Factor Investing Is Not a Simple Panacea

Thomas Poullaouec, Head of Multi-Asset Solutions APAC

Executive Summary

  • Investment strategies based on single factors have grown in popularity, with some investors viewing them as tools to reproduce the returns of active managers.
  • Historically, single‑factor performance has demonstrated excess returns (ER) relative to passive benchmarks but also considerable cyclicality.
  • We believe a better strategy is a multifactor approach that seeks improved risk‑adjusted returns. However, this requires a degree of active management skill.
  • In our view, investors should evaluate the skills of systematic multifactor managers the same way they evaluate other active managers.

Recently, global investors have been spending more time and devoting more analytical power to investigating the underlying drivers of active outperformance—defined broadly as the performance differential between an investment strategy and its stated passive benchmark.

This desire to understand the drivers of outperformance and potentially obtain them at lower costs has led to a broad proliferation of indexes and rules‑informed factor strategies in the marketplace.1 Investors using these tools often believe that a given systematic security selection scheme or investment factor can be accessed relatively cheaply and, importantly, will continue to outperform the broad market in the future in the same way it delivered in the past. In that context, it appears that the warnings in some recently published academic literature about the limitations of these naïve approaches might have been lost in translation.2

Opening Quote While five out of the six factors we examined generated positive returns over the period studied, risk‑adjusted returns were relatively low. Closing Quote


We believe that successful factor‑based investing requires skills that are comparable with other forms of active management. In our view, factor‑based vehicles should be used to complement rather than replace securities‑based fundamental active management strategies, for several reasons:
 

  • Historically, single‑factor returns have experienced performance cycles just like active strategies that are based on fundamental analysis and security selection.
  • Even when individual factors can be accessed cheaply and are easily tradeable, assembling them ex ante to seek ER going forward requires investment insight and skill.
  • Some investors justify the substitution of fundamental active strategies with systematic, naïve strategies by analyzing manager ER through a factor lens. While we agree that this type of analysis can provide useful insights, critical care is needed to ensure that the regression methodologies commonly used are properly applied.3
Opening Quote While five out of the six factors we examined generated positive returns over the period studied, risk‑adjusted returns were relatively low. Closing Quote

Factor Definitions

Reflecting the scope of ongoing research on the topic and the number of levers available for factor construction, the investment industry has yet to settle on a single factor framework. T. Rowe Price has developed its own proprietary equity style factor model that we use throughout this paper. Note that this paper focuses on style factors for equity strategies and excludes other risk premia or factors for other asset classes.

To calculate returns for our factor model, we scored securities on a monthly basis as either high or low on a given metric. The performance of a factor, then, was simply the performance of the stocks in an opportunity set that scored in the highest decile for a given factor minus the performance of those in the lowest decile.

For example, returns on the size factor for a global equity strategy could be calculated by taking the performance of the smallest 10% of the stocks in the MSCI All Country World Index (ACWI) by market capitalization and subtracting the performance of the largest 10% of the stocks in that same index. For the purposes of this paper, we examined six style factors: value, growth, size, momentum, low volatility, and quality. The specific metrics used to define and measure these factors are detailed in the appendix.

We would classify these factor returns as naïve strategies, as they simply ranked stocks on the given metrics without using any other process to assemble the final portfolio.

Performance Variability of Various Factors

The data shown in Figures 1 and 2 suggest several notable inferences.
 

  • While five out of the six factors we examined generated positive returns over the period studied, risk‑adjusted returns were relatively low. This suggests that factor investing may require a significant risk budget relative to the expected return.
  • Factor returns have been variable over time, much like many other active management trends. In some cases, these periods of out‑ or underperformance have lasted for extended periods. The size factor, for example, generated relatively attractive returns until 2012, then underperformed through September 30, 2019. Following the global financial crisis, the value and growth factors experienced long underperformance and outperformance cycles, respectively.

(Fig. 1) Historical Performances of Equity Style Factors
Factors Defined by T. Rowe Price and Based on the MSCI ACWI
Rolling Three-Year Returns, July 1, 2002, Through September 30, 2019

Fig. 1. Historical Performances of Equity Style Factors

Past performance is not a reliable indicator of future performance. See Appendix for factor definitions.

Sources: T. Rowe Price and MSCI (see Additional Disclosures).


(Fig. 2) Performance Statistics for Equity Style Factors

Factors Defined by T. Rowe Price and Based on the MSCI ACWI
July 1, 2002, Through September 30, 2019

(Fig. 2) Performance Statistics for Equity Style Factors

Past performance is not a reliable indicator of future performance.

The above figures are for illustrative purposes only and are not representative of actual investment results. See Appendix for important disclosures.

Sources: T. Rowe Price and MSCI (see Additional Disclosures).

Results shown are based on a single definition of each factor. Results could have varied greatly depending on how each factor was defined. For example, a T. Rowe Price analysis of return dispersion among systematic investment funds within the Morningstar U.S. value universe found monthly return differences of over 800 basis points between funds in the same category over the period July 1, 2002, through September 30, 2019. Funds were defined as systematic by T. Rowe Price analysts based on Morningstar’s description of the fund’s stated investment objectives.
 

Factor Portfolios Require Investment Acumen

Some investors use a multifactor approach to address the cyclicality of different equity factors. In these strategies, correctly sizing factor positions becomes a prevalent challenge. Multifactor investing, like any active strategy, requires investment insight to be successful.

One potential pitfall in a multifactor approach is to assume that past returns are a good predictor of future returns. Given a set of historical factor returns, it’s very easy to construct a multifactor portfolio that would have produced an historically attractive risk‑adjusted return; however, that same portfolio may not perform well going forward.
 

(Fig. 3) Cumulative Performances of Hypothetical Factor Portfolios
Factors Defined by T. Rowe Price and Based on the MSCI ACWI
July 1, 2007, Through September 30, 2019

(Fig. 3) Cumulative Performances of Hypothetical Factor Portfolios

Past performance is not a reliable indicator of future performance.

Results are hypothetical and do not represent actual investment results. See Appendix for important disclosures.

Sources: T. Rowe Price and MSCI (see Additional Disclosures).

All of the factor portfolios constructed for our study were constrained to appear on the efficient frontier and to contain no more than a 50% weight to a single factor. Otherwise, the highest‑/lowest‑performing portfolio could simply have been the single factor that had the best/worst performance during the in-sample period. Hypothetical portfolios were rebalanced monthly. Factor weights may not add to 100% due to rounding.
 

Actively managing factor exposures, including seeking to time them appropriately to eliminate persistent biases, may require a degree of investment skill that is comparable to what is necessary to outperform an index using security selection. Moreover, adding a process with dynamic factor exposures that change over time exacerbates the challenge for any investor.

Figures 3 and 4 show the performances of three different hypothetical factor portfolios over the 12 years ended September 30, 2019. The first portfolio contained an equally weighted blend of the six T. Rowe Price equity style factors cited earlier, while the factor exposures in the two other portfolios were optimized based on factor performance over the first five years covered by our analysis (June 30, 2002, through June 30, 2007).

Opening Quote ...the highest risk‑adjusted return portfolio for the 2002–2007 sample period performed quite poorly both in the first few years following that sample period and over the full 12 years. Closing Quote

Not surprisingly, the portfolio constructed using an equal weighting of the six factors could have performed better than any individual factor portfolio over the 12‑year period analyzed, thanks to the diversification across factors. Equal weighting also could have significantly reduced volatility.

The more interesting result, however, may be that the highest risk‑adjusted return portfolio for the 2002–2007 sample period performed quite poorly both in the first few years following that sample period and over the full 12 years. The minimum variance portfolio on the efficient frontier, which was specifically constructed to perform poorly within the sample period, outperformed the high return/risk portfolio out of the gate and over the full 12‑year period.

Opening Quote Ultimately, building a portfolio of factors to generate total or excess return is difficult and requires investment skill. Closing Quote

To further understand the persistency of factor performance, we looked at the performances of the factor portfolios that had the highest risk‑adjusted returns (return/risk) over sequential three‑year time horizons and then analyzed how consistently they performed over the following three‑year periods. Figure 5 shows the factor allocations within the portfolios that had the highest risk‑adjusted returns in every three‑year window, while Figure 6 shows their performances in subsequent three‑year windows.

Figure 5 demonstrates that certain factors produced attractive returns over prolonged periods (in this case, three years), as the value and size factors did early in our analysis and the momentum factor has done more recently. However, an investor would have needed foresight into the drivers of factor‑return cycles in order to capture those returns.

(Fig. 4) Performance Statistics for Hypothetical Factor Portfolios
Factors Defined by T. Rowe Price and Based on the MSCI ACWI
July 1, 2007, Through September 30, 2019

(Fig. 4) Performance Statistics for Hypothetical Factor Portfolios 

Past performance is not a reliable indicator of future performance.

Results are hypothetical and do not represent actual investment results. See Appendix for important disclosures.

Sources: T. Rowe Price and MSCI (see Additional Disclosures).

 

Opening Quote Ultimately, building a portfolio of factors to generate total or excess return is difficult and requires investment skill. Closing Quote

For example, the top‑performing factor portfolio from 2004–2006 (an equally weighted blend of value and size) could have produced a 0.49 return/risk ratio and a 6.9% total return in the 2007–2009 period. This implies that an investor who simply held a portfolio of strongly performing factors in the 2004–2006 period could have continued to do well subsequently—albeit not as well as if that investor had added a quality factor to their portfolio. However, that same statement about positive out‑of‑sample performance did not hold for other time periods. Factor performance in the recent past typically was a poor indicator of future performance.

Ultimately, building a portfolio of factors to generate total or excess return is difficult and requires investment skill. Correctly timing factor exposures is a critical component of active skill for anyone managing a factor‑based strategy—a task that investors take on themselves if they decide to implement multifactor portfolios on their own.

(Fig. 5) Factor Allocations for Hypothetical Portfolios With the Highest Risk-Adjusted Returns
Three-Year Cycles, January 1, 2004, Through December 31, 2018

(Fig. 5) Factor Allocations for Hypothetical Portfolios With the Highest Risk-Adjusted Returns 

Source: T. Rowe Price.

This chart is based on hypothetical data. See Appendix for important disclosures.


(Fig. 6) Results Across Periods for Hypothetical Portfolios with the Highest Risk-Adjusted Returns

Three-Year Periods, January 1, 2007, Through December 31, 2018

(Fig. 6) Results Across Periods for Hypothetical Portfolios with the Highest Risk-Adjusted Returns

Past performance is not a reliable indicator of future performance.

Results are hypothetical and do not represent actual investment results. See Appendix for important disclosures.

Sources: T. Rowe Price and MSCI Barra (see Additional Disclosures).

Evaluating Active Managers Through a Factor Lens

Rather than explicitly using factor portfolios as a potential source of ER, some investors use a factor lens to screen active managers. However, determining an active portfolio’s exposure to a factor and “correcting” the excess return for this exposure can produce additional analytical complications. While this type of factor analysis can be a useful exercise, drawing the conclusion that you can replace an active manager’s ER simply by assembling the same weighted multifactor portfolio indicated by the analysis seems misplaced to us.

Practitioners have often relied on regression‑based models to split active returns into the portion potentially generated by investment skill and the portion attributable to factor exposures. This approach, while convenient because of its relatively easy set of data inputs, can occasionally cause wildly different perceptions of manager skill compared with a holdings‑based analysis of the same manager.4

Opening Quote While convenient, a returns‑based regression analysis may not fully capture the activity or skill of a fund manager. Closing Quote

(Fig. 7) Trailing Five-Year Excess Return Decomposition1
Percentages of Excess Returns Explained by Factor Exposures and by Idiosyncratic Risk
Five Years Ended September 30, 2019

(Fig. 7) Trailing Five-Year Excess Return Decomposition 

Sources: T. Rowe Price and MSCI Barra (see Additional Disclosures).

1 Excess returns relative to the MSCI ACWI. See Appendix for definitions of the T. Rowe Price equity factors.

2 Excess returns relative to the MSCI ACWI. Includes the following Barra factors: world market, style, industry, country, and currency. For definitions of the Barra factors, please see: “Use of the Global Equity Model (GEM LT) in MSCI Index Construction,” on the Web at:
https://www.msci.com/documents/1296102/1ac786c2-430b-4f10-87e4-2a6b94e8cf49.

The representative portfolio is an account in the composite we believe most closely reflects current portfolio management style for each strategy. Performance is not a consideration in the selection of the representative portfolio. The characteristics of the representative portfolio shown may differ from those of other accounts in each strategy. Please see the GIPS® disclosure pages for additional information on the composites.

Using return regressions and monthly holdings snapshots for two T. Rowe Price portfolios—the Global Focused Growth Equity Portfolio (GFGE) and the Global Growth Equity Portfolio (GGE)—Figure 7 shows that the two attribution methodologies can yield somewhat different estimates of the potentially skill‑based portion of a manager’s return (sometimes labeled as the “idiosyncratic” or “unexplained” residual component).

While convenient, a returns‑based regression analysis may not fully capture the activity or skill of a fund manager. The low (or negative) percentages for the factor returns reported in Figure 7 show how difficult it can be to generate excess performance through allocations to factors (either intentionally or as the unintentional byproduct of bottom‑up security selection).

For example, an investor who found that an active manager’s ER was partly driven by a given set of factor exposures wouldn’t necessarily be able to replicate that same ER with those factor exposures alone. Not only would he or she miss the idiosyncratic component of the manager’s active return, but even calibrating the correct factor allocations would depend heavily on the specific methodology used in the factor analysis.5

Conclusions

While investment strategies based on single factors potentially offer investors an opportunity to access ER at a reduced expense, they also present their own unique challenges:

  • Single‑factor performance historically has demonstrated the cyclicality typical of other investment trends.
  • Seeking and maintaining attractive risk‑adjusted returns requires close attention and the ability to adjust factor exposures effectively over time, which is a skill many investors may not possess.
  • Finally, single‑factor models may produce risk‑adjusted returns lower than those achieved by successful active managers.

We agree it is fair to discount active manager outperformance that appears to be based on persistent exposures to investable factors. Accounting for structural equity market beta would be a good example of this kind of adjustment. However, we would argue that investors should seek to ensure that they are not penalizing traditional stock pickers for factor exposures that are byproducts of their security selection decisions and the implied dynamic exposures to factors. While convenient, a regression‑based factor screening approach may not accurately capture a manager’s investment skill. Over‑ and underestimates are both possible.

In our view, factor‑investing strategies can complement a manager’s fundamental process, particularly through a rigorous multifactor approach, but factor investing alone may not replicate a traditional bottom‑up manager’s record at producing true alpha.
 

1For the proliferation of indexes see: “There Are Now More Indexes Than Stocks,” Bloomberg News, May 12, 2017, on the Web at:
https://www.bloomberg.com/news/articles/2017-05-12/there-are-now-more-indexes-than-stocks. On the growth of factor-based strategies, a T. Rowe Price analysis of the Morningstar Exchange Traded Fund (ETF) database suggests the number of ETFs with the word “factor” in their titles jumped from less than 10 on December 31, 2013, to nearly 100 as of December 31, 2018.

2Robert D. Arnott, R. Campbell Harvey, Vitali Kalesnik, and Juhani T. Linnainmaa, “Alice’s Adventures in Factorland: Three Blunders That Plague Factor Investing,” Research Affiliates Publications, April 10, 2019. On the Web at: http://dx.doi.org/10.2139/ssrn.3331680.

3For further information, see the following article: Zhuo Chen, Bibo Liu, Huijun Wang, Zhengwei Wang, and Jianfeng Yu, “Characteristics-Based Factors,” May 9, 2018. On the Web at: http://dx.doi.org/10.2139/ssrn.3112835. The paper states (p. 3): “Even if a fund employs a strategy that holds no or few winner stocks and shorts no or few loser stocks, the portfolio returns could happen to have a high exposure to the momentum factor. Using regression analysis to adjust for the momentum factor could result in wrongly attributing the performance of the fund to the momentum strategy, whereas in reality, this fund does not long winners or short losers.”

4 Chen, Liu, Huijun Wang, Zhengwei Wang, and Yu, “Characteristics-Based Factors,” p. 24. “The factor-based approach has been very popular for mutual fund and hedge fund performance evaluation, partly because exact and timely holdings data are rarely available. On the other hand, the true purpose of adjusting for factor exposure for mutual funds is typically to remove well-known investment styles such as the value, momentum, quality, and low-risk styles, rather than fundamental risks.”

5For more on this issue, see: Som Priestley and Christina Moore, “Estimated Factor Exposures: Signal or Noise?” T. Rowe Price Insights, May 31, 2019. On the Web at: https://www.troweprice.com/institutional/us/en/insights/articles/2019/q2/estimated-factor-exposures-signal-or-noise.html.

Appendix

T. Rowe Price's Style Factor Definitions

Appendix:  T. Rowe Price's Style Factor Definitions


Hypothetical Results

The results shown are hypothetical, do not reflect actual investment results, and are not a guarantee of future results. Hypothetical results were developed with the benefit of hindsight and have inherent limitations. Hypothetical results do not reflect actual trading or the effect of material economic and market factors on the decision-making process. These results are derived from the actual returns of the MSCI ACWI Index, which do not include management fees, advisory fees, trading costs, and other related fees. Actual returns may differ significantly from the results shown.

Key Risks—The following risks are materially relevant to the strategy highlighted in this material: Transactions in securities of foreign currencies may be subject to fluctuations of exchange rates which may affect the value of an investment. The portfolio is subject to the volatility inherent in equity investing, and its value may fluctuate more than a portfolio investing in income‑oriented securities. The portfolio may include investments in the securities of companies listed on the stock exchanges of developing countries.

Returns for the Global Focused Growth Equity Composite and Benchmarks

As of October 31, 2019, Figures are Calculated in U.S. Dollars

 

 

Past performance is not a reliable indicator of future performance.

Gross performance returns are presented before management and all other fees, where applicable, but after trading expenses. Net-of-fees performance reflects the deduction of the highes applicable management fee that would be charged based on the fee schedule contained within this material, without the benefit of breakpoints. Gross and net performance returns reflect the reinvestment of dividends and are net of all non-reclaimable withholding taxes on dividends, interest income, and capital gains.

1 September 30, 2012, represents the date the Portfolio Manager took over lead management responsibility for the portfolio.

2 Index returns shown with gross dividends reinvested.

3 The Value Added row is shown as Global Focused Growth Equity Composite (Gross of Fees) minus the benchmark in the previous row.

4 Index returns shown with reinvestment of dividends after the deduction of withholding taxes.

Source: T. Rowe Price.

Returns for the Global Growth Equity Composite and Benchmarks
As of October 31, 2019, Figures are Calculated in U.S. Dollars

Returns for the Global Growth Equity Composite and Benchmarks 

Past performance is not a reliable indicator of future performance.

Gross performance returns are presented before management and all other fees, where applicable, but after trading expenses. Net-of-fees performance reflects the deduction of the highes applicable management fee that would be charged based on the fee schedule contained within this material, without the benefit of breakpoints. Gross and net performance returns reflect the reinvestment of dividends and are net of all non-reclaimable withholding taxes on dividends, interest income, and capital gains.

1 Effective June 27, 2013, the benchmark for the composite was changed to the MSCI All Country World Index. Prior to June 27, 2013, the benchmark was the MSCI All Country World Index Large Cap. The benchmark change was made because the firm viewed the new benchmark to be a better representation of the investment strategy of the composite. Historical benchmark representations have not been restated.

2 Effective July 1, 2018, the benchmark for the composite changed from gross- to net- of withholding taxes. The change was because the firm viewed the new benchmark to be more consistent with the tax impacts of the portfolios in the composite. Historical benchmark representations have been restated. Effective June 27, 2013, the benchmark for the composite was changed to the MSCI All Country World Index Net. Prior to June 27, 2013, the benchmark was the MSCI All Country World Index Large Cap Net. The benchmark change was made because the firm viewed the new benchmark to be a better representation of the investment strategy of the composite.

3 The Value Added row is shown as Global Growth Equity Composite (Gross of Fees) minus the benchmark in the previous row.

Source: T. Rowe Price.

GIPS® Disclosure
Global Focused Growth Equity Composite
Period Ended September 30, 2019
Figures Shown in U.S. dollar

GIPS® Disclosure Global Focused Growth Equity Composite Period Ended September 30, 2019 Figures Shown in U.S. dollar 

1 Reflects deduction of highest applicable fee schedule without benefit of breakpoints. Investment return and principal value will vary. Past performance is not a reliable indicator of future performance. Monthly composite performance is available upon request. See below for further information related to net of fee calculations.

2 Primary benchmark is MSCI AC World Index and secondary benchmark is MSCI World Index.

3 Preliminary - subject to adjustment. T. Rowe Price (TRP) has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS®). TRP has been independently verified for the 23‑year period ended June 30, 2019 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. The minimum asset level for equity portfolios to be included in composites is $5 million and prior to January 2002 the minimum was $1 million. The minimum asset level for fixed income and asset allocation portfolios to be included in composites is $10 million; prior to October 2004 the minimum was $5 million; and prior to January 2002 the minimum was $1 million. Valuations are computed and performance reported in U.S. dollars.
Gross performance returns are presented before management and all other fees, where applicable, but after trading expenses. Net of fees performance reflects the deduction of the highest applicable management fee that would be charged based on the fee schedule contained within this material, without the benefit of breakpoints. Gross and net performance returns reflect the reinvestment of dividends and are net of nonreclaimable withholding taxes on dividends, interest income, and capital gains. Effective June 30, 2013, portfolio valuation and assets under management are calculated based on the closing price of the security in its respective market. Previously portfolios holding international securities may have been adjusted for after‑market events. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. Dispersion is measured by the standard deviation across asset‑weighted portfolio returns represented within a composite for the full year. Dispersion is not calculated for the composites in which there are five or fewer portfolios.
Some portfolios may trade futures, options, and other potentially high‑risk derivatives which generally represent less than 10% of a portfolio.
Benchmarks are taken from published sources and may have different calculation methodologies, pricing times, and foreign exchange sources from the composite.
Composite policy requires the temporary removal of any portfolio incurring a client initiated significant cash inflow or outflow greater than or equal to 10% of portfolio assets. The temporary removal of such an account occurs at the beginning of the measurement period in which the significant cash flow occurs and the account re‑enters the composite on the last day of the current month after the cash flow. Additional information regarding the treatment of significant cash flows is available upon request.
The firm’s list of composite descriptions and/or a presentation that adheres to the GIPS® standards are available upon request.
A portfolio management change occurred effective October 1, 2012. There were no changes to the investment program or strategy related to this composite.

GIPS® Disclosure
Global Growth Equity Composite
Period Ended September 30, 2019
Figures Shown in U.S. dollar

GIPS® Disclosure Global Growth Equity Composite Period Ended September 30, 2019 Figures Shown in U.S. dollar

1 Reflects deduction of highest applicable fee schedule without benefit of breakpoints. Investment return and principal value will vary. Past performance is not a reliable indicator of future performance. Monthly composite performance is available upon request. See below for further information related to net of fee calculations.

2 Effective July 1, 2018, the secondary benchmark changed from gross to net of withholding taxes. The change was to provide additional information on potential tax impacts for the composite. Historical benchmark representations were restated. Effective June 27, 2013, the primary benchmark changed to MSCI All Country World Index and the secondary benchmark changed to MSCI All Country World Large‑Cap Index. Effective August 1, 2009 MSCI All Country World Index was added as a secondary benchmark to the composite.

3 Preliminary—subject to adjustment.

T. Rowe Price (TRP) has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS®). TRP has been independently verified for the 23‑year period ended June 30, 2019 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. The minimum asset level for equity portfolios to be included in composites is $5 million and prior to January 2002 the minimum was $1 million. The minimum asset level for fixed income and asset allocation portfolios to be included in composites is $10 million; prior to October 2004 the minimum was $5 million; and prior to January 2002 the minimum was $1 million. Valuations are computed and performance reported in U.S. dollars.
Gross performance returns are presented before management and all other fees, where applicable, but after trading expenses. Net of fees performance reflects the deduction of the highest applicable management fee that would be charged based on the fee schedule contained within this material, without the benefit of breakpoints. Gross and net performance returns reflect the reinvestment of dividends and are net of nonreclaimable withholding taxes on dividends, interest income, and capital gains. Effective June 30, 2013, portfolio valuation and assets under management are calculated based on the closing price of the security in its respective market. Previously portfolios holding international securities may have been adjusted for after‑market events. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. Dispersion is measured by the standard deviation across asset‑weighted portfolio returns represented within a composite for the full year. Dispersion is not calculated for the composites in which there are five or fewer portfolios.
Some portfolios may trade futures, options, and other potentially high‑risk derivatives which generally represent less than 10% of a portfolio.Benchmarks are taken from published sources and may have different calculation methodologies, pricing times, and foreign exchange sources from the composite.
Composite policy requires the temporary removal of any portfolio incurring a client initiated significant cash inflow or outflow greater than or equal to 15% of portfolio assets. The temporary removal of such an account occurs at the beginning of the measurement period in which the significant cash flow occurs and the account re‑enters the composite on the last day of the current month after the cash flow. Additional information regarding the treatment of significant cash flows is available upon request.
The firm’s list of composite descriptions and/or a presentation that adheres to the GIPS® standards are available upon request.

Fee Schedules

 

Additional Disclosures

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.

Barra. Barra and its affiliates and third party sources and providers (collectively, “Barra”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any Barra data contained herein. The Barra 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 Barra. Historical Barra data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the Barra 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.


IMPORTANT INFORMATION

This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. 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.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.  

It is not intended for distribution to retail investors in any jurisdiction.

 

 

201911-1012715

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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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