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SICAV

Continental European Equity Fund

Style-agnostic, quality-driven European equity investment.

ISIN LU1225514311 Bloomberg TRPEXQU:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(EUR)

13.54%
€158.2m

1YR Return
(View Total Returns)

Manager Tenure

24.26%
4yrs

Information Ratio
(3 Years)

Tracking Error
(3 Years)

0.53
6.52%

Inception Date 04-May-2015

Performance figures calculated in USD

Other Literature

31-Jan-2020 - Dean Tenerelli, Portfolio Manager,
The market tone brightened following the signature of the U.S.-China trade accord and greater clarity on Brexit. If the uncertainty relating to these issues lessens further, we believe investment and export growth should pick up, helping company earnings and lifting equity markets. Investor concerns still include the economy, but the big uncertainties now seem to be the impact of coronavirus on China and global growth, and the outcome of the U.S. presidential elections.
Dean Tenerelli
Dean Tenerelli, Portfolio Manager

Dean Tenerelli is portfolio manager in the Equity Division at T. Rowe Price. He manages the Europe Equity Strategy, a position he has held since October 2005, and is chairman of its Investment Advisory Committee. He is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Click for Manager Outlook
 

Strategy

Manager's Outlook

European equities rallied strongly to fresh peaks in 2019, although the gains masked bouts of shifting sentiment and direction caused by uncertainty surrounding trade, economic fundamentals, and central bank intentions. Stocks may struggle to advance further and markets may remain volatile without further resolution of issues that lie at the root of this uncertainty.

The market is less gloomy now after greater clarity on Brexit following a convincing election victory for Conservative Prime Minister Boris Johnson, a limited trade accord between the U.S. and China, and central bank action not only in Europe but also in the U.S., China, and Japan to continue easy monetary policy over the medium term.

A sharper-than-expected economic slowdown in Europe appears to be stabilizing. Expansionary fiscal policies are expected to make a positive contribution to economic activity in the coming years. Low real interest rates should support growth. If the uncertainty relating to trade conflicts and the UK's exit from the European Union (EU) lessens, investment and export growth should pick up.

Company earnings are also forecast to pick up this year. Valuations are around their historical averages, and our conservative valuation approach is challenged to find many higher-quality opportunities that appear to offer meaningful absolute upside to current levels.

However, investor concerns still include the economy, but also specific countries, such as China and Germany; trade frictions, especially those affecting the automotive industry; political instability in Italy and its strained relationship with the EU; and lingering nervousness about a no-deal Brexit should the UK and the EU fail to agree to a trade deal by the end of 2020.

Nevertheless, we welcome volatility and dispersion of returns because it creates relative value opportunities that we can exploit. We remain positive about the performance potential of our holdings and their longer-term prospects.

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 diversified portfolio of stocks of companies in Europe (excluding the UK).

Investment Approach

  • Fundamental research is critical to successfully identify and assess long-term investment opportunities. We look for companies with high returns on capital and capable of providing sustainable earnings across the market cycle.
  • Style agnostic, focus on quality. By avoiding style constraints, we can invest in quality companies and maintain a balanced portfolio through market cycles.
  • Disciplined approach to valuation. We aim to buy businesses at a clear discount to their intrinsic value.
  • Risk management is essential and is assisted by diversification, quantitative analysis, and automatic stabilizers built in to our investment process.

Portfolio Construction

  • Typically 40-70 stocks
  • Individual position size up to 4.0% relative to the indicative benchmark
  • Sector ranges: typically +/- 10% relative to the indicative benchmark
  • Country ranges: typically +/- 10% relative to the indicative benchmark
  • Expected Tracking Error: typically 3.0% to 6.0%
  • Information Ratio objective: >0.5
  • Cash target range: fully invested, typically less than 5.0%
  • Turnover range: 40%-100%

Performance (Class Qh | USD)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 24.26% 13.54% N/A 7.73%
Indicative Benchmark % 23.48% 10.06% N/A 6.41%
Excess Return % 0.78% 3.48% N/A 1.32%

Inception Date 04-May-2015

Indicative Benchmark: FTSE Developed Europe ex UK 100% Hedged to USD Net Tax Index

Data as of  31-Jan-2020

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 32.34% 13.77% N/A 7.88%
Indicative Benchmark % 31.13% 8.92% N/A 6.46%
Excess Return % 1.21% 4.85% N/A 1.42%

Inception Date 04-May-2015

Indicative Benchmark: FTSE Developed Europe ex UK 100% Hedged to USD Net Tax Index

Data as of  31-Dec-2019

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 14-Feb-2020 Quarter to DateData as of 14-Feb-2020 Year to DateData as of 14-Feb-2020 1 MonthData as of 31-Jan-2020 3 MonthsData as of 31-Jan-2020
Fund % 4.28% 4.28% 4.28% 0.00% 4.40%
Indicative Benchmark % 7.24% 7.58% 7.58% 0.32% 3.44%
Excess Return % -2.96% -3.30% -3.30% -0.32% 0.96%

Inception Date 04-May-2015

Indicative Benchmark: FTSE Developed Europe ex UK 100% Hedged to USD Net Tax Index

Indicative Benchmark: FTSE Developed Europe ex UK 100% Hedged to USD Net Tax Index

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.

Returns shown with reinvestment of dividends after the deduction of withholding taxes. 

Effective 1 June 2019, 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.

31-Jan-2020 - Dean Tenerelli, Portfolio Manager,
The FTSE All-World Developed Europe x UK Index fell in January, after touching record highs, as the rapidly spreading coronavirus respiratory disease became a global health emergency and raised fears of a hit to economic growth. At the portfolio level, the top-performing sectors were materials and communication services, owing to our choice of securities. The bottom performers were health care and consumer discretionary due to our stock selection. Corbion, a Dutch bio-based ingredients company, was one of the best performers in materials. Corbion has benefitted from the news that its joint-venture lactic acid factory with oil company Total in Thailand was on track to reach full production capacity two years ahead of expectations. Decent fourth-quarter results and the announcement that Corbion would build another lactic acid plant in Thailand, further reducing its focus on the loss-making algae business, gave the share price another boost. On the negative side, Getinge, a Swedish medical technology company, fell sharply after mixed fourth-quarter results. Earnings were solid and the numbers continued to show an underlying improvement, but the shares reacted to a higher future tax rate, a more cautious management view on margin expansion this year and softer-than-expected new orders.

Holdings

Total
Holdings
53
Largest Holding Roche Holding 6.35% Was (30-Sep-2019) 6.15%
Other View Full Holdings Quarterly data as of 31-Dec-2019
Top 10 Holdings 33.65% View Top 10 Holdings Monthly data as of 31-Jan-2020

Largest Top Contributor^

Roche Holding
By 3.20%
% of fund 6.33%

Largest Top Detractor^

Nestle
By -2.55%
% of fund 4.36%

^Absolute

Quarterly Data as of 31-Dec-2019

Top Purchase

Cia De Distribucion Integral Logista (N)
1.79%
Was (30-Sep-2019) 0.00%

Top Sale

EssilorLuxottica
1.21%
Was (30-Sep-2019) 2.85%

Quarterly Data as of 31-Dec-2019

31-Dec-2019 - Dean Tenerelli, Portfolio Manager,

Opportunities Scarcer Amid Higher Valuations

Valuations have risen to around their historical averages, and our conservative valuation approach was challenged to find many higher-quality opportunities that appear to offer meaningful absolute upside to current levels. We continued to lean into cyclical stocks that suffered during the sell-off before the fourth quarter. By the end of the quarter, we felt the economic sensitivity of the portfolio was more or less balanced. What has not changed is our focus on finding the best combinations of highest-quality companies at attractive valuations.

  • We increased our overweight exposure to materials and reduced our underweight in financials, where banks were particularly attractive.
  • We raised our overweight in industrials and business services holdings, investing in Cia de Distribuci�n Integral Logista.
  • We increased our underweight to information technology, where many valuations are overextended.
  • As risk appetite began to favor cyclical over defensive parts of the index toward the end of the quarter, we reduced our allocation to utilities, exiting Red Electrica.

Financials

We reduced our underweight exposure to financials, where valuations have become more attractive, especially for banks. We further increased our allocation to banks, where we are now overweight, opening a new position in Nordea Abp, the largest Nordic financial services provider, and adding to Bawag, Austria's fourth-largest lender. We cut our exposure to insurance, where we are now slightly underweight, either because market fundamentals have turned for the worse or because a strong performance in the market rally has prompted us to trim a position.

Many banks are trading at historically low valuations amid weak demand for loans, persistently low interest rates, and a stringent regulatory environment. However, we remain cautious because the industry remains challenged by slower economic growth, poor return on equity, and low capital generation. Consequently, our focus is on better-quality names, typically in more consolidated markets, resulting in a relatively more resilient return on equity. Some of our investments�may also improve returns due to self-help initiatives, such as Nordea Bank Abp, a new position.

One common theme is an objective to generate more defensive and sustainable returns from fee income, as opposed to lending or trading activities. Our investments include Spanish lender Bankinter, one of the best capitalized in Europe; Finecobank Banca Fineco, a diversified financial institution in Italy that attracts deposits through its online bank; and KBC, a leading Belgian bancassurer and financial company, which also has strong positions in central and Eastern Europe.

Our investment in insurance is mainly determined by our stock-specific approach. Our main holding is Zurich, which spans Europe, Latin America, North America, and Asia. The company is on a path of increasing return on capital, which we expect to gain momentum under a new plan to streamline the group's operations. We also hold Germany-based Allianz, a leading global insurer and asset manager.

  • We reopened a position in Nordea Bank Abp, the largest financial services provider in the Nordic region, on the view that the bank can safeguard the dividend. Nordea has the potential to improve returns over the next three years, while most other European banks could face a headwind from low interest rates and continued re-regulation. The bank offers a predictable, high-single-digit yield as a result of management's focus on return on capital, low appetite for growth, and earnings volatility that is below that of peers. Nordea is also well on the way to replacing its banking platform to counter fintech challengers, giving it a relative advantage over rivals that have yet to embark on the process.
  • We exited Sampo, a Finnish insurance company. Financial fundamentals have deteriorated amid rising global risks.� We decided to recycle funds into more interesting opportunities.

Materials

We increased our overweight in materials, opening a position in France-based Verallia, Europe's largest maker of glass containers, and an example of a high-quality cyclical company that has become more attractive in these uncertain market conditions. We tend to not favor the materials sector largely because we do not like the business models of many companies within it. However, when opportunities arise to own high-quality companies, such as in the current volatile market, we are happy to invest in them.

  • Verallia, which also operates in Ukraine, Russia, Poland, and Latin America, is improving margins through strong organic growth and efficiencies. The company, which listed in October, has strong positions in growing, often fragmented markets, such as wine and spirits, and consequently has pricing power. In addition, glass has been winning market share from other packaging materials such as plastic due to rising environmental and health concerns.

Industrials and Business Services

We raised our overweight in industrials and business services, reopening a position in Cia de Distribuci�n Integral Logista, the leading tobacco distributor in southern Europe. We continue to invest in high-quality businesses with strong industry positions and durable earnings that are now more realistically valued when these opportunities arise. We also want to benefit from any positive impact on markets from a resolution to global trade disputes and an improvement in business confidence.

In terms of industry, our largest overweights are in electrical equipment and in machinery. In the former, we own the shares of Schneider Electric, a global specialist in energy management and automation, and Prysmian, the world's largest global telecommunications cable manufacturer. In the latter, our largest investments are Gea Group, which provides process technology and components for the food processing industry worldwide, and Epiroc, a leading provider of products, solutions, and services to the global mining and infrastructure markets.

We remain overweight professional services, with an off-benchmark position in RELX, the world's leading publisher of science journals and a provider of risk assessments on transactions with retail customers.

Aerospace and defense is also an overweight, with positions in France-based Dassault Aviation and Thales.

  • We opened a position in Cia de Distribuci�n Integral Logista, taking advantage of share price weakness. Apart from tobacco, the company distributes convenience products through a large retail network and applies its logistics model in the pharmaceutical industry. The group has negligible debt and distributes most of its net income. Nine-month sales showed sales growth in tobacco, despite falling volumes, and healthy expansion in non-tobacco activities. Sales grew faster than operating expenditure, thanks to disciplined cost control, which boosted to EBIT margins.

Information Technology

We deepened our large underweight allocation to information technology. The sector has scaled new peaks, and companies are increasingly overvalued. It is hard to see them doing as well as the economy adjusts to a slower growth rate. We eliminated our position in Wirecard, a global online payments processor based in Germany, during the quarter amid renewed uncertainty surrounding the company, as we judged that more attractive opportunities existed elsewhere.

  • Our holdings in the sector now comprise ASML Holding, the dominant supplier of cutting-edge lithography equipment for semiconductor manufacturing, which has performed strongly this year, and Capgemini, a leading global management consulting, outsourcing, and professional services company.

Utilities

We reduced our allocation to utilities, still one of the largest exposures. Utilities became less attractive at the end of the year as market appetite for risk increased and investors favored more cyclical parts of the index.

We are overweight gas utilities, where we hold Italgas, which is Italy's largest gas distributor. We are also overweight multi-utilities, where we own Hera, an Italian company that operates in the waste, water, gas and electricity segments; E.ON, a German energy company that operates in generation, renewables, global commodities, and exploration and production; and National Grid, a UK-based transmission and distribution infrastructure business that also owns U.S. electricity and gas networks.

  • We exited our holding in Red Electrica, a regulated utility company that owns the Spanish electricity transmission network, in order to recycle funds into more interesting opportunities. The prospect of a more stringent regulatory regime weighed on the share price this year. Although the company is seeking to build up non-regulated businesses in order to diversify earnings, this, in our view, may lessen their capital discipline. In addition, utilities, which have benefited from the low yield and defensive environment, may perform less well if the market's characteristics were to shift.

Sectors

Total
Sectors
11
Largest Sector Industrials & Business Services 16.61% Was (31-Dec-2019) 16.46%
Other View complete Sector Diversification

Monthly Data as of 31-Jan-2020

Indicative Benchmark: FTSE All World Developed Europe ex United Kingdom Index

Top Contributor^

Health Care
Net Contribution 0.74%
Sector
0.04%
Selection 0.71%

Top Detractor^

Industrials & Business Services
Net Contribution -0.70%
Sector
0.05%
Selection
-0.75%

^Relative

Quarterly Data as of 31-Dec-2019

Largest Overweight

Materials
By3.15%
Fund 9.34%
Indicative Benchmark 6.19%

Largest Underweight

Consumer Staples
By-8.07%
Fund 4.43%
Indicative Benchmark 12.50%

Monthly Data as of 31-Jan-2020

31-Jan-2020 - Dean Tenerelli, Portfolio Manager,
We further reduced our overweight exposure to utilities, exiting Iberdrola, a Spanish energy utility, after a strong performance over the past year. Although our approach to stock picking is bottom up, we are also cognisant that the defensive attributes of the sector are likely to be less favoured in markets that are beginning to price in an upturn in economic growth this year. Conversely, we raised our overweight allocation to industrials and business services, now one of our largest, by opening positions in some high-quality businesses with strong industry positions and durable earnings that are now more realistically valued.

Countries

Total
Countries
13
Largest Country France 19.35% Was (31-Dec-2019) 20.18%
Other View complete Country Diversification

Monthly Data as of 31-Jan-2020

Indicative Benchmark: FTSE All World Developed Europe ex United Kingdom Index

Top Contributor^

Sweden
Net Contribution 0.71%
Country
0.03%
Selection 0.68%

Top Detractor^

France
Net Contribution -0.57%
Country
-0.02%
Selection
-0.56%

^Relative

Quarterly Data as of 31-Dec-2019

Largest Overweight

Italy
By5.30%
Fund 10.80%
Indicative Benchmark 5.49%

Largest Underweight

Germany
By-7.49%
Fund 11.21%
Indicative Benchmark 18.70%

Monthly Data as of 31-Jan-2020

30-Sep-2019 - Dean Tenerelli, Portfolio Manager,
We deepened our underweight allocation in consumer staples, the largest in the portfolio, by selling Essity Aktiebolag, a global hygiene products company, taking profits after a strong run. In our view, the margin-improvement thesis has largely played out and is factored into the share price. Raw material prices have also started to decline, and the company could find it more challenging to maintain price increases. Consequently, the shares may struggle to rise much further. In contrast, we increased our overweight exposure to industrial and business services, health care and real estate.

Team (As of 06-Feb-2020)

Dean Tenerelli

Dean Tenerelli is portfolio manager in the Equity Division at T. Rowe Price. He manages the Europe Equity Strategy, a position he has held since October 2005, and is chairman of its Investment Advisory Committee. He is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Mr. Tenerelli has 28 years of investment experience, 19 of which have been at T. Rowe Price. He joined the firm in 2000 as an equity research analyst and was appointed co-manager of the firm's Global Equity Strategy in 2004. Prior to joining T. Rowe Price, Mr. Tenerelli served as a director for Credit Suisse Asset Management, where he was a senior telecommunications analyst. Prior to Credit Suisse Asset Management, Mr. Tenerelli worked as assistant portfolio manager at Artisan Partners (1995-2000). He began his investment career in 1993 at Banesto Bolsa in Madrid as an equity analyst following Spanish equities. Mr. Tenerelli later became an international equity analyst, focused on Europe, for Waddell and Reed in Kansas City, MO. In 1995, he moved to Artisan Partners as an assistant portfolio manager.

A graduate of Rutgers University with a B.A. in economics, Mr. Tenerelli earned an M.B.A. from Escuela Superior de Administracion y Direccion de Empresa and an M.A. in international management from American Graduate School of International Management (Thunderbird).

  • Fund manager
    since
    2015
  • Years at
    T. Rowe Price
    19
  • Years investment
    experience
    28
Andrew Clifton

Andrew Clifton is a portfolio specialist in the Equity Division at T. Rowe Price. He is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price International Ltd.

Mr. Clifton has over 30 years of investment experience, nine of which have been at T. Rowe Price. Prior to joining the firm in 2010, he was an executive director at UBS Global Asset Management. Prior to that, he was a vice president at Merrill Lynch.

Mr. Clifton earned a B.Sc. in economics from the London School of Economics and an M.Sc. in econometrics from the University of Southampton.

  • Years at
    T. Rowe Price
    9
  • Years investment
    experience
    30

Fee Schedule

Share Class Minimum Initial Investment and Holding Amount (EUR) Minimum Subsequent Investment (EUR) Minimum Redemption Amount (EUR) Sales Charge (up to) Investment Management Fee (up to) Ongoing Charges
Class I €2,500,000 €100,000 €0 0.00% 65 basis points 0.75%
Class Q €15,000 €100 €100 0.00% 65 basis points 0.82%

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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