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SICAV

Middle East & Africa Equity Fund

Unconstrained, growth-orientated investing in the under explored markets of the Middle East and Africa.

ISIN LU1127970173 Bloomberg TRMEAQE:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

4.98%
$5.3m

1YR Return
(View Total Returns)

Manager Tenure

5.63%
5yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

0.11
4.41%

Inception Date 28-Oct-2014

Performance figures calculated in EUR

Other Literature

31-Oct-2019 - Oliver Bell, Portfolio Manager,
While many emerging markets are undergoing a growth slowdown, the economies of many African and Middle Eastern countries are improving, driven by structural domestic demand. This is translating into strong corporate earnings growth that we believe can be sustained by various businesses in the years ahead. Overall, we believe the fundamentals generally remain favorable and that strong growth will continue to support asset values over time.
Oliver Bell
Oliver Bell, Portfolio Manager

Oliver Bell is a vice president of T. Rowe Price Group, Inc., associate head of Equity EMEA and the lead portfolio manager and chairman of the Investment Advisory Committee for the T. Rowe Price Middle East & Africa Equity Strategy and the Frontier Markets Equity Strategy. He is a member of the International Equity Steering Committee and a Board member of T. Rowe Price (Luxembourg) Management S.a.r.l.

Click for Manager Outlook
 

Strategy

Manager's Outlook

Africa and Middle Eastern markets continue to gain ground, bolstered by a recovery in regional growth and meaningful country-specific improvements. After a challenging few months for African markets, valuations look especially attractive and reform is high on the agenda for many of the economies in the investment universe.

Despite a spike in oil prices following drone attacks on two oil facilities in Saudi Arabia in September, regional economies appear to be better positioned to navigate oil price volatility. We are encouraged by policymakers' attempts to cut subsidies to fuel, electricity, and gas as part of fiscal consolidation plans.

The growth environment in South Africa remains weak given the challenging global backdrop. The government's efforts to encourage economic growth and job creation continue. We are seeing plans to reform state-owned enterprises, reduce political corruption, and improve financing options for small businesses. Fundamentals have troughed and domestic companies serve up particularly attractive risk/reward profiles. Longer term, we believe President Ramaphosa can drive the material change necessary to reverse a decade of economic demise, and many corporates should benefit from this new dawn.

In West Africa, sentiment in Nigeria has weakened due to a lack of reform leadership from President Buhari, which had been hoped for after his win of a second term in office. Despite emerging from a two-year recession in 2017, economic growth has so far failed to outpace population growth. Valuations are attractive but catalysts for growth are limited. We are selective here and keep watch for a stronger government focus on economics.

In the Middle East, drone attacks on two Saudi Arabian oil plants in September highlighted the vulnerability to geopolitical risks in the region. However, the market reaction was somewhat subdued, and production appears to have been reinstated quickly. Saudi Arabia's reclassification to emerging markets status by MSCI, which was completed in the third quarter, has brought increasing attention to the nation, as has the preparation for the Saudi Aramco IPO. We are more cautious here but are able to find strong bottom-up ideas. In Kuwait, structural domestic improvement and a government push on infrastructure projects is providing a boost, as well as the announcement by MSCI that Kuwait is likely to be reclassified to emerging market status in 2020. Elsewhere, the UAE is offering up some companies with compelling risk/reward profiles, with Dubai's diversified economy and steady GDP a bright spot.

Overall, the outlook for the Africa and Middle East region remains robust, driven by some of the world's most attractive demographics, rising urbanization and levels of infrastructure investment, and a strong asset base in natural resources. While many emerging markets are undergoing a growth slowdown, many African and Middle Eastern countries are undergoing an improvement, driven by structural domestic demand. This is translating into strong corporate earnings growth that we believe can be sustained by various businesses in the years ahead. We believe the fundamentals generally remain favorable and that strong growth will continue to lift asset values over time.

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 the Middle East and Africa.

Investment Approach

  • The fund is growth oriented, unconstrained and designed to deliver strong absolute performance.
  • Stock selection is driven by fundamental analysis seeking to identify the best companies with attractive valuations and earnings that are growing faster than their local, regional or global peers.
  • In investment frontiers such as the Middle East and Africa market, inefficiencies are likely to be significant. One of the core tenets of our investment strategy is that stocks are frequently mispriced.
  • Focus on finding companies with above-average revenue growth, strong management and good corporate governance.
  • The bottom-up, stock specific approach is supported by a top-down perspective focusing on macro and micro-factors mainly at the country level.
  • Manager with a proven track record of investing in emerging markets supported by a dedicated analyst team.
  • Dedicated Portfolio Manager supported by a well-resourced analyst team.

Portfolio Construction

  • Typically 50-80 stocks
  • Individual positions typically range from 2.0%-8.0%
  • Country and sector weights unconstrained
  • Cash reserves typically 0%-5%

Performance (Class Q | EUR)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 5.63% 4.98% 1.12% 1.34%
Indicative Benchmark % 6.87% 4.40% 0.65% 1.03%
Excess Return % -1.24% 0.58% 0.47% 0.31%

Inception Date 28-Oct-2014

Indicative Benchmark: Linked Benchmark Net

Data as of  31-Oct-2019

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 4.90% 6.98% N/A 1.78%
Indicative Benchmark % 6.67% 6.03% N/A 1.36%
Excess Return % -1.77% 0.95% N/A 0.42%

Inception Date 28-Oct-2014

Indicative Benchmark: Linked Benchmark Net

Data as of  30-Sep-2019

Performance figures calculated in EUR

Recent Performance

  Month to DateData as of 12-Nov-2019 Quarter to DateData as of 12-Nov-2019 Year to DateData as of 12-Nov-2019 1 MonthData as of 31-Oct-2019 3 MonthsData as of 31-Oct-2019
Fund % 3.18% 1.10% 6.98% -2.02% -6.39%
Indicative Benchmark % 3.20% 1.61% 8.88% -1.54% -6.24%
Excess Return % -0.02% -0.51% -1.90% -0.48% -0.15%

Inception Date 28-Oct-2014

Indicative Benchmark: Linked Benchmark Net

Indicative Benchmark: Linked Benchmark 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 - Oliver Bell, Portfolio Manager,
Middle East and Africa markets had a positive month but lagged their emerging and developed peers. South Africa registered notable outperformance. Investors were cheered by the country’s National Assembly approving a law that allocated a ZAR 59 billion (USD $4 billion) bailout to the troubled state utility Eskom. Conversely, Saudi Arabia underperformed over the month. Shares came under selling pressure as investors were actively raising cash ahead of the initial public offering of Saudi Aramco. Within the portfolio, stock selection and our underweight positioning in South Africa had the most negative impact on relative performance. Materials stocks outperformed, and not holding Anglogold Ashanti, Sibanye-Stillwater and Gold Fields hurt. Our overweight holdings and stock selection in Nigeria also held back performance. Shares in Guaranty Trust Bank fell sharply on initial confirmation from the central bank that it would increase already stringent loan-to-deposit requirements by the end of the year. Conversely, our underweight exposure and stock selection in Saudi Arabia boosted relative performance. Not holding Saudi Telecom was beneficial, as the telecommunication services provider was found to be in violation of several regulations and subjected to a fine.

Holdings

Total
Holdings
56
Largest Holding Al Rajhi Bank 6.02% Was (30-Jun-2019) 7.02%
Other View Full Holdings Quarterly data as of 30-Sep-2019
Top 10 Holdings 41.64% View Top 10 Holdings Monthly data as of 31-Oct-2019

Largest Top Contributor^

Label Vie
By 0.53%
% of fund 2.76%

Largest Top Detractor^

Al Rajhi Bank
By -0.85%
% of fund 5.99%

^Absolute

Quarterly Data as of 30-Sep-2019

Top Purchase

Prosus (N)
5.14%
Was (30-Jun-2019) 0.00%

Top Sale

Naspers
4.55%
Was (30-Jun-2019) 9.06%

Quarterly Data as of 30-Sep-2019

30-Sep-2019 - Oliver Bell, Portfolio Manager,

We increased the portfolio's underweight in Saudi Arabia, prompted by the geopolitical developments relating to the drone strikes on the nation's oil fields. In contrast, we moved more overweight Kuwait. On a sector level, we reduced our exposure to financials while adding to our positions in consumer discretionary.

Saudi Arabia

Sentiment toward Saudi Arabia soured over the quarter following drone strikes on the country's oil facilities. As a result, and due to stock-specific reasons, we moved our exposure more underweight. Within financials, we sold out of Saudi Arabia's third-biggest bank, Samba Financial. Our concerns have grown about contracting asset quality and insufficient disclosure from management. A push for harmonization on exposure treatment by the central bank could also pose a headwind.

We reduced our holding in Saudi British Bank. It faces an increasing cost of risk on contracting exposure, which we anticipate will keep the share price relatively volatile in the near term. Meanwhile, Bupa Arabia for Cooperative Insurance, the largest health care provider in Saudi Arabia, reached our analyst's price target, prompting us to sell.

Kuwait

We purchased Kuwait Finance House, an Islamic bank, which has been making improvements to disclosures in recent years and divesting its non-core businesses, resulting in a higher-quality income stream. Progress has also been made in the merger of Kuwait Finance House and Ahli United Bank, to create a combined Islamic banking entity with over USD $96 billion in assets. This will help Kuwait Finance House gain scale and cope with tougher operating conditions against a weakening global backdrop.

UAE

We sold out of international logistics and transportation provider Aramex, as the company faces structural headwinds in the near to medium term, which are likely to lead to lower margins, given pricing pressure.

Having participated in the company's initial public offering (IPO) earlier in the year, we topped up our holding in UAE digital payments provider Network International. This company operates in Africa and the Middle East, one of the most underpenetrated payment regions globally. As the only pan-regional provider of digital payments at scale, we believe the company is well positioned to benefit from structural growth in this area, with a presence across the entire value chain.

Egypt

We increased our exposure to Egypt over the quarter. We added a position in Commercial International Bank, Egypt's largest private bank. This is our favored stock pick in the country. The bank is well positioned for an improved macroeconomic scenario, in our view, with ample liquidity and solid potential for corporate loan growth, particularly as interest rates come down.

We also added to our holding in baked food company Edita Food Industries, which comprises a portfolio of brands operating in the Middle East and North Africa region. The company benefits from strong demand in the region and enjoys significant pricing power.

Consumer Discretionary

At the sector level, we increased our exposure to consumer discretionary companies. We decided to switch some of our holdings from Naspers, a South African pay-TV and internet company, into its international listing. Naspers listed 26% of its business in Amsterdam in September as Prosus, with the aim of addressing the stock's net asset value (NAV) discount. Positive management meetings have added to our conviction in the company's strategy, which is to build three world-class businesses-classifieds, food delivery, and payments.

Sectors

Total
Sectors
10
Largest Sector Financials 45.71% Was (30-Sep-2019) 45.27%
Other View complete Sector Diversification

Monthly Data as of 31-Oct-2019

Indicative Benchmark: MSCI Arabian Markets & Africa 10/40 IMI Index

Top Contributor^

Real Estate
Net Contribution 0.13%
Sector
-0.10%
Selection 0.24%

Top Detractor^

Financials
Net Contribution -0.46%
Sector
-0.06%
Selection
-0.41%

^Relative

Quarterly Data as of 30-Sep-2019

Largest Overweight

Consumer Discretionary
By10.81%
Fund 19.59%
Indicative Benchmark 8.78%

Largest Underweight

Materials
By-15.60%
Fund 0.68%
Indicative Benchmark 16.28%

Monthly Data as of 31-Oct-2019

31-Oct-2019 - Oliver Bell, Portfolio Manager,
We reduced our exposure to the materials sector over the month. We sold our position in fertiliser and chemicals company OCI. The company has exhibited earnings weakness going into the second half of the year, with cashflow generation disappointing. We also exited our holding in Aluminium Bahrain, which has faced a headwind as aluminium demand has lost momentum in most global markets, with consumption trends broadly flat.

Countries

Total
Countries
13
Largest Country South Africa 37.79% Was (30-Sep-2019) 36.82%
Other View complete Country Diversification

Monthly Data as of 31-Oct-2019

Indicative Benchmark: MSCI Arabian Markets & Africa 10/40 IMI Index

Top Contributor^

Kuwait
Net Contribution 0.42%
Country
0.21%
Selection 0.21%

Top Detractor^

Qatar
Net Contribution -0.60%
Country
-0.60%
Selection
0.00%

^Relative

Quarterly Data as of 30-Sep-2019

Largest Overweight

Kuwait
By7.65%
Fund 13.11%
Indicative Benchmark 5.46%

Largest Underweight

Saudi Arabia
By-14.47%
Fund 13.97%
Indicative Benchmark 28.45%

Monthly Data as of 31-Oct-2019

31-Oct-2019 - Oliver Bell, Portfolio Manager,
We initiated a position in a leading infrastructure tower company in Africa. Given that it is UK-listed, this means that it has commensurately high environmental, social and governance standards, and a business model that insulates investors from currency devaluations and power-related cost inflation.

Team (As of 31-Aug-2019)

Oliver Bell

Oliver Bell is a vice president of T. Rowe Price Group, Inc., associate head of Equity EMEA and the lead portfolio manager and chairman of the Investment Advisory Committee for the T. Rowe Price Middle East & Africa Equity Strategy and the Frontier Markets Equity Strategy. He is a member of the International Equity Steering Committee and a Board member of T. Rowe Price (Luxembourg) Management S.a.r.l.

Mr. Bell has 21 years of investment experience, seven of which have been with T. Rowe Price. Prior to joining the firm in 2011, Mr. Bell was head of emerging markets equities research at Pictet Asset Management (the institutional asset management arm of Pictet & Cie, the largest private bank in Switzerland), where his responsibilities included managing several funds, as well as a team of analysts. During his time at Pictet, Mr. Bell was directly responsible for managing investments in the emerging Europe, Middle East and Africa region as part of the global emerging markets and the standalone Middle East and Africa portfolios. Mr. Bell also managed the Global Emerging Markets High Dividend Yield Equity Strategy.

Mr. Bell has earned a bachelor of science degree in chemistry from Exeter University and also has earned the Investment Management Certificate.

  • Fund manager
    since
    2014
  • Years at
    T. Rowe Price
    8
  • Years investment
    experience
    22
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%
Class Q $15,000 $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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