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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

Portfolio Positioning

As of 31 July 2020

Eye on Style

  • Within equities, we moved to a neutral stance between growth and value as relative valuations have become more stretched within growth, with segments of technology and healthcare particularly expensive, most notably in small-cap.
  • While the outlook for growth stocks’ fundamentals remains positive, elevated valuation levels could leave them vulnerable to disappointment.
  • Cyclically oriented, value stocks’ extreme underperformance and favorable valuations could be catalysts for near-term outperformance should there be a sustained period of improving economic growth.

Market Themes

As of 31 July 2020

Don’t Fight the FAANGs?1

Year-to-date growth stocks have outperformed value by over 30%, not only in the downturn given their defensive characteristics, but also during the recovery. While growth stocks have benefited from secular trends, as well as asset-light business models and less cyclical exposure, for more than a decade, the recent shutdowns have actually benefited many growth companies due to accelerated trends in areas such as online shopping, video streaming, and cloud computing. With S&P 500 earnings expected to be down close to -35% in the quarter, the FAANGs are expected to report an average growth of 20% in earnings. Although growth stock valuations appear stretched, fundamentals remain strong and many expect the current low growth and low rate environment to continue, which has historically favored growth stocks. While value stocks have been written off by the market, progress on a coronavirus vaccine or signs of a rebound in global growth could have them poised for a much overdue rally – but it is unlikely to be the start of a new value cycle.

S&P 500: Communication Services vs. Industrials
As of 31 July 2020

Past performance is not a reliable indicator of future performance.
Sources: Factset. Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved. J.P. Morgan Chase & Co. Standard & Poor’s. Please see additional disclosures on the final page.
1FAANGs refer to Facebook, Amazon, Apple, Netflix, and Alphabet (parent company of Google). The specific securities identified and described are for informational purposes only and do not represent recommendations.
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

Not so Fast on That “V”

Global growth came in at record low levels in the second quarter, with output in the U.S. contracting by nearly 33% and the Eurozone down over 40% (on an annualized basis). While the headline gross domestic product numbers were not unexpected, hopes in the U.S. that the rapid recovery that we saw in May and June would continue through the rest of the year have been called into question by the recent mixed jobs data. The two consecutive weeks of increasing initial jobless claims in July challenged the labor market recovery, although the most recent week’s initial jobless claims data showed a bit of a reversal. If this muddle through environment continues and the federal government reduces additional support for unemployed Americans—which has kept many Americans afloat during the crisis—the equity market’s hopes for a V-shaped recovery in the back half of the year may be dashed.

U.S. Unemployment Insurance
As of 31 July 2020

Past performance is not a reliable indicator of future performance.
Sources: Factset. Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved. J.P. Morgan Chase & Co. Standard & Poor’s. Please see additional disclosures on the final page.
1FAANGs refer to Facebook, Amazon, Apple, Netflix, and Alphabet (parent company of Google). The specific securities identified and described are for informational purposes only and do not represent recommendations.
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

Dollar Can’t Buy EM Relief

In July, the U.S. dollar (USD) and U.S. Treasury yields both fell to multi-year lows, pressured by a resurgence in coronavirus cases and the Fed’s pledge to keep monetary policy loose. Normally, this backdrop would be supportive for higher yielding emerging markets (EM), amid a low yield environment, and provide a boost to their currencies. However, continued economic impacts of the current crisis and limited capacity for fiscal and monetary stimulus, except for China, has weighed on sentiment despite the slump in the USD. This has been evident in the divergence in EM regional currency performance during the virus-related sell-off and recovery. Idiosyncratic issues including financial instability continue to hinder some Latin American countries, leading to significant underperformance versus their more stable, Asian EM counterparts. While a lower USD removes a significant headwind for EM assets, bigger risks abound for broader EM as they continue to weather the crisis.

EM Currencies: Latin America vs. Asia
As of 31 July 2020

Past performance is not a reliable indicator of future performance.
Sources: Factset. Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved. J.P. Morgan Chase & Co. Standard & Poor’s. Please see additional disclosures on the final page.
1FAANGs refer to Facebook, Amazon, Apple, Netflix, and Alphabet (parent company of Google). The specific securities identified and described are for informational purposes only and do not represent recommendations.
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

Regional Backdrop

As of 31 July 2020

United States

Positives
  • Unprecedented levels of monetary and fiscal support
  • Greater share of secularly advantaged companies (e.g., cloud computing, internet retail) than rest of the world
  • Healthy consumer balance sheets prior to the crisis
Negatives
  • Size of country, freedom of movement, and inconsistent policies means there is higher potential for continued outbreaks
  • Heightened political tensions
  • Elevated corporate leverage going into the crisis
  • Elevated government debt levels
  • USD strength is fading

Europe

Positives
  • Virus containment and re-opening strategies have been successful
  • EU recovery fund provides further fiscal stimulus and is the first step toward a fiscal union
  • Monetary policy remains very accommodative
  • Equity valuations are inexpensive
  • Strong EUR outlook
Negatives
  • Lower share of secularly advantaged companies
  • Banking sector was weak going into the crisis
  • Weak economic growth going into crisis
  • Limited scope for ECB to stimulate further

Developed Asia/Pacific

Positives
  • Outbreaks in this region have thus far been milder than in the rest of the world
  • Strong fiscal and monetary support
  • Japanese companies generally hold high cash levels, meaning they have more cushion for weakness
Negatives
  • Weak economic growth going into crisis
  • Highly sensitive to global industrial production and trade trends
  • Australia holds high exposure to natural resource prices, which have improved but remain low

Emerging Markets

Positives
  • Demand from China has largely rebounded
  • USD strength has eased
  • Dovish Fed has given central banks flexibility to ease
  • Equity valuations attractive relative to developed markets
Negatives
  • Weak health care infrastructure in many regions
  • Limited ability to enact fiscal stimulus (excluding China)
  • Trade tensions have been re-ignited
  • Highly sensitive to global industrial production and trade trends
  • Commodity prices under pressure

Asset Allocation Committee Positioning

As of 31 July 2020

Portfolio Implementation

As of 31 July 2020

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.
Source for Bloomberg Barclays index data: Bloomberg Index Services Limited. Please see “Additional Disclosures” on final page for information.


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.

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.

Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

The S&P 500 is a product of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”) and [Third Party Licensor], and has been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); [Third Party Licensor Trademarks] are trademarks of the [Third Party Licensor] and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by T. Rowe Price. [Licensee’s Product(s)] is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, or [Third Party Licensor] and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500.

J.P. Morgan Chase & Co.: Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2020, J.P. Morgan Chase & Co. All rights reserved.

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 and/or marketing 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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