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SICAV

Emerging Markets Corporate Bond Fund

Accessing diversified emerging market corporate debt.

ISIN LU0596126465 Bloomberg TRPEMCI:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

7.15%
$168.7m

1YR Return
(View Total Returns)

Manager Tenure

11.76%
4yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

0.69
1.01%

Inception Date 18-May-2011

Performance figures calculated in USD

Other Literature

31-Jan-2020 - Samy Muaddi, Portfolio Manager,
Despite global macroeconomic risks, we remain cautiously optimistic about emerging markets corporate debt given supportive corporate fundamentals. This includes the historically low default rate, the high carry profile of the asset class, the persistent global bid for yield, and the relatively defensive nature of emerging markets corporate debt. That said, the asset class is not insulated from exogenous risk factors, highlighting the importance of bottom-up credit selection.
Samy Muaddi
Samy Muaddi, Portfolio Manager

Samy Muaddi is a portfolio manager in the Fixed Income Division of T. Rowe Price. Mr. Muaddi is the lead manager and executive vice president of the Emerging Markets Corporate Bond and Multi-Sector Account Strategies and chairman of the strategies' Investment Advisory Committees. He also manages the Asia Credit Strategy and is co-portfolio manager of the Global High Income Strategy. Mr. Muaddi is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price Associates, Inc.

Click for Manager Outlook
 

Strategy

Manager's Outlook

The fourth quarter of 2019 capped off a very strong year in emerging markets (EM) debt. Despite concerns over slowing global growth and the U.S.-China trade war, accommodative monetary policy globally and the increasing stock of negative-yielding debt in developed markets were supportive of EM debt. Solid corporate fundamentals further supported spread compression in the asset class.

EM corporate bonds largely kept pace with higher-beta credit assets-such as EM sovereign debt, EM local currency debt, and U.S. high yield debt-over the course of the year. This was due to smaller declines during bouts of volatility, such as in the third quarter. EM corporates' higher credit quality, U.S. dollar denomination, and bias toward the more defensive Asia region provide EM corporates with a relatively defensive profile in risk-off periods. This profile proved resilient in 2018 and is likely to do so again if the global risk environment softens.

Going forward, the biggest exogenous risk for the asset class is a global economic environment characterized by tighter monetary policy or sharply slowing growth. Should the current global easing cycle prove to be short lived, its end may expose vulnerabilities in economies that have overly relied on the abundant supply of cheap money in the post-global financial crisis era. China's decreasing willingness and ability to stimulate to a degree that is supportive of the global economy broadly, in addition to its own economy, is a key component of this risk.

Despite exogenous macro risks, we remain cautiously optimistic on EM corporate debt given supportive corporate fundamentals (the default rate is at historic lows), the high carry profile of the asset class, the persistent global bid for yield, and the relatively defensive nature of the asset class.

The portfolio selectivity added risk in recent months. We continue to underweight the lowest-quality segments of the market, but we added to select higher-yielding credits and longer-maturity bonds in order to pick up yield. In China, we added to higher-yielding real estate developers but moved some investment-grade exposure to Saudi Arabia and Kuwait. We reduced our overweight in South Africa and remain underweight in Turkey over concerns about reform progress. We remain overweight Brazil where we continue to see positive reform momentum and growth.

Investment Objective

To maximise the value of its shares through both growth in the value of, and income from, its investments. The fund invests mainly in a diversified portfolio of corporate bonds from emerging market issuers.

Investment Approach

  • Focus primarily on corporate debt issued by companies domiciled within emerging market countries.
  • Integrate proprietary credit research and relative value analysis.
  • Establish independent credit rating for each company and country.
  • Add value primarily through individual security selection decisions.
  • Limit risk through diversification.
  • Employ long-term investment horizon combined with low portfolio turnover.
  • Utilize collaboration across macroeconomic, equity and corporate debt teams to take a comprehensive view of corporate debt securities.
  • Diversification cannot assure a profit or protect against loss in a declining market.

Portfolio Construction

  • Diversified portfolio structure: typically 100-150 securities
  • Duration bands: managed within +/- 1 year of the benchmark
  • Expected average credit quality: BB
  • Maximum corporate issuer exposure of 3%
  • Country exposure will range between +/- 20% of index
  • Corporate sector exposure will range between +/- 20% of index
  • Expected tracking error will range between 250 - 450 bps

Performance (Class I)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Since Manager Inception
Annualised
Fund % 11.76% 7.15% 6.81% 5.73% 7.93%
Indicative Benchmark % 11.79% 6.39% 6.11% 5.58% 7.04%
Excess Return % -0.03% 0.76% 0.70% 0.15% 0.89%

Inception Date 18-May-2011

Manager Inception Date 30-Sep-2015

Indicative Benchmark: J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified

Data as of  31-Jan-2020

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 13.60% 7.06% 6.39% 5.63%
Indicative Benchmark % 13.09% 6.29% 5.93% 5.45%
Excess Return % 0.51% 0.77% 0.46% 0.18%

Inception Date 18-May-2011

Indicative Benchmark: J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified

Data as of  31-Dec-2019

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 18-Feb-2020 Quarter to DateData as of 18-Feb-2020 Year to DateData as of 18-Feb-2020 1 MonthData as of 31-Jan-2020 3 MonthsData as of 31-Jan-2020
Fund % 0.92% 2.24% 2.24% 1.31% 2.59%
Indicative Benchmark % 0.67% 2.22% 2.22% 1.54% 2.91%
Excess Return % 0.25% 0.02% 0.02% -0.23% -0.32%

Inception Date 18-May-2011

Indicative Benchmark: J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified

Indicative Benchmark: J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified

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.

31-Jan-2020 - Samy Muaddi, Portfolio Manager,
Emerging markets corporate debt produced strong returns in January. Investor demand for yield continued amid very low yields available globally. Risk appetite fell following the outbreak of the novel coronavirus in China, however, amid concerns that containment efforts could curb growth. These fears negatively affected our real estate selections within the portfolio, most notably our positions in higher-yielding Chinese property developers CIFI and Yanlord. Elsewhere, our underweight exposure to Digicel also held back results within the technology, media, and telecommunications sector as the distressed company partially recovered amid increased risk appetite. In contrast, our financial sector positioning was beneficial. Our selection of higher-yielding BBVA Bancomer, Banco de Bogota, and Banco BTG Pactual outperformed amid investor demand for higher yields. Our underweight allocation to the more defensive sector aided performance further as riskier assets rallied.

Holdings

Issuers

Top
Issuers
10
Top 10 Issuers 13.91% Was (31-Dec-2019) 14.15%
Other View Top 10 Issuers

Monthly data as of 31-Jan-2020

Holdings

Total
Holdings
164
Largest Holding Globo Comunicacao E Participacoes 1.62% Was (30-Sep-2019) 1.77%
Top 10 Holdings 11.99%
Other View Full Holdings Quarterly data as of 31-Dec-2019

Quality Rating View quality analysis

  Largest Overweight Largest Underweight
Quality Rating BB A
By % 19.41% -15.72%
Fund 39.12% 3.97%
Indicative Benchmark 19.71% 19.70%

Average Credit Quality

BB

Monthly Data as of 31-Jan-2020
Indicative Benchmark:  J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified

Sources for Credit Quality Diversification: Moody's Investors Service and Standard & Poor's (S&P) split ratings (i.e. BB/B and B/CCC) are assigned when the Moody's and S&P ratings differ. Short-Term holdings are not rated.

Maturity View maturity analysis

  Largest Overweight Largest Underweight
Maturity 5-7 Years 10+ Years
By % 5.58% -6.00%
Fund 21.16% 10.89%
Indicative Benchmark 15.58% 16.89%

Weighted Average Maturity

7.06 Years

Monthly Data as of 31-Jan-2020
Indicative Benchmark:  J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified

Duration View duration analysis

  Largest Overweight Largest Underweight
Duration 5-7 Years 1-3 Years
By % 9.18% -6.97%
Fund 27.68% 19.78%
Indicative Benchmark 18.51% 26.76%

Weighted Average Duration

5.97 Years

Monthly Data as of 31-Jan-2020
Indicative Benchmark:  J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified

31-Dec-2019 - Samy Muaddi, Portfolio Manager,

Domestic Demand Could Drive Opportunities for Growth

The technology, media, and telecommunications sector remained the portfolio's largest overweight. We trimmed holdings in lower-rated Helios Towers Africa and added to high-conviction Axtel. The Mexican information technology provider has made significant progress in deleveraging.

We remain overweight transportation though we reduced our allocation to this sector. We eliminated our holdings of South African quasi sovereign Transnet as we sought better relative value elsewhere.

We maintained our overweight allocation to the real estate sector. We built a position in high-yielding Chinese property developer Evergrande. The market leader announced plans to deleverage.

We reduced the portfolio's overweight allocation to the industrial sector. We eliminated the portfolio's holdings of ChemChina and trimmed lower-yielding Equate Petrochemical and Israel Chemicals. We participated in a new issue from Tata, which we felt offered better relative value.

Underweight Lower-Yielding and Less-Attractive Risk-Adjusted Relative Value

The financials sector remains the largest underweight. We reduced holdings in some more defensive financials, such as Bank Mandiri, Sberbank, and AIA Group, and we participated in a new issue from higher-yielding Bancolombia issued as part of a liability management program to refinance some existing short-term debt.

We increased our underweight allocation to the oil and gas sector, eliminating high yield issuers Frontera Energy and Tullow Oil. The portfolio remains focused on quasi-sovereigns, adding to YPF and Thaioil. We also locked in some gains from Petroleos Mexicanos and Petrobras during the quarter.

We closed our underweight allocation to the metals and mining sector and are now overweight. We added to Mongolian Mining, Alrosa, and CSN Resources on improved analyst convictions.

Credit Quality Considerations

From a secular perspective, we find the most value in BBB, BB, and B credits. These segments generally offer opportunities to identify companies with improving fundamentals that are rating upgrade candidates or provide a stable and attractive risk-adjusted yield.

We increased our holdings of BB rated names that offer attractive risk-adjusted value, such as Teva Pharmaceuticals. We continue to generally avoid distressed issuers in the CCC and below segment given their increased volatility and history of poor risk-adjusted returns.

Sectors

Total
Sectors
14
Largest Sector Financial 19.72% Was (31-Dec-2019) 15.45%
Other View complete Sector Diversification

Monthly Data as of 31-Jan-2020

Indicative Benchmark: J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified

Largest Overweight

TMT
By6.89%
Fund 18.60%
Indicative Benchmark 11.71%

Largest Underweight

Financial
By-10.18%
Fund 19.72%
Indicative Benchmark 29.90%

Monthly Data as of 31-Jan-2020

31-Jan-2020 - Samy Muaddi, Portfolio Manager,
We focus on companies that we believe are well-positioned to benefit from domestic economic growth, such as those in real estate and consumer-related sectors. In contrast, we continue to have a lower exposure to financials in the portfolio, given rich valuations in some areas and poor transparency. We also maintain underweight allocations to extractive industries, such as the oil and gas sector.

Countries

Total
Countries
36
Largest Country China 13.50% Was (31-Dec-2019) 12.96%
Other View complete Country Diversification

Monthly Data as of 31-Jan-2020

Indicative Benchmark: J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified

Largest Overweight

China
By5.57%
Fund 13.50%
Indicative Benchmark 7.93%

Largest Underweight

Hong Kong
By-3.11%
Fund 1.58%
Indicative Benchmark 4.69%

Monthly Data as of 31-Jan-2020

31-Dec-2016 - Samy Muaddi, Portfolio Manager,
Countries with strong reform agendas including Brazil, Argentina, and Indonesia, remain a key focus of the strategy. On the other hand, we have trimmed our exposure to Mexico, largely through longer-maturity industrials, given the uncertainties around the potential renegotiation of North American free trade agreements

Currency

Total
Currencies
2
Largest Currency U.S. dollar 100.00% Was (31-Dec-2019) 100.00%
Other View complete Currency Diversification

Monthly Data as of 31-Jan-2020

Indicative Benchmark : J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified

Largest Overweight

U.S. dollar
By 0.00%
Fund 100.00%
Indicative Benchmark 100.00%

Largest Underweight

euro
By -0.00%
Fund -0.00%
Indicative Benchmark 0.00%

Monthly Data as of 31-Jan-2020

Team (As of 06-Feb-2020)

Samy Muaddi

Samy Muaddi is a portfolio manager in the Fixed Income Division of T. Rowe Price. Mr. Muaddi is the lead manager and executive vice president of the Emerging Markets Corporate Bond Strategy and chairman of the strategy's Investment Advisory Committee. He also manages the Asia Credit Strategy and is co-portfolio manager of the Global High Income Strategy. Mr. Muaddi is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price Associates, Inc.

Mr. Muaddi has 13 years of investment experience, all of which have been with T. Rowe Price. He joined the firm in 2006.

Mr. Muaddi earned a B.A., summa cum laude, in economics from the University of Maryland. He also has earned the Chartered Financial Analyst designation. Mr. Muaddi is an adjunct professor at Georgetown University in the Walsh Graduate School of Foreign Service.

  • Fund manager
    since
    2015
  • Years at
    T. Rowe Price
    13
  • Years investment
    experience
    13

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 $15,000 $100 $100 5.00% 135 basis points 1.52%
Class I $2,500,000 $100,000 $0 0.00% 70 basis points 0.80%
Class Q $15,000 $100 $100 0.00% 70 basis points 0.87%
Class Sd $10,000,000 $0 $0 0.00% 0 basis points 0.10%

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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