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Investment Insights

Global Asset Allocation Viewpoints

T. Rowe Price

Portfolio Positioning

As of 31 December 2019

Stepping Into Cyclical Exposure

  • Modestly added to equities from bonds as sentiment has continued to improve for risk assets due to supportive monetary policy and further stabilization in global growth.
  • Within equities, we added to markets outside the U.S., including emerging markets and global ex-U.S. value, based on attractive relative valuations, improving global growth, and potential upside in currencies, notably within emerging markets.
  • Within fixed income, we further trimmed duration exposure by rotating from long-term U.S. Treasuries into less duration-sensitive floating rate loans that should be supported with the Fed on hold.

Market Themes

As of 31 December 2019

Making "Global ex-U.S." Great Again?

In 2019, the U.S. stock market continued its streak of outperforming, rising by more than 31% versus 21% for the rest of the world, as measured by the S&P 500 Index and the MSCI All Country World ex-U.S. Index (in USD). More amazing is that U.S. markets have outpaced the rest of the world by nearly 200% over the past decade. Markets outside the U.S. were plagued by a decade that saw the European debt crisis, two recessions in Europe, bouts of political uncertainty across the globe, including Brexit, and more recently, the impacts of the trade war. Entering 2020, markets outside the U.S. are benefiting from easing trade tensions and stabilizing global growth, which could be a tailwind due to their more cyclically oriented economies. Given these improvements, still attractive relative valuations, and cheap currencies—notably within emerging markets—could this be the beginning of the end of U.S. (markets) exceptionalism or just a temporary reprieve?

U.S. vs. Global Ex-U.S. Equity Market Returns

31 December 2009 to 31 December 2019
Figures are in USD

Past performance is not a reliable indicator of future performance.
Sources: Standard & Poor’s, MSCI, Bloomberg Finance L.P., financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved. Please see “Additional Disclosures” on final page for information.

Un-pricing a Recession

The U.S. yield curve has reached its steepest level since October 2018 as investors continue to gain confidence in the growth outlook amid waning concerns about trade. In fact, yield curves around the world are showing signs of re-steepening as investors begin to shed lower-yielding assets for riskier ones. The curve steepening reflects a reversal of the safe-haven trade we saw in August that drove the U.S. yield curve into inversion, a common predictor of a recession. Although consensus is not calling for a full-blown reflation trade at this stage of the cycle, investors’ appetite for sectors that benefit from higher rates, like financials, has increased alongside inflation protected securities. Further improvement in sentiment and growth could lead to a continued repricing higher of inflation and rate expectations. However, there remains no shortage of global risks entering 2020, notably unresolved trade issues, tensions in the Middle East, and the upcoming U.S. presidential election.

U.S. Treasury Yield Curve Slope

Difference Between 10Y and 2Y Yield
30 June 2018 to 31 December 2019

Past performance is not a reliable indicator of future performance.
Sources: Standard & Poor’s, MSCI, Bloomberg Finance L.P., financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved. Please see “Additional Disclosures” on final page for information.

Show Me the Earnings!

After 2018’s tumultuous close to the year, U.S. stocks didn’t look back throughout 2019, with the S&P 500 Index closing near record levels, up more than 31%. The stellar performance more than compensated for 2018’s 4% loss, resulting in just over 12% annualized returns over the past two years. Despite flat earnings growth throughout 2019, stocks found support from improving trade negotiations and the Fed’s success in engineering a “mid-cycle adjustment.” With valuations back near 2018 highs, markets will likely look for earnings growth to sustain the recent momentum. Currently, earnings estimates for 2020 are slated for close to 10%. Although many investors are reluctant to buy into the optimistic estimates, further improvement in economic data and abating trade risk could spur corporate and consumer spending, making the current 2020 earnings growth rate of 10% not so far-fetched.

S&P 500 Return Drivers

Earnings Growth vs. Multiple Expansion
31 December 2009 to 31 December 2019

Past performance is not a reliable indicator of future performance.
Sources: Standard & Poor’s, MSCI, Bloomberg Finance L.P., financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved. Please see “Additional Disclosures” on final page for information.

Regional Backdrop

As of 31 December 2019

United States

  • Fed likely on hold, inflation low
  • Growth expected to stabilize
  • Healthy consumer spending, strong employment, and improving wages
  • Lower interest rates driving a modest rebound in housing
  • Pause in trade war escalation
  • Greater share of secularly advantaged companies (e.g., cloud computing, internet retail) than rest of the world
  • Political uncertainty
  • Modest economic growth upside
  • Muted near-term earnings expectations
  • Weak capex spending and corporate confidence
  • Late-cycle concerns: tight labor market, rising wages, and corporate margins under pressure
  • Elevated corporate and government debt levels


  • Monetary policy remains very accommodative
  • Services sector of the economy resilient
  • Dividend yields remain strong
  • Political uncertainty waning
  • Indirect beneficiary of China stimulus
  • Economic growth is challenged, with notable weakness in the manufacturing sector
  • Limited scope for European Central Bank (ECB) to stimulate further
  • Export weakness, vulnerable to trade and China growth
  • Banking sector remains weak

Developed Asia/Pacific

  • Stabilizing global economic outlook should be supportive for export-driven economies attractive valuations, particularly in Japan
  • Improving corporate governance trends in Japan
  • Fiscal stimulus enacted in Japan
  • Australian housing market stabilizing
  • Highly sensitive to global industrial production trends and trade tensions
  • Market may be pricing in an unrealistic level of support from Bank of Japan and Reserve Bank of Australia
  • Earnings growth remains tepid

Emerging Markets

  • Muted (but rising) inflation, Fed has given central banks flexibility to ease
  • Easing trade tensions
  • Equity valuations attractive relative to developed markets
  • With growing importance of tech sector, less tied to commodity cycle
  • Instability in several key markets could weigh on sentiment
  • Long-term China growth trajectory remains a headwind
  • China stimulus more measured and domestically focused
  • Commodity prices remain under pressure

Asset Allocation Committee Positioning

As of 31 December 2019

Portfolio Implementation

As of 31 December 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 Disclosures” on final page for information about this MSCI information.
Source for Bloomberg Barclays index data: Bloomberg Index Services Ltd. Copyright© 2020, 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 2020 FactSet. All Rights Reserved.

Used with permission of Bloomberg Finance L.P.

Copyright © 2020, S&P Global Market Intelligence (and its affiliates, as applicable). Reproduction of any information, data or material, including ratings (“Content”) in any form is prohibited except with the prior written permission of the relevant party. Such party, its affiliates and suppliers (“Content Providers”) do not guarantee the accuracy, adequacy, completeness, timeliness or availability of any Content and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content. In no event shall Content Providers 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 the Content. A reference to a particular investment or security, a rating or any observation concerning an investment that is part of the Content is not a recommendation to buy, sell or hold such investment or security, does not address the suitability of an investment or security and should not be relied on as investment advice. Credit ratings are statements of opinions and are not statements of fact.

Source: 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.

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, nor is it intended to serve as the primary basis for an investment decision. 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.

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