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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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November 2020 / STRATEGY

T. Rowe Price Strategy Focus on China Evolution Equity

Strategy Summary

  • We take a holistic approach to investing in China, looking for the best risk/reward proposition across the full spectrum of greater‑Chinese markets including: onshore (A‑shares), offshore (H‑shares), and U.S.‑listed Chinese stocks (American Depositary Receipts). The strategy may invest up to 10% in Taiwanese companies whose business is predominantly levered to China’s economy.
  • The strategy is style‑agnostic and unconstrained by an index. We focus on the bottom 50% of the MSCI China All Shares Index by full market capitalization. The result is a high active share strategy that reflects the changes we anticipate in the Chinese economy and markets. Sector and industry allocation are driven by stock selection.
  • Securities are chosen on the basis of bottom‑up research, leveraging T. Rowe Price’s team of experienced Asia analysts to identify companies in China that we believe will be the potential long‑term winners in the evolving Chinese economy. We believe that proprietary, fundamental research is the key driver of value‑added active management. To that end, we have one of the industry’s strongest commitments to in‑house research dedicated to the Asian region and to China specifically.
  • Our approach is underpinned by a culture of collaboration, which emphasizes the integration of fundamental research and communication across asset classes and regions. Sharing of analysis and joint on‑site research trips allow for a more comprehensive investment view in less transparent markets and improve access to corporate management teams.

FEATURES

Investment Philosophy

China has been undergoing unprecedented changes, including an evolving economic model, increased affluence, innovative entrepreneurialism, industrial upgrades, and a shifting geopolitical outlook. We believe these changes have created an investment landscape with ample opportunities. But most investors are only exposed to a narrow, well‑known subset of those opportunities.

We believe that strong long‑term performance can best be achieved by uncovering stocks where change and growth are underappreciated or undiscovered. Finding these outliers requires an unconstrained approach that delves deeper into the inefficient China opportunity set. Our focus on these outliers results in a strategy that is influenced more by individual, idiosyncratic factors than by broad, macro trends.

Portfolio Management and Construction

The China Evolution Equity Strategy is led by Hong Kong‑based Portfolio Manager Wenli Zheng, who has ultimate responsibility for investment decisions. He has managed the strategy since its inception in December 2019. In addition, since 2014, Wenli has been a co‑portfolio manager of our International Small‑Cap Equity Strategy, responsible for the Asian ex‑Japan investments.

When constructing the portfolio, the primary focus is on the idiosyncratic fundamental factors of each holding. Position sizes are determined by the potential upside and downside of an individual stock. The number of holdings typically ranges from 40 to 80, a range we believe is appropriate for our performance objectives.

Idea Generation and Fundamental Research

Our dedicated Asia and China equity analysts, backed by our firmwide global research team, undertake fundamental, bottom‑up research analysis, which integrates environmental, social, and governance (ESG) considerations. Our focus is on identifying outlier companies, beyond the widely owned mega‑cap stocks, that potentially offer durable growth that can compound over multiple years; accelerating growth from a new product or industry cycle; or rerating opportunities as we look beyond short‑term challenges or concerns to the longer‑term prospects of the company.

ESG Integration

The China Evolution Equity Strategy uses ESG integration as part of its investment process. This means incorporating environmental, social, and governance factors to enhance investment decisions. Our philosophy is that ESG factors are a component of the investment decision, meaning that they are not the sole driver of an investment decision nor are they considered separately from more traditional analysis.

The process of ESG integration takes place on two levels: first, with our research analysts as they incorporate environmental, social, and governance factors into company valuations and ratings, and second, with the portfolio manager as he considers these ESG factor exposures at the portfolio level. Both the analysts and the portfolio manager are able to leverage dedicated, in‑house resources to assist in analyzing ESG criteria.

Disciplined Approach to Risk

Investing internationally involves risks, including economic and political uncertainty and currency fluctuations. In particular, investments in emerging markets, including China, can be subject to abrupt and severe price fluctuations.

Mitigating risk is integral to the active management of our strategy. A significant part of our effort is dedicated to understanding the underlying financial and nonfinancial risk factors of each active investment position as well as the overall level of risk borne by our portfolios.

T. Rowe Price does not believe that an investment strategy can be successful if risk is viewed as something distinct from the rest of portfolio management. Accordingly, we incorporate risk management throughout every step of our investment process.

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.

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.

© 2021 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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