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SICAV

Emerging Europe Equity Fund

High-conviction fund invested in developing Europe.

ISIN LU0382934197 Bloomberg TRPEEMI:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(EUR)

7.54%
€7.8m

1YR Return
(View Total Returns)

Manager Tenure

19.37%
4yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

-0.30
6.14%

Inception Date 11-Nov-2008

Performance figures calculated in EUR

Other Literature

31-Oct-2019 - Ulle Adamson, Portfolio Manager,
We maintain a long-term investment horizon and exposure to well-managed companies that we believe can generate solid, superior earnings growth over time. In Russia, we have confidence in the domestic companies that we own due to their specific market positioning or niche growth categories, while previous market weakness in the export sector has created some attractive buying opportunities. The improving commitment of state companies to the government’s desired pay-out ratio also provides solid dividend support for the market.
Ulle Adamson
Ulle Adamson, Portfolio Manager

Ulle Adamson is a portfolio manager in the Equity Division at T. Rowe Price. She is the portfolio manager for the Emerging Europe Equity Strategy. Ms. Adamson is a vice president and an Investment Advisory Committee member of the Emerging Markets Equity Strategy and Emerging Markets Discovery Equity Strategy. She is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Click for Manager Outlook
 

Strategy

Manager's Outlook

Emerging Europe equities have outperformed their emerging markets peers as well as most of their developed counterparts in the year to date in U.S. dollar terms. Russia and Greece are leading the advance, while Turkey has also posted decent returns on the back of recent looser monetary policy. We maintain a long-term investment horizon and exposure to well-managed companies that we believe can generate solid, superior earnings growth over time.

Energy-heavy Russia, the largest market in the index, has shown robust performance so far in 2019 despite the sanctions that were put in place last year.� The oil price has been a helpful factor, but economic growth in Russia has been fairly muted and is likely to remain so as the oil price has not fed through into increased fixed investment and the government maintains a conservative fiscal policy.� In April of last year, more severe sanctions were placed on a few Russian oligarchs, a range of government officials, and a couple of listed entities by the U.S., causing a sharp correction in the Russian market. In our view, the sanctions are likely to remain for the foreseeable future, but we believe we have no exposure to the specific entities at risk. Overall, we have a small overweight to Russia and are relatively defensively positioned.� We have confidence in the domestic names that we own due to their specific market positioning or niche growth categories, while in the export sector, previous market weakness has created some attractive buying opportunities.� The improving commitment of state companies to the government's desired 50% payout ratio provides solid dividend support for the Russian market.

Turkey, one of the largest relative underweight country positions in the portfolio, struggled at the beginning of the year as currency weakness offset the upward move in the local market and heightened domestic political and geopolitical risks continue to be a headwind for the economy. More recently, the economy has begun to "rebalance," which has seen inflation come down rapidly and growth accelerate, however the International Monetary Fund (IMF) has questioned the sustainability of this strategy without further reforms. We maintain our small holdings here in a few high-quality companies, some of which are beneficiaries of the weakness in the lira.

We have a different case in central Europe, where domestic demand remains strong, in our view, and real wages are growing.� Poland continues to experience a strong macro backdrop, led by the consumer, but we think valuations are at a premium versus the region. This has meant that the choice of higher-quality names with reasonable valuations has been limited, in our view. On a longer-term outlook, there is also growing uncertainty over the next European Union budget.

Elsewhere, we believe our frontier market positions in Romania and Georgia continue to offer long-term growth potential as well as help us to diversify the portfolio. We also continue to hold positions in Kazakhstan, Croatia, and Slovenia.

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 the developing countries of Europe.

Investment Approach

  • Employ fundamental analysis to identify companies with sustainable above-market earnings growth rates.
  • Focus on franchise strength, management team quality, free cash flow, and financing/balance sheet structure.
  • Verify relative valuation appeal versus both local market and region.
  • Apply negative screening for macroeconomic and political factors to temper bottom-up enthusiasm for specific securities.

Portfolio Construction

  • Typically 30 - 60 stock portfolio.
  • Individual positions typically range from 0.50% to 10.00% — average position size of 2.00% to 3.00%.
  • Country and sector weights unconstrained.
  • Reserves typically range from 0% to 5%.

Performance (Class I)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
10 YR
Annualised
Since Manager Inception
Annualised
Fund % 19.37% 7.54% 3.27% 3.60% 5.53%
Indicative Benchmark % 24.93% 11.77% 5.13% 4.32% 6.48%
Excess Return % -5.56% -4.23% -1.86% -0.72% -0.95%

Inception Date 11-Nov-2008

Manager Inception Date 31-Mar-2015

Indicative Benchmark: MSCI Emerging Markets Europe 10/40 Index Net

Data as of  31-Oct-2019

  1 YR 3 YR
Annualised
5 YR
Annualised
10 YR
Annualised
Fund % 12.52% 7.14% 2.73% 3.41%
Indicative Benchmark % 16.67% 11.83% 4.29% 4.15%
Excess Return % -4.15% -4.69% -1.56% -0.74%

Inception Date 11-Nov-2008

Indicative Benchmark: MSCI Emerging Markets Europe 10/40 Index Net

Data as of  30-Sep-2019

Performance figures calculated in EUR

Recent Performance

  Month to DateData as of 18-Nov-2019 Quarter to DateData as of 18-Nov-2019 Year to DateData as of 18-Nov-2019 1 MonthData as of 31-Oct-2019 3 MonthsData as of 31-Oct-2019
Fund % 1.61% 4.54% 25.48% 2.88% -0.09%
Indicative Benchmark % 1.61% 5.35% 28.21% 3.68% 3.00%
Excess Return % 0.00% -0.81% -2.73% -0.80% -3.09%

Inception Date 11-Nov-2008

Indicative Benchmark: MSCI Emerging Markets Europe 10/40 Index Net

Indicative Benchmark: MSCI Emerging Markets Europe 10/40 Index Net

Performance figures calculated in EUR

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 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. 

31-Oct-2019 - Ulle Adamson, Portfolio Manager,
The MSCI Emerging Europe 10/40 Index gained further ground in October in euro terms. One of the strongest individual markets was Russia, which benefitted from improved risk appetite on the part of foreign investors, a stronger currency, and a cut in the central bank’s key interest rate. Poland posted solid gains, in a month where the zloty strengthened and the ruling conservative-nationalist Law and Justice party was re-elected. Stocks in Turkey fell, with investors concerned about the country’s military incursion into northern Syria and the threat of punitive sanctions by the U.S. Against this backdrop, the portfolio’s holdings in Russia held back relative returns. In particular, shares in Mail.Ru and Yandex continued to come under pressure following draft legislation, which proposes limiting foreign ownership in Russian information technology (IT) companies. These negatives were partially offset by good stock selection within Turkey (particularly our lack of exposure to a number of large banks) and a beneficial underweight to that market.

Holdings

Total
Holdings
42
Largest Holding Gazprom 9.14% Was (30-Jun-2019) 8.24%
Other View Full Holdings Quarterly data as of 30-Sep-2019
Top 10 Holdings 61.81% View Top 10 Holdings Monthly data as of 31-Oct-2019

Largest Top Contributor^

Gazprom OAO
By 2.72%
% of fund 9.05%

Largest Top Detractor^

Mail.Ru
By -2.29%
% of fund 6.73%

^Absolute

Quarterly Data as of 30-Sep-2019

Top Purchase

Tatneft PJSC
4.45%
Was (30-Jun-2019) 0.92%

Top Sale

Novatek PJSC
6.20%
Was (30-Jun-2019) 7.18%

Quarterly Data as of 30-Sep-2019

31-Dec-2018 - Ulle Adamson, Portfolio Manager,

While the factors driving these markets are divergent (for example, the price of oil is important for Russia, while domestic politics is a key influence in Turkey), we maintain a long-term investment horizon and exposure to well-managed companies that we believe can generate solid, superior earnings growth over time. In our view, current valuations in the emerging Europe region are compelling, and our highly detailed research is helping us to identify a number of companies that we think have strong fundamentals; overall, it remains the region with the lowest valuations within the emerging markets universe.

We retain a marginal underweight to Russia, although this market continues to account for our largest position in absolute terms. We continue to have a large underweight to Turkey. We raised our underweight to Poland over the quarter. In terms of frontier market exposure, we retain positions in Romania and Georgia and increased our position in Kazakhstan. We sold out of our small position in Lithuania and opened a small position in Slovenia.

We Believe The Russian Economy Is Stabilizing And That Valuations Look Attractive

The Russian authorities have maintained tight fiscal and monetary policies and have adjusted the government budget to reflect revised oil price assumptions; we believe that this leaves the economy in a significantly more stable and defensive position. Overall, we believe that, assuming there is no severe deterioration in the picture on U.S. sanctions and the geopolitical environment, we may see a more stable backdrop in Russia, with the potential for a higher structural gross domestic product (GDP) growth rate from 2020 onward.

The Russian equity market continues to be attractively valued, in our view, and a number of good-quality companies are trading at substantial discounts to their fair value due to sanctions concerns. We are finding good stock-specific opportunities among internet and banking names, while selected energy and mining stocks offer high dividend yields. We retain a small underweight to this market, although it continues to account for the portfolio's largest position in absolute terms.

During the quarter, we decreased our position in Russian food retailers; we eliminated our holding in Lenta and reduced our position in X5. We have concerns about the potential for tougher competition for these companies and are finding better investment opportunities elsewhere. We topped up our position in internet company Yandex. Speculation that Sberbank was looking to take a significant stake in the company weighed on the shares; we view this speculation as unfounded and took advantage of the weaker share price to increase our position in the name.

We Are Expecting Challenging Macro Conditions In Turkey But Have Identified A Few Stock Opportunities

We retain a large underweight to Turkey. The level of U.S. dollar-denominated debt here remains problematic, in our view, and we believe the country needs to go through a difficult period of adjustment. We expect economic conditions in Turkey to weaken against this background. Having said that, we have identified a few stock-specific opportunities in this market. For example, we hold food retailer BIM, which we view as a relatively defensive business. The company also remains well placed to gain market share.

Economic Backdrop In Central And Eastern Europe Remains Generally Benign, In Our View

Economic conditions in central and Eastern Europe (CEE) remain healthy. The region's economies are generally performing well, with low levels of unemployment and continuing wage growth. Inflation is also low, and as a result, we would expect the pace of monetary policy tightening to be slow.

Poland accounts for our largest position among the CEE markets in absolute terms, although we increased the size of our underweight due to stock-specific factors. The portfolio also retains a substantial position in Romania (this market is not included in the portfolio's benchmark index, however, as it is classified as a frontier market), while we also have exposure to markets including Hungary and the Czech Republic.

In Poland, we eliminated our holding in PZU Group (a Polish state-owned financial services firm) during the quarter as we have a lower level of conviction in the stock. We also reduced our position in residential and commercial property company Dom Development; while we believe it offers an attractive level of dividend yield, the stock has a relatively low level of liquidity. In Romania, one of our largest holdings is in banking name BRD, which has a strong domestic franchise and which we expect to benefit from continued healthy domestic GDP growth. We trimmed our holding over the quarter, however, with a view to managing the position size.

Portfolio Has Off-Index Exposure To Several Frontier Markets Due To Growth And Diversification Benefits

The portfolio has off-benchmark exposure to a number of frontier markets including Kazakhstan, Georgia, and Croatia (as well as Romania, as mentioned above), as we believe these markets offer long-term growth potential and diversification benefits.

Over the period, we increased our position in Kazakhstan, where we purchased a holding in uranium producer Kazatomprom. The firm is a low-cost operator, and while uranium sentiment remains low, we believe that there may be scope for the price to rise over time. We expect the company to generate a high level of free cash flow and dividend yield.

We also eliminated a small position in Lithuania and opened a small position in Slovenia during the period for stock-specific reasons. We switched out of Lithuanian banking stock Siauliu Bankas and into Slovenian bank Nova Ljubljanska. We believe the latter has a substantially more attractive valuation and more near- and medium-term catalysts, as the bank has the potential to write back provisions and return to growth; also, in our view, the dividend yield is significantly more supportive.

Sectors

Total
Sectors
9
Largest Sector Financials 30.09% Was (30-Sep-2019) 30.67%
Other View complete Sector Diversification

Monthly Data as of 31-Oct-2019

Indicative Benchmark: MSCI Emerging Markets Europe 10/40 Index

Top Contributor^

Materials
Net Contribution 0.66%
Sector
-0.07%
Selection 0.73%

Top Detractor^

Communication Services
Net Contribution -1.24%
Sector
-0.19%
Selection
-1.05%

^Relative

Quarterly Data as of 30-Sep-2019

Largest Overweight

Communication Services
By7.81%
Fund 13.42%
Indicative Benchmark 5.62%

Largest Underweight

Energy
By-12.09%
Fund 29.80%
Indicative Benchmark 41.89%

Monthly Data as of 31-Oct-2019

31-Oct-2019 - Ulle Adamson, Portfolio Manager,
Over October we made a number of switches within our energy holdings. We fully closed our underweight position in an integrated Russian oil and gas giant by adding to our already sizeable position on the back of its new dividend policy under which 100% of free cash flow will be paid out to shareholders. This will take its dividend yield to mid-teens, the highest among its Russian oil and gas peers. In contrast, we reduced the size of our position in a leading Russian natural gas producer. The stock is looking expensive and we believe it faces a headwind of low gas prices. Overall, the portfolio moved further underweight energy over the month.

Countries

Total
Countries
12
Largest Country Russia 60.17% Was (30-Sep-2019) 60.66%
Other View complete Country Diversification

Monthly Data as of 31-Oct-2019

Indicative Benchmark: MSCI Emerging Markets Europe 10/40 Index

Top Contributor^

Poland
Net Contribution 0.91%
Country
0.95%
Selection -0.04%

Top Detractor^

Russia
Net Contribution -1.75%
Country
0.02%
Selection
-1.77%

^Relative

Quarterly Data as of 30-Sep-2019

Largest Overweight

Kazakhstan
By4.72%
Fund 4.72%
Indicative Benchmark 0.00%

Largest Underweight

Poland
By-9.85%
Fund 7.76%
Indicative Benchmark 17.61%

Monthly Data as of 31-Oct-2019

31-Oct-2019 - Ulle Adamson, Portfolio Manager,
Our largest overweight position remains Kazakhstan while notable underweights include Poland, Turkey, and Greece. We made a number of changes to our Turkish exposure over the month, moving further underweight. We eliminated the position in Turkcell, the country’s largest mobile operator, switching this telecommunication exposure to a Russian player that offers a more attractive dividend yield. We topped up our holding in a Turkish automaker whose margins, we believe, stand to benefit from weakness in the country’s currency.

Team (As of 31-Aug-2019)

Ulle Adamson

Ulle Adamson is a portfolio manager in the Equity Division at T. Rowe Price. She is the portfolio manager for the Emerging Europe Equity Strategy. Ms. Adamson is a vice president and an Investment Advisory Committee member of the Emerging Markets Equity Strategy and Emerging Markets Discovery Equity Strategy. She is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Ms. Adamson has 16 years of investment experience, all of which have been at T. Rowe Price. She joined the firm in 2002.

Ms. Adamson earned an M.A. in digital media studies from Sussex University and a B.Sc. in economics and business administration from the Stockholm School of Economics in Riga. She also has earned the Chartered Financial Analyst designation. Ms. Adamson is fluent in Estonian and English and also speaks Russian and Portuguese.

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

Nicholas Beecroft is a portfolio specialist in the Equity Division at T. Rowe Price, representing the firm's global equity strategies. He is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Mr. Beecroft has 18 years of investment experience, 14 of which have been with T. Rowe Price. He joined the firm in London in 2005 and spent many years working with our emerging markets equity team. Mr. Beecroft has been based in Hong Kong since 2011. Prior to joining T. Rowe Price, he was an investment analyst at Mercer Investment Consulting.

Mr. Beecroft earned a B.A, with honours, in contemporary European studies from the University of Southampton. He also has earned the Chartered Financial Analyst designation.

  • Years at
    T. Rowe Price
    14
  • Years investment
    experience
    18
Kanwal Masood

Kanwal Masood is a portfolio specialist in the Equity Division at T. Rowe Price, covering the Middle East and Africa Equity and Emerging Europe Equity Strategies. She is an associate vice president of T. Rowe Price International Ltd.

Ms. Masood has 10 years of investment experience, all of which have been with T. Rowe Price. She joined the firm in 2007, covering the global and regional emerging market equity strategies as a portfolio analyst. Prior to joining T. Rowe Price, she was a product specialist at the London Stock Exchange.

Ms. Masood earned a B.Sc. with honours in mathematics and computer science from King's College London.

  • Years at
    T. Rowe Price
    12
  • Years investment
    experience
    12

Fee Schedule

Share Class Minimum Initial Investment and Holding Amount Minimum Subsequent Investment Minimum Redemption Amount Sales Charge (up to) Investment Management Fee (up to) Ongoing Charges
Class A €15,000 €100 €100 5.00% 190 basis points 2.07%
Class I €2,500,000 €100,000 €0 0.00% 100 basis points 1.10%

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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