SICAV

Emerging Markets Discovery Equity Fund

Formerly Emerging Markets Value Equity Fund

Utilises a contrarian approach to invest in undervalued emerging markets companies positioned to benefit from a re-rating thesis for change.

ISIN LU1244138852 WKN A14XYY

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

-2.10%
$113.2m

1YR Return
(View Total Returns)

Manager Tenure

-5.63%
5yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

-0.52
4.74%

Inception Date 14-Sep-2015

Performance figures calculated in USD

Other Literature

30-Sep-2020 - Ernest Yeung, Portfolio Manager,
With the extreme valuation divergence between growth and value-oriented stocks, we believe there may be a reversion in this trend supported by the significant fiscal and monetary policy easing globally. As we look towards a potential recovery period from the disruption caused by the coronavirus, we think this could provide a favourable backdrop for value investing, barring any harsh lockdowns should new waves of infections emerge.
Ernest C.  Yeung
Ernest C. Yeung, Portfolio Manager

Ernest Yeung is a portfolio manager for the Emerging Markets Discovery Equity Strategy at T. Rowe Price. He was the co-portfolio manager for the International Small-Cap Equity Strategies from 2009 to 2014. Mr. Yeung is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price Hong Kong Limited.

Click for Manager Outlook
 

Strategy

Manager's Outlook

We continue to remain constructive towards emerging market equities. With the extreme valuation divergence between growth-oriented stocks and those with value characteristics, we believe that there may be a reversion in this trend supported by the significant fiscal and monetary policy easing globally.

We think that the reflationary market environment resulting from the stimulus efforts will be an opportunity for emerging market value stocks to gain traction.

As we look towards a potential recovery period from the coronavirus disruption, this could provide a favorable backdrop for value investing, barring any harsh lockdowns should new waves of coronavirus cases emerge. We seek to identify cyclical winners which are likely to outperform as we emerge from the crisis.

We are mindful that the path to recovery may be gradual and that the near-term earnings outlook is highly uncertain, but we will continue to weigh the risks and rewards carefully in a post-pandemic recovery. While earnings visibility may be low, more than half of the companies we own in the portfolio reported results in the June quarter that were in line or better than expectations, which is encouraging.

With the oil price slump earlier this year, we may have seen the worst and we look forward to a period of greater price stability, but it remains one of the key risks for our portfolio. Concerning the U.S. elections in November, we will be watchful of the economic policies that the new administration embarks on. A wider fiscal deficit, for example, will mean a weaker U.S. dollar, which has a considerable bearing on EM performance.

We continue to see EM as fertile terrain for finding "forgotten" pockets of opportunities in stocks with asymmetrical risk-return profiles. We think EM companies are still focused on better capital allocation and cash flow generation after years of reckless spending.

We believe that given the heightened uncertainty, this is an opportune time to harness the deep insights and resources of our global research platform, which provide us with an information edge that is crucial for identifying "forgotten" emerging market companies with solid improvement potential.

Investment Objective

To increase the value of its shares, over the long term, through growth in the value of its investments. The fund invests mainly in a widely diversified portfolio of stocks of emerging market companies.

Investment Approach

  • Aim to exploit the valuation anomalies that arise across the diverse and inefficient emerging market opportunity set.
  • Employ a contrarian approach using fundamental research, quantitative screen and industry contacts to identify companies that are out of favour, undervalued and that offer an attractive risk and reward profile.
  • Minimize the risk of value traps by focusing on companies offering yield or a book value anchor to the valuation, and where we have identified re-rating thesis that can lead to an expansion in valuation over time.
  • Risk management is an integral part of the portfolio construction process.

Portfolio Construction

  • Typically 50-80 stock portfolio
  • Expected 4-8% tracking error
  • Individual position typically 0.5% to 5%, position sized by prospective risks
  • Country ranges +/-10% absolute deviation from the benchmark
  • Sector ranges +/-15% absolute deviation from the benchmark
  • Reserves are normally less than 5%, max 10%

Performance (Class Q)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Since Manager Inception
Annualised
Fund % -5.63% -2.10% 6.48% 5.97% 5.97%
Indicative Benchmark % 10.54% 2.42% 8.97% 8.48% 8.48%
Excess Return % -16.17% -4.52% -2.49% -2.51% -2.51%

Inception Date 14-Sep-2015

Manager Inception Date 14-Sep-2015

Indicative Benchmark: MSCI Emerging Markets Index Net

Data as of  30-Sep-2020

Performance figures calculated in USD

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % -5.63% -2.10% 6.48% 5.97%
Indicative Benchmark % 10.54% 2.42% 8.97% 8.48%
Excess Return % -16.17% -4.52% -2.49% -2.51%

Inception Date 14-Sep-2015

Indicative Benchmark: MSCI Emerging Markets Index Net

Data as of  30-Sep-2020

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 28-Oct-2020 Quarter to DateData as of 28-Oct-2020 Year to DateData as of 28-Oct-2020 1 MonthData as of 30-Sep-2020 3 MonthsData as of 30-Sep-2020
Fund % 1.64% 1.64% -14.55% -2.69% 3.16%
Indicative Benchmark % 3.65% 3.65% 2.45% -1.60% 9.56%
Excess Return % -2.01% -2.01% -17.00% -1.09% -6.40%

Inception Date 14-Sep-2015

Indicative Benchmark: MSCI Emerging Markets Index Net

Indicative Benchmark: MSCI Emerging Markets Index Net

Performance figures calculated in USD

Past performance is not a reliable indicator of future performance.  Source for fund performance: T. Rowe Price. Fund performance is calculated using the official NAV with dividends reinvested, if any. 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. It will be affected by changes in the exchange rate between the base currency of the fund and the subscription currency, if different. Sales charges (up to a maximum of 5% for the A Class), taxes and other locally applied costs have not been deducted and if applicable, they will reduce the performance figures. 

Where the base currency of the fund differs from the share class currency, exchange rate movements may affect returns.

Index returns shown with reinvestment of dividends after the deduction of withholding taxes. 

Effective 1 July 2018, the "net" version of the indicative benchmark replaced the "gross" version of the indicative benchmark. The "net" version of the indicative benchmark assumes the reinvestment of dividends after the deduction of withholding taxes applicable to the country where the dividend is paid; as such, the returns of the new benchmark are more representative of the returns experienced by investors in foreign issuers. Historical benchmark performance has been restated accordingly. 

30-Sep-2020 - Ernest Yeung, Portfolio Manager,
Emerging market equities retreated in September following the monthly gains since March. Heightened friction between the U.S. and China and the upturn in coronavirus cases in Europe hurt sentiment. Within the portfolio, stock selection in the oil-producing countries of Brazil and Russia curbed performance due to flat oil prices. In Brazil, Petroleo Brasileiro curbed returns but it delivered strong underlying results and its strong free cash flow stood out from the quarterly announcement. Witin Russia, Lukoil worked against us, but we like itsnet cash balance sheet and solid free cash flow yield. Stock choices in Hong Kong weakened returns further, led by casino operator Galaxy Entertainment on concerns that visitor arrivals during the Golden week Chinese holidays in October may not be as strong as expected. In contrast, stock selection in South Korea and information technology, the best performing sector in September, were a source of strength for the portfolio. Owning Samsung Electronics worked well as the stock reversed the previous month’s loss, reacting positively to a contract the company secured to provide a 5G network solution to Verizon in the U.S. It is also seen to benefit from U.S. sanctions on Chinese technology firms.

Holdings

Total
Holdings
67
Largest Holding Samsung Electronics 6.23% Was (30-Jun-2020) 6.23%
Other View Full Holdings Quarterly data as of 30-Sep-2020
Top 10 Holdings 26.52% View Top 10 Holdings Monthly data as of 30-Sep-2020

Largest Top Contributor^

Samsung Electronics
By 3.97%
% of fund 6.25%

Largest Top Detractor^

JOYY
By -0.10%
% of fund 2.02%

^Absolute

Quarterly Data as of 30-Sep-2020

Top Purchase

Ping An Bank (N)
2.00%
Was (30-Jun-2020) 0%

Top Sale

Dongfeng Motor (E)
0.00%
Was (30-Jun-2020) 1.84%

Quarterly Data as of 30-Sep-2020

30-Sep-2020 - Ernest Yeung, Portfolio Manager,

We continue to believe that with the extreme divergence between value stocks and growth-oriented securities, the scale will likely tilt back in value's favor.

During the quarter, we made no drastic changes to portfolio positioning, but rotated into opportunities that better fit our investment framework. We continue to see EM as fertile terrain for finding "forgotten" pockets of opportunities in stocks with asymmetrical risk-return profiles, wherein fundamental changes or operational improvement may drive a rerating while at the same there is potential downside support in terms of a strong balance sheet and healthy dividends.

We saw rotations in sectors such as financials, energy, and consumer discretionary. We also initiated new positions in the utilities sector with potential catalysts for change and downside support. In the energy sector, we started new positions as we believe in the oil supply cut thesis that is supportive of oil price continuing to climb out of its trough. We found a downside anchor in the oil price falling below its cash cost in the first quarter. Materials was our largest sector overweight at the end of the third quarter. We have not substantially increased our positions in deep cyclical stocks that were added to the portfolio in the second quarter in order to benefit from the reflationary scenario of a world recovering from the pandemic.

Energy

We increased our allocation to the energy sector after reversing a longstanding underweight from the second quarter. We continue to believe in the oil price recovery thesis due to the supply cuts.

  • During the quarter, we initiated a position in Reliance Industries, a conglomerate with businesses in oil exploration, refining, petrochemicals, telecommunications, retailing and broadcast media. We believe we paid a fair price for Reliance's old-economy businesses such as petrochemicals and telecoms. Its businesses are emerging from cyclical troughs and are poised to generate better earnings. Moreover, its new-economy businesses are benefitting from a series of mergers and acquisitions, giving it the scale to restructure. We think that the potential downside is limited for the stock and the upside may be substantial. We are also not ruling out a possible initial public offering for some of its divisions.
  • Aside from Reliance, we started a position in Novatek, an independent producer of natural gas based in Russia, which is increasingly involved in the transportation and marketing of its own production directly to its customers. As a low-cost supplier with a good track record, we see its global market share increasing. We like its strong balance sheet and low volatility, regulated domestic gas business that generates cash to fund growth. Gazprom, a major Russian oil and gas company, has a stake in Novatek and we eliminated our position in Gazprom this quarter as we favored Novatek.
  • We continued to add to existing positions in other energy companies such as the aforementioned Lukoil, Petrobras and CNOOC during the quarter.

Financials

Financials is the portfolio's biggest sector position. It has been through a tough year given the sharp falls in economic growth due to the coronavirus pandemic and the significant reduction in interest rates. However, we sought emerging market banks that have better franchises and stronger balance sheets while still fitting our investment framework. In the second quarter, we reduced our exposure to names in central and eastern Europe due to concerns about regulatory risks with dividend payouts being put on hold. During the third quarter, we shifted positions within the financial sector in Indonesia and China.

  • For example, in China, we eliminated PICC Property & Casualty, one of the country's largest property and casualty insurance companies, as the departure of its well-respected chairman and risk management issues cast a pall on our thesis of an improving return on equity. Aside from these, continued concerns on auto reform deregulation dragged down its share price. We also exited Industrial and Commercial Bank of China as our investment thesis of dividend and earnings growth has panned out, but the stock failed to rerate within our holding period.
  • We decided to redeploy funds to a higher conviction idea such as Ping An Bank, one of China's commercially-run banks which has cleaned up its balance sheet and has a healthy provision level. We think it is well positioned to benefit from better growth in consumer lending in the next two to three years as China recovers from the coronavirus pandemic.
  • In Indonesia, we exited Bank Negara Indonesia and switched into another lender with better franchise quality - Bank Rakyat Indonesia. We think that over the long term, this new banking addition to the portfolio will become a more valuable franchise with its dominant positioning in micro lending. We like this bank despite the possibility of national service risk for large state-owned banks in the current environment.
  • Outside of EM Asia, we established a position in OTP, Hungary's leading bank and the dominant retail franchise in the country. Aside from its market share, the bank remains well capitalized and has a strong balance sheet. In its latest results, it committed to pay out a dividend to compensate shareholders for the proposed but unpaid 2019 dividend in due course.

Utilities

We have turned overweight in the utilities sector during the quarter as we found new investment opportunities befitting our investment criteria. We established positions in two Chinese utility names - one with several catalysts for change and the other anchored by dividend support. We established a position in China Resources Gas, a gas distribution company. In China, we view gas distribution as an attractive sector with multiple tailwinds. We like the sector as it enjoys government policy support, volume growth, continuing gas consumption growth compared to other energy sources, and potential merger and acquisition opportunities.

We also initiated a position in Guangdong Investments, a well-run water distribution and sewage treatment company, following sharp share price weakness due to concerns about the impact of the coronavirus pandemic on the earnings of its non-water division. We think the company, which provides natural water to Hong Kong, is committed to maintaining its dividend per share growth as the impact of the pandemic on its business is likely to be temporary.

Consumer Discretionary

In the consumer discretionary space, where we have a sizeable underweight, we established a position in Fuyao Glass Industry, an automotive glass maker in China, which we see as a market share gainer. This quality cyclical stock may benefit from the recovery in auto volumes given the pent-up demand.

In China, the world's biggest vehicle market, vehicle sales rose for a fifth month in August. Within the auto sector, we exited Dongfeng Motor and instead built a position in Guangzhou Automobile, which counts Toyota, Honda, Mitsubishi and Fiat Chrysler Automobiles as its joint venture partners in China. Guangzhou Automobile's balance sheet strength should provide us downside support. The company has a strong and visible earnings momentum among auto OEMs partly due to the market share gain of Toyota and Honda and its domestic brand narrowing losses.

Industrials

We increased our allocation in the industrials and business services sector during the quarter as we identified names with attractive risk/reward profiles. For example, we initiated a new position in Mexico's Grupo Aeroportuario Sur, which operates nine airports in southeast Mexico. The company reported its worst quarter on record due to the slump in traffic, but we believe that, based on its liquidity position, it can withstand more pain if the current environment persists. With traffic recovery, Aeroportuario will continue to offer resilient and durable free cash flow from its portfolio of long-term airport concessions.

In India, we continue to find good opportunities in the industrial cyclicals, which increased our allocation to this south Asian market. We initiated a position in Ashok Leyland, one of India's largest commercial vehicle makers, which may benefit from the pick-up in infrastructure and mining projects.

While initiating positions in these two names, we exited Korea Shipbuilding which we bought as we saw it benefitting from an industry supply consolidation. While we think this theme will continue as most of the company's competitors are making a loss, the shipyard's plans to merge with a rival encountered delays.

Sectors

Total
Sectors
11
Largest Sector Financials 18.04% Was (31-Aug-2020) 18.98%
Other View complete Sector Diversification

Monthly Data as of 30-Sep-2020

Indicative Benchmark: MSCI Emerging Markets Index

Top Contributor^

Materials
Net Contribution 0.79%
Sector
0.12%
Selection 0.67%

Top Detractor^

Consumer Discretionary
Net Contribution -3.64%
Sector
-0.55%
Selection
-3.08%

^Relative

Quarterly Data as of 30-Sep-2020

Largest Overweight

Materials
By5.24%
Fund 12.17%
Indicative Benchmark 6.93%

Largest Underweight

Consumer Discretionary
By-5.19%
Fund 15.02%
Indicative Benchmark 20.21%

Monthly Data as of 30-Sep-2020

30-Sep-2020 - Ernest Yeung, Portfolio Manager,
We reduced our underweight position in consumer staples as we invested in a South Korean cosmetics company. It has been hit hard by the coronavirus due to the lack of Chinese demand; consumers are buying less beauty products due to the work-from-home arrangements. The company’s net profit is back to the level seen in 2013 before the China duty-free spending trend started, hence its downside appears limited. We think that the company will benefit from pent-up demand should we see the world normalise over the next year. We view as positive its shutdown of loss-making stores and small brands.

Countries

Total
Countries
17
Largest Country China 38.53% Was (31-Aug-2020) 39.37%
Other View complete Country Diversification

Monthly Data as of 30-Sep-2020

Indicative Benchmark: MSCI Emerging Markets Index

Top Contributor^

Mexico
Net Contribution 0.93%
Country
-0.13%
Selection 1.06%

Top Detractor^

China
Net Contribution -3.36%
Country
-0.05%
Selection
-3.31%

^Relative

Quarterly Data as of 30-Sep-2020

Largest Overweight

Mexico
By4.22%
Fund 5.86%
Indicative Benchmark 1.64%

Largest Underweight

Taiwan
By-7.41%
Fund 5.31%
Indicative Benchmark 12.72%

Monthly Data as of 30-Sep-2020

30-Sep-2020 - Ernest Yeung, Portfolio Manager,
We took the opportunity to rotate into companies that better fit our investment criteria. We exited Dongfeng Motor and built a position in its rival, which has strong and visible earnings momentum among auto original equipment manufacturers, partly due to the market share gains of Toyota and Honda and its domestic brand narrowing losses. Outside of Asia, we initiated a position in a Hungary-based bank, taking advantage of weakness in its share price to add. It has ample capital and has demonstrated an ability to earn a higher-than-average return on asset and return on equity.

Team (As of 01-Oct-2020)

Ernest C.  Yeung

Ernest Yeung is a portfolio manager for the Emerging Markets Discovery Equity Strategy at T. Rowe Price. He was the co-portfolio manager for the International Small-Cap Equity Strategies from 2009 to 2014. Mr. Yeung is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price Hong Kong Limited.

Mr. Yeung has 17 years of investment experience, 15 of which have been with T. Rowe Price. Prior to joining the firm in 2003, he was an analyst with HSBC Asset Management in London.

Mr. Yeung earned an M.A., with honours, in economics from Cambridge University. He also has earned the Chartered Financial Analyst designation and the Investment Management Certificate. 

  • Fund manager
    since
    2015
  • Years at
    T. Rowe Price
    17
  • Years investment
    experience
    19
Nick Beecroft, CFA

Nick Beecroft is the APAC head of the Investment Specialist Group and a portfolio specialist in the Equity Division. He also is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price International Ltd.

Nick’s investment experience began in 2001, and he has been with T. Rowe Price since 2005, beginning in the Equity Division. Prior to this, Nick was employed by Mercer Investment Consulting as an investment analyst.

Nick earned a B.A., with honors, in contemporary European studies from the University of Southampton. He also has earned the Chartered Financial Analyst® designation.

CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.

  • Years at
    T. Rowe Price
    15
  • Years investment
    experience
    19

Fee Schedule

Share Class Minimum Initial Investment and Holding Amount (USD) Minimum Subsequent Investment (USD) Minimum Redemption Amount (USD) Sales Charge (up to) Investment Management Fee (up to) Ongoing Charges
Class A $1,000 $100 $100 5.00% 190 basis points 2.07%
Class I $2,500,000 $100,000 $0 0.00% 100 basis points 1.10%
Class Q $1,000 $100 $100 0.00% 100 basis points 1.17%

Please note that the Ongoing Charges figure is inclusive of the Investment Management Fee and is charged per annum.

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GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®). TRP has been independently verified for the twenty one- year period ended June 30, 2017 by KPMG LLP. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

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.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

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