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T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. T. Rowe Price has been independently verified for the twenty four-year period ended June 30, 2020, by KPMG LLP. The verification report is available upon request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. Verification does not provide assurance on the accuracy of any specific performance report.

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Investment Insights

Global Asset Allocation Viewpoints

T. Rowe Price

PORTFOLIO POSITIONING

As of June 30, 2019 

Uncertainty warrants caution

  • We remain modestly underweight equities in favor of cash and bonds as valuations are extended against a backdrop of rising risks.
  • We favor high yield bonds as yield levels remain attractive and fundamentals healthy. Relative to equities, high yield bonds currently offer similar return expectations with a lower volatility profile.
  • We are overweight emerging market equities as they should benefit from the trade truce, dovish central banks, and a weaker U.S. dollar.

MARKET THEMES

As of June 30, 2019

Don’t fight the Fed?

Global manufacturing data continued to sow doubts on the outlook for economic growth as the impact of lingering trade uncertainty on corporate sentiment has become more pronounced. Data has continued to weaken over the first half of the year with the global manufacturing PMI falling below the expansion threshold in June, marking the lowest level since February 2016. Weakness was broad-based with the headline number and new orders falling in all regions. Despite these persistent signs of a weakening global environment, markets seem confident that central banks will provide a backstop. So far, central bank rhetoric has supported markets but, if needed, will the response be sufficient to reverse the economic trend?

Manufacturing PMI

December 31, 2016 to June 30, 2019

Past performance is not a reliable indicator of future performance.
Sources: The European Union, MSCI, Standard & Poor’s, and Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved. Please see additional disclosures on the final page.
Source for Bloomberg Barclays index data: Bloomberg Index Services Ltd. Copyright© 2019, Bloomberg Index Services Ltd. Used with permission.
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

Synchronized pivot

Macro risks remain to the downside as business sentiment and global capex have been adversely impacted by trade uncertainty leading expectations for central bank easing to become increasingly synchronized. Following the pivot by the U.S. Federal Reserve, recent comments from ECB President Draghi increased expectations that monetary easing would be forthcoming in the eurozone, and Australia has moved to an easing stance. This could be good news for emerging markets as dovishness in developed markets and signs that the U.S. dollar strengthening trend may have peaked would provide cover to cut rates amid still low inflation.

Futures Market Expectations for Rate Cut in July

December 31, 2018 to June 30, 2019

Past performance is not a reliable indicator of future performance.
Sources: The European Union, MSCI, Standard & Poor’s, and Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved. Please see additional disclosures on the final page.
Source for Bloomberg Barclays index data: Bloomberg Index Services Ltd. Copyright© 2019, Bloomberg Index Services Ltd. Used with permission.
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

Truce but not real progress

While expectations for the Trump and Xi meeting at the G-20 Summit were low, the resulting truce is a positive development following months of escalating tensions. But will it be enough to support markets from here? Risk assets had already rallied strongly year-to-date on the back of dovish comments from the Fed and the ECB, with U.S. equities posting the best start to the year since 1997. However, recent strength of safe-haven assets, such as gold and sovereign bonds raises some concerns. While the truce avoided further escalation, the core issues (e.g., intellectual property) remain unresolved. While markets rejoiced in the detente, there are no clear signs that the trade war is over.

Year-to-Date Total Return

Figures are in USD As of June 30, 2019

Past performance is not a reliable indicator of future performance.
Sources: The European Union, MSCI, Standard & Poor’s, and Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved. Please see additional disclosures on the final page.
Source for Bloomberg Barclays index data: Bloomberg Index Services Ltd. Copyright© 2019, Bloomberg Index Services Ltd. Used with permission.
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

REGIONAL BACKDROP

As of June 30, 2019

United States

Positives
  • Dovish Fed, stable inflation
  • Healthy consumer spending, strong employment and improving wages
  • Lower rates driving a rebound in housing
  • Pause in trade war escalation
  • Greater share of secularly advantaged companies (e.g., cloud computing, internet retail) than rest of world
Negatives
  • Election in 2020
  • Slowing economic growth with fading fiscal stimulusMuted near-term earnings expectations
  • Faltering capex spending and corporate confidence
  • Late-cycle concerns: tight labor market, rising wages, and elevated marginsElevated corporate and government debt levels

Europe

Positives
  • Monetary policy remains very accommodative
  • Indirect beneficiary of China stimulus
  • Economic growth showing signs of improvement
  • Dividend yields remain strong
Negatives
  • Economic growth is muted
  • Limited scope for ECB to stimulate further
  • Export weakness, vulnerable to trade and China growth
  • Banking sector remains challenged
  • The composition of the new EU Parliament could lead to difficulties

Developed Asia/Pacific

Positives
  • Dovish stance from both the BOJ and RBA
  • China stimulus could support regional trade
  • Japanese fiscal stimulus implemented in April
  • Broadly attractive valuations, particularly in Japan
  • Improving corporate governance trends in Japan
Negatives
  • Highly exposed to slowing global economic growth and trade tensions
  • Japanese economic and earnings growth continue to be weak, VAT increase looms
  • Australia facing slowing economy with weakness in housing
  • Australian earnings facing increased margin pressure

Emerging Markets

Positives
  • Muted inflation, more dovish Fed gives central banks flexibility to ease
  • Beneficiary of Chinese stimulus
  • Equity valuations attractive relative to developed markets
  • With growing importance of tech sector, less tied to commodity cycle
Negatives
  • Export-driven economies are highly vulnerable to rising trade tensions
  • Instability in several key markets (Turkey, Argentina, and Brazil) could persist
  • Long-term China growth trajectory remains a headwind
  • China stimulus more measured and domestically focused

ASSET ALLOCATION COMMITTEE POSITIONING

As of June 30, 2019

PORTFOLIO IMPLEMENTATION

As of June 30, 2019

Source: T. Rowe Price.
Neutral equity portfolio weights broadly representative of MSCI All Country World Index regional weights; includes allocation to real assets equities. Core global fixed Income allocation broadly representative of Bloomberg Barclays Global Aggregate Index regional weights.
Information presented herein is hypothetical in nature and is shown for illustrative, informational purposes only. It is not intended to be investment advice or a recommendation to take any particular investment action. This material is not intended to forecast or predict future events and does not guarantee future results.
These are subject to change without further notice.
Please see “Additional Information” on final page for information about this MSCI information.
Source for Bloomberg Barclays index data: Bloomberg Index Services Ltd. Copyright© 2019, Bloomberg Index Services Ltd. Used with permission.

ADDITIONAL DISCLOSURES:
Certain numbers in this report may not equal stated totals due to rounding.

Source: Unless otherwise stated, all market data are sourced from Factset. Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.

Source for MSCI data: MSCI. 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.

Copyright © 2019, S&P Global Market Intelligence (and its affiliates, as applicable). Reproduction of S&P 500 in any form is prohibited except with the prior written permission of S&P Global Market Intelligence (“S&P”). None of S&P, its affiliates or their suppliers guarantee the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions, regardless of the cause or for the results obtained from the use of such information. In no event shall S&P, its affiliates or any of their suppliers be liable for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of S&P information.

Key Risks –The following risks are materially relevant to the information highlighted in this material:
Even if the asset allocation is exposed to different asset classes in order to diversify the risks, a part of these assets is exposed to specific key risks.
Equity risk – in general, equities involve higher risks than bonds or money market instruments.
Credit risk – a bond or money market security could lose value if the issuer’s financial health deteriorates.
Currency risk – changes in currency exchange rates could reduce investment gains or increase investment losses.
Default risk – the issuers of certain bonds could become unable to make payments on their bonds.
Emerging markets risk – emerging markets are less established than developed markets and therefore involve higher risks.
Foreign investing risk – Investing in foreign countries other than the country of domicile can be riskier due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments.
Interest rate risk – when interest rates rise, bond values generally fall. This risk is generally greater the longer the maturity of a bond investment and the higher its credit quality.
Real estate investments risk – real estate and related investments can be hurt by any factor that makes an area or individual property less valuable.
Small and mid-cap risk – stocks of small and mid-size companies can be more volatile than stocks of larger companies.
Style risk – different investment styles typically go in and out of favour depending on market conditions and investor sentiment.

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 a 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 that 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.

Canada - Issued in Canada by T. Rowe Price (Canada), Inc. T. Rowe Price (Canada), Inc.’s investment management services are only available to Accredited Investors as defined under National Instrument 45-106. T. Rowe Price (Canada), Inc. enters into written delegation agreements with affiliates to provide investment management services.

© 2019 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE and the Bighorn Sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.

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