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Our View On Markets: Global Focused Growth Equity

Laurence Taylor, CFA®, Equity Solutions Portfolio Manager

I’m Laurence Taylor, Portfolio Specialist for Global Focused Growth Equity strategy. I’m here to speak about equity markets, some of our thoughts about markets and how we are positioned today.

We are a global, all country approach high conviction, looking for companies which are defined by improving economic returns where we have very specific insight about what is going to drive those economic returns upwards and we are looking to not pay an extreme valuation.

How do you view the current market environment?

So, our current view on equity markets is that we are still in an environment defined by stability and improvement but you are seeing, in terms of February and March’s volatility perhaps a sense that some of those drivers of last year’s very strong return – 25% from global equities – starting to be more mixed in terms of data.

Last year everything surprised on the upside: economic growth, earnings growth, politics, low inflation, easy monetary policy. You are starting to see perhaps people question politics and maybe inflation as well.

We still believe that the economic environment is pretty sound and we think that some of the market movements have perhaps taken the heat out of markets. One way or another, we still think there is enough improvement in equity markets to work with to have an optimistic view, both on our portfolio but also on markets in aggregate.

How do you manage market volatility in your portfolio?

So, this year has been a reminder that volatility in equity investing goes hand in hand and in some senses that is healthy because last year when volatility collapsed I think that was very unusual.

How do we think about risk and how do we mange volatility? First of all, we own real businesses with economic relevance in the future. And those companies growing and beating estimates, that is one way to protect risk and the actual value of the businesses. The fact that they are durable, are economically relevant in the future, they tend to over time to outperform because they are getting bigger they are not shrinking, their terminal values are high.

Ultimately, we blend that philosophy with old-fashioned diversification. We have a lot of ideas at T.Rowe Price, a portfolio where we are going to own 70-80 names, high conviction, 85-90% active share, but ultimately we are looking to bring together a portfolio which can help us weather some of the storms that are naturally going hit equity markets.

How is the portfolio positioned today?

We own around 75-80 stocks today, very unconstrained in the way that we build the portfolio. We build based on our expectations for improvement and valuation and effectively where we see conviction coming from our analyst platform and the resources that we have at T.Rowe Price today.

Ultimately, we build the portfolio from the bottom-up, but we find more opportunities today in areas like technology, in healthcare but also in some of the consumer stocks that we think the market is overly pessimistic on.

We’ve also been adding to industrials taking the weight back towards the benchmark by building an aerospace position today - again because we think that that market is perhaps getting overly fearful.

It is all very bottom-up driven. We are in a world where certainly the market is getting very top down again that gives us a really good opportunity to pick some stocks and make the portfolio sharper.

How does your approach differ from other global equity managers?

So, we think that there are very few managers that have the breadth of resource that we do in terms of bottom-up ideas and we have a portfolio management team a, team of four investors led by David Eiswert, who are looking for individual insights – not just growth, not just quality, but individual insights about what’s going to cause a company’s fundamentals to accelerate and improve.

And that changes as we look across a cycle and we think that were are able to capture the very best of secular growth, cyclical growth and companies which are helping themselves to improve and grow. And when you blend that in a high conviction portfolio the outcome tends to be that bit more idiosyncratic, a bit more pure in terms of bottom-up stock picking, a less heavy factor driven portfolio. And we think that this is an environment where factors are becoming harder to capture, because they are less stable sources of alpha but stock picking is something that is very perennial and we feel very well placed to do that consistently as we look out.

Key Risks

Transactions in securities of foreign currencies may be subject to fluctuations of exchange rates which may affect the value of an investment. The fund is subject to the volatility inherent in equity investing, and its value may fluctuate more than a fund investing in income-oriented securities. The portfolio may include investments in the securities of companies listed on the stock exchanges of developing countries.

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 written 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.

DIFC—Issued in the Dubai International Financial Centre by T. Rowe Price International Ltd. This material is communicated on behalf of T. Rowe Price International Ltd. by its representative office which is regulated by the Dubai Financial Services Authority. For Professional Clients only.

EEA—Issued in the European Economic Area by T. Rowe Price International Ltd, 60 Queen Victoria Street, London EC4N 4TZ which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only.

Switzerland—Issued in Switzerland by T. Rowe Price (Switzerland) GmbH, Talstrasse 65, 6th Floor, 8001 Zurich, Switzerland. For Qualified Investors only.

T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc. © 2018 T. Rowe Price. All rights reserved.



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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.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

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