in Kuwaiti investment company HumanSoft, which provides learning, human resources management, and health services. The company's outlook for the 2020 fiscal year is relatively muted considering the weak trends in student growth. While the most recent set of results was in line with our estimates, we are disappointed by continued cash hoarding and a sense of inertia from management.

Kenya

We used market dislocation as an opportunity to initiate exposure to the Kenyan market. The removal of the interest rate cap was a catalyst for the market late last year, and while we had missed out on the market rally at the time, we took the chance to invest now that market fundamentals are improving.

We initiated a position in East African Breweries, the Kenyan unit of drinks giant Diageo, which sells locally brewed and branded beer, as well as imported spirits from the Diageo portfolio. The company stands to benefit from an improving macroeconomic backdrop in Kenya, with the country accounting for more than 70% of its sales. The company's value-led strategy in mainstream spirits and beer has been paying off in Kenya; however, this improvement has not been reflected in the share price.

Sectors

Total
Sectors
10
Largest Sector Financials 46.75% Was (31-Mar-2020) 46.42%
Other View complete Sector Diversification

Monthly Data as of 30-Apr-2020

Indicative Benchmark: MSCI Arabian Markets & Africa 10/40 IMI Index

Top Contributor^

Materials
Net Contribution 1.72%
Sector
1.53%
Selection 0.20%

Top Detractor^

Financials
Net Contribution -2.64%
Sector
-0.07%
Selection
-2.58%

^Relative

Quarterly Data as of 31-Mar-2020

Largest Overweight

Consumer Discretionary
By6.25%
Fund 18.07%
Indicative Benchmark 11.82%

Largest Underweight

Materials
By-11.32%
Fund 5.15%
Indicative Benchmark 16.48%

Monthly Data as of 30-Apr-2020

30-Apr-2020 - Oliver Bell, Portfolio Manager,
We reduced our underweight position in materials, establishing positions in two leading Middle Eastern petrochemicals companies. In communication services, we added to our holding in a leading Kenyan mobile operator. The company has a resilient business model and healthy balance sheet. In addition to voice communications, it operates a funds transfer business which is transitioning into lending, and the app that it has developed to facilitate these exchanges is being used by an increasing share of the Kenyan population. We believe the company is well positioned to expand its existing services in African markets.

Countries

Total
Countries
13
Largest Country South Africa 28.69% Was (31-Mar-2020) 28.77%
Other View complete Country Diversification

Monthly Data as of 30-Apr-2020

Indicative Benchmark: MSCI Arabian Markets & Africa 10/40 IMI Index

Top Contributor^

Netherlands
Net Contribution 1.30%
Country
1.30%
Selection 0.00%

Top Detractor^

Qatar
Net Contribution -1.74%
Country
-1.62%
Selection
-0.12%

^Relative

Quarterly Data as of 31-Mar-2020

Largest Overweight

Netherlands
By4.21%
Fund 4.21%
Indicative Benchmark 0.00%

Largest Underweight

Saudi Arabia
By-8.81%
Fund 24.64%
Indicative Benchmark 33.45%

Monthly Data as of 30-Apr-2020

30-Apr-2020 - Oliver Bell, Portfolio Manager,
We scaled back our exposure to Egypt, reducing our position in a leading private bank. The bank’s loan growth guidance looks difficult to achieve, in our view, amid current conditions and, as a result of disruption in supply chains, we should see weaker growth in working capital financing. Capital expenditures are also likely to be delayed. We also reduced our position in an Egyptian snack food company. It had an exceptionally weak fourth quarter of 2019 on account of slowing demand and stronger competition, while its most profitable segment, cakes, has lost market share.

Team (As of 21-May-2020)

Oliver Bell

Oliver Bell is a vice president of T. Rowe Price Group, Inc., associate head of Equity EMEA and the lead portfolio manager and chairman of the Investment Advisory Committee for the T. Rowe Price Middle East & Africa Equity Strategy and the Frontier Markets Equity Strategy. He is a member of the International Equity Steering Committee and a Board member of T. Rowe Price (Luxembourg) Management S.a.r.l.

Mr. Bell has 21 years of investment experience, seven of which have been with T. Rowe Price. Prior to joining the firm in 2011, Mr. Bell was head of emerging markets equities research at Pictet Asset Management (the institutional asset management arm of Pictet & Cie, the largest private bank in Switzerland), where his responsibilities included managing several funds, as well as a team of analysts. During his time at Pictet, Mr. Bell was directly responsible for managing investments in the emerging Europe, Middle East and Africa region as part of the global emerging markets and the standalone Middle East and Africa portfolios. Mr. Bell also managed the Global Emerging Markets High Dividend Yield Equity Strategy.

Mr. Bell has earned a bachelor of science degree in chemistry from Exeter University and also has earned the Investment Management Certificate.

  • Fund manager
    since
    2011
  • Years at
    T. Rowe Price
    8
  • Years investment
    experience
    22
Kanwal Masood

Kanwal Masood is a portfolio specialist in the Equity Division at T. Rowe Price, covering the Middle East and Africa Equity and Emerging Europe Equity Strategies. She is an associate vice president of T. Rowe Price International Ltd.

Ms. Masood has 10 years of investment experience, all of which have been with T. Rowe Price. She joined the firm in 2007, covering the global and regional emerging market equity strategies as a portfolio analyst. Prior to joining T. Rowe Price, she was a product specialist at the London Stock Exchange.

Ms. Masood earned a B.Sc. with honours in mathematics and computer science from King's College London.

  • Years at
    T. Rowe Price
    13
  • Years investment
    experience
    13

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 $1,000 $100 $100 5.00% 190 basis points 2.07%
Class I $2,500,000 $100,000 $0 0.00% 100 basis points 1.10%
N/A

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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