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Investment Insights

October 2020

Global Asset Allocation Viewpoints

Portfolio Positioning

As of 30 September 2020

Tipping Toward Value

  • We remain neutral stocks versus bonds as we balance extended equity valuations against still ultra-low interest rates and the risk of upcoming political events, including the U.S. elections and Brexit.
  • We shifted to a modest overweight in U.S. value-oriented equities as they may benefit from the gradual recovery in economic growth and attractive relative valuations versus growth-oriented equities.
  • We maintain exposure to other areas that could benefit from cyclical acceleration including U.S. small-cap equities and emerging markets (EM) equities, as well as EM bonds and high yield.

Market Themes

As of 30 September 2020

Mounting Losses

Although unemployment rates have continued to decline, we are starting to see an alarming increase in permanent job losses, which has moved beyond service sectors. While initial hopes were that the impacts of the coronavirus would be short-lived, reality is setting in, and companies whose business models are most vulnerable to changes in consumer behavior are starting to cut headcount. With additional fiscal support potentially delayed until 2021, hard-hit areas of the economy may face irreparable damage. However, thus far consumer spending has remained healthy, and bankruptcies, while rising, have remained relatively modest, at least for now. Although signs of progress toward a vaccine have been promising, the likelihood of broad distribution could take many more months, placing further pressure on vulnerable areas of the economy. Without additional stimulus to bridge the gap, we may see a continued increase in job losses, particularly in the service sectors, reaching deeper into the economy and threatening the nascent recovery.

U.S. Unemployment: Permanent Job Loss
As of 30 September 2020

Past performance is not a reliable indicator of future performance.
Sources: Bloomberg Finance L.P., Bloomberg Services Limited., Johns Hopkins University. Please see additional disclosures on the final page.
1 Number of daily coronavirus cases represents the 7-day moving average of the number of daily cases in the region.
2 VIX represents CBOE Volatility Index (VIX).

Waves of Uncertainty

After getting through the first surge of coronavirus infections, Europe is now facing a second wave, forcing new restrictions to be imposed in areas that were well into reopening. The UK has been hit particularly hard by the second wave, seeing virus cases creep back up past May levels, reigniting discussions about a national lockdown. The challenges of containing this second wave come at a time when tensions surrounding Brexit are peaking, further complicating the region’s outlook. While the UK officially exited the European Union (EU) last year, the two parties have failed to agree on important remaining issues surrounding trade and security, particularly regarding border checks between Ireland and the UK. With the EU being the largest trading partner of the UK, if an agreement is not in place by the end of the year, it could jeopardize an estimated trillion euros worth of annual trade. As the rest of the world recovers, Europe could be at risk of being left behind if it is not able to overcome these issues.

Second Wave in EU/UK
As of 30 September 2020

Past performance is not a reliable indicator of future performance.
Sources: Bloomberg Finance L.P., Bloomberg Services Limited., Johns Hopkins University. Please see additional disclosures on the final page.
1 Number of daily coronavirus cases represents the 7-day moving average of the number of daily cases in the region.
2 VIX represents CBOE Volatility Index (VIX).

A November to Remember?

With a quickly approaching U.S. presidential election that is too close to call, mounting controversy surrounding mail-in ballots, the potential for a protracted legal battle, and the president’s recent coronavirus diagnosis, markets are increasingly pricing in expectations of higher volatility that could last well beyond election day. Some believe that the potential for political chaos and prolonged uncertainty could be a bigger risk to the markets than the actual selection of either candidate. These fears are evident by the increasing costs of hedging against volatility post-election through November and December VIX futures. The markets’ reaction to the more than a month of uncertainty during the 2000 election saw the S&P 500 down over 4%, 10-year Treasury yields falling over 50 basis points, and gold prices soaring over 12%. If the balance of power remains in flux for a longer period this time around, markets could be more vulnerable given extended valuations, a still tenuous economic recovery, and uncertainty around the coronavirus.

VIX2 Futures Curve
As of 2 October 2020

Past performance is not a reliable indicator of future performance.
Sources: Bloomberg Finance L.P., Bloomberg Services Limited., Johns Hopkins University. Please see additional disclosures on the final page.
1 Number of daily coronavirus cases represents the 7-day moving average of the number of daily cases in the region.
2 VIX represents CBOE Volatility Index (VIX).

Regional Backdrop

As of 30 September 2020

United States

  • 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
  • Heightened political tensions
  • Elevated corporate leverage going into the crisis
  • Elevated government debt levels
  • U.S. dollar strength has faded


  • EU recovery fund provides further fiscal stimulus and is an initial step toward a fiscal union
  • Monetary policy remains very accommodative
  • Equity valuations are inexpensive
  • Strong euro outlook
  • Lower share of secularly advantaged companies
  • Banking sector was weak going into the crisis
  • Weak economic growth going into the crisis
  • Limited scope for European Central Bank to stimulate further
  • Second wave of virus ongoing

Developed Asia/Pacific

  • Outbreaks in this region have thus far been milder than in the rest of the world
  • Strong fiscal and monetary support
  • Smooth political transition gives hope that reforms will continue
  • Weak economic growth going into the crisis, driven by long-term demographic headwind
  • Highly sensitive to global industrial production, trade trends, and natural resource prices, which have improved but remain low
  • Experiencing a weaker recovery than other developed markets

Emerging Markets

  • Chinese economy has largely rebounded
  • U.S. dollar strength has eased
  • Dovish Fed has helped ease financial conditions
  • Equity valuations attractive relative to developed markets
  • Virus spread still increasing in some areas
  • Limited ability to enact fiscal stimulus (excluding China)
  • Highly sensitive to global industrial production and trade trends, which have improved but remain muted

Asset Allocation Committee Positioning

As of 30 September 2020

Portfolio Implementation

As of 30 September 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.

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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