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SICAV

European High Yield Bond Fund

Research-driven, targeting consistent high income.

ISIN LU0596127786 Bloomberg TREHYAD:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(EUR)

1.76%
€258.9m

1YR Return
(View Total Returns)

Manager Tenure

4.72%
4yrs

Information Ratio
(3 Years)

Tracking Error
(3 Years)

-1.19
1.95%

Inception Date 08-Dec-2014

Performance figures calculated in EUR

Other Literature

31-Oct-2019 - Mike Della Vedova, Portfolio Manager,
Despite strong year-to-date returns, we still see the potential for European high yield to perform well in the coming months. Accommodative central banks and strong demand for higher yielding assets should continue to provide support, as should optimism surrounding U.S.-China trade talks. However, a sustained rise in government yields as well as ongoing political uncertainty could trigger periods of temporary market volatility. We remain focussed on long-term performance by prioritising names with stable fundamentals.
Michael Della Vedova
Michael Della Vedova, Portfolio Manager

Michael Della Vedova is a global high yield portfolio manager in the Fixed Income Division at T. Rowe Price. Mr. Della Vedova is a portfolio manager of the European High Yield Strategy and co-portfolio manager for the firm's Global High Yield Strategy. 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

Many of the drivers of European high yield's strong year-to-date performance should persist heading into the end of the year. The favorable technical environment will likely remain in place. The asset class has seen positive inflows in every quarter so far in 2019 and while the primary market has been active, much of the new supply has gone towards refinancing outstanding bonds, meaning net supply has been broadly neutral.

The ECB's accommodative policies, including the planned restart of corporate bond purchases in November, should lend further support to the market technicals. Although the purchases will not include high yield bonds, the added liquidity would impact the entire corporate market and boost demand for higher-yielding assets.

Despite this supportive technical backdrop, we see reasons for caution heading into the final months of the year. The European high yield asset class has significantly outperformed market expectations year-to-date, and some investors may look to take profits ahead of potential bouts of volatility. U.S.-China trade and Brexit continue to pose risks in the near term.

Additionally, global economic growth remains a key area to watch. In Europe, the manufacturing sector weakness could increasingly impact overall growth. So far, corporate fundamentals remain broadly stable with default rates low. However, a deepening slowdown could start to weigh on the asset class. On the positive side, we see signs that the eurozone economy will improve in the coming months, helped by the ECB's stimulus and slightly looser fiscal policies from some eurozone governments.

Overall, we think the European high yield markets contain many attractive medium- to long-term opportunities. However, investors should exercise discipline and remain selective in the wake of the recent strong technical-driven performance. We will continue to look for names with strong fundamentals with long-term performance potential identified through our bottom-up research.�

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 high yield corporate bonds that are denominated in European currencies.

Investment Approach

  • The fund focuses primarily on European currency-denominated corporate debt issued by below investment-grade companies.
  • Invests mainly in BB and B rated bonds, with the ability to purchase lower-quality securities when compelling valuation and risk/reward opportunities arise.
  • The fund integrates fundamental proprietary research at the corporate bond, sovereign, and equity levels. This integral collaboration provides a holistic view of a company’s capital structure and management team, as well as its position in the larger market environment unique to each country.
  • Research focuses on quantitative and qualitative factors that drive an independent credit rating. Analysts look to identify long-term potential for balance sheet and external rating improvements while adhering to strict risk management practices.
  • Target excess-return will be primarily driven by individual security selection and, secondarily, by relative sector and credit quality allocations.

Portfolio Construction

  • At least 80% of assets will be invested in securities denominated in European currencies—mainly the euro and the pound.
  • Currency exposure is fully hedged back to the euro.
  • Up to 20% of assets may be invested outside of European currencies, including U.S. dollar high yield and investment-grade corporate bonds.
  • Target excess return: 100–150 basis points over a full market cycle. (Not a formal objective and it can be changed without prior notice. Please reference prospectus for formal objective.)
  • Target tracking error: 200–400 basis points

Performance (Class Ad)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 4.72% 1.76% N/A 3.52%
Indicative Benchmark % 5.63% 4.10% N/A 4.32%
Excess Return % -0.91% -2.34% N/A -0.80%

Inception Date 08-Dec-2014

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Data as of  31-Oct-2019

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 3.69% 2.12% N/A 3.65%
Indicative Benchmark % 4.74% 4.36% N/A 4.41%
Excess Return % -1.05% -2.24% N/A -0.76%

Inception Date 08-Dec-2014

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Data as of  30-Sep-2019

Performance figures calculated in EUR

Recent Performance

  Month to DateData as of 19-Nov-2019 Quarter to DateData as of 19-Nov-2019 Year to DateData as of 19-Nov-2019 1 MonthData as of 31-Oct-2019 3 MonthsData as of 31-Oct-2019
Fund % -0.11% -0.43% 10.51% -0.32% 0.64%
Indicative Benchmark % 0.35% 0.27% 9.00% -0.07% 0.32%
Excess Return % -0.46% -0.70% 1.51% -0.25% 0.32%

Inception Date 08-Dec-2014

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

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.

31-Oct-2019 - Mike Della Vedova, Portfolio Manager,
The European high yield market saw modestly negative returns in October. However, the moves largely stemmed from weakness in government bond markets. Spreads ended the month broadly flat. A jump in new issuance mid-month resulted in some temporary market volatility, but this was balanced by a strong appetite for risk assets, helped by the progress in the U.S.-China trade negotiations. Within the portfolio, our exposure to the services sector had a negative impact over the month. Specifically, our holdings in AA Bond Company weighed on relative gains following a run of outperformance in recent months. On the positive side, our security selection in the transportation and basic industry sectors boosted relative gains. By rating, our security selection had a slight drag on performance.

Holdings

Issuers

Top
Issuers
10
Top 10 Issuers 26.01% Was (30-Sep-2019) 23.42%
Other View Top 10 Issuers

Monthly data as of 31-Oct-2019

Holdings

Total
Holdings
93
Largest Holding Cabot Financial Luxembourg 2.86% Was (30-Jun-2019) 2.99%
Top 10 Holdings 21.55%
Other View Full Holdings Quarterly data as of 30-Sep-2019

Quality Rating View quality analysis

  Largest Overweight Largest Underweight
Quality Rating B Rated BB Rated
By % 19.54% -43.89%
Fund 45.19% 24.41%
Indicative Benchmark 25.65% 68.29%

Average Credit Quality

B+

Monthly Data as of 31-Oct-2019
Indicative Benchmark:  ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

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 1-3 Years
By % 12.26% -14.10%
Fund 42.53% 4.35%
Indicative Benchmark 30.26% 18.44%

Weighted Average Maturity

5.54 Years

Monthly Data as of 31-Oct-2019
Indicative Benchmark:  ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Duration View duration analysis

  Largest Overweight Largest Underweight
Duration Under 1 Year 3-5 Years
By % 11.10% -10.56%
Fund 27.66% 24.75%
Indicative Benchmark 16.55% 35.31%

Weighted Average Duration

2.45 Years

Monthly Data as of 31-Oct-2019
Indicative Benchmark:  ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

30-Sep-2019 - Mike Della Vedova, Portfolio Manager,

New issuance levels tapered off, as usual, during the August but were strong in September. However, the year-to-date supply remains low when bond and coupon repayments are considered. The third quarter saw inflows into the asset class around EUR 2.5 billion bringing the year-to-date total to roughly EUR6.8 billion, according to J.P. Morgan data. Our primary market participation rate has remained low in 2019, as we see limited value in many new deals after the strong pace of returns in 2019. Our primary market focus was on new issuers with strong business fundamentals that needed to pay an additional new issuer premium.

Fundamental credit convictions drive industry allocation

We maintain an overweight position in the cable and satellite TV sector, where we are identifying attractive opportunities offering positive, long-term potential and also benefiting from the supportive technicals. We are also finding value in the euro-denominated debt of American companies looking to take advantage of the lower yields in the European high yield market compared with the U.S. These companies allow us to gain exposure to attractive bonds with stable fundamentals.

We continue to hold a corresponding underweight to wirelines. While this industry shares similar characteristics to the cable and satellite TV sector, wirelines have been in secular decline at the expense of cable and wireless companies.�

Finding opportunities in higher-quality names

The European high yield market is a higher-quality option compared with U.S. high yield and particularly demarcated by credit quality, as each rating reveals a stark contrast of characteristics. We maintain an overweight in B rated securities and maintain that our fundamental research process can reveal opportunities for alpha generation in the sector. With the current economic outlook mixed, it remains important to focus on names that can perform in different market environments. The favorable technical backdrop in recent months allowed us to take profits in some names that we no longer felt offered attractive long-term potential.

Industry

Total
Industries
27
Largest Industry Financial Services 13.32% Was (30-Sep-2019) 11.75%
Other View complete Industry Diversification

Monthly Data as of 31-Oct-2019

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Largest Overweight

Financial Services
By7.09%
Fund 13.32%
Indicative Benchmark 6.22%

Largest Underweight

Telecom - Wireline Integrated & Services
By-8.27%
Fund 1.16%
Indicative Benchmark 9.44%

Monthly Data as of 31-Oct-2019

31-Oct-2019 - Mike Della Vedova, Portfolio Manager,
We maintain an overweight position in the cable and satellite TV sector where we are identifying attractive opportunities offering positive, long-term fundamentals. Conversely, we maintain an underweight in the wirelines sector, which faces secular headwinds despite strong short-term performance over the course of 2019. Select companies within the financial services sector also represents a top overweight, as many issuers continue to generate strong cash flow and appear attractive on a global basis, highlighting the importance of fundamental research.

Countries

Total
Countries
17
Largest Country United States 24.41% Was (30-Sep-2019) 23.42%
Other View complete Country Diversification

Monthly Data as of 31-Oct-2019

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Largest Overweight

United States
By10.00%
Fund 24.41%
Indicative Benchmark 14.41%

Largest Underweight

Italy
By-5.46%
Fund 4.89%
Indicative Benchmark 10.35%

Monthly Data as of 31-Oct-2019

30-Sep-2017 - Mike Della Vedova, Portfolio Manager,
We do not expect to add value via currency management and typically hedge our non-euro exposure back to euros to limit volatility, keeping the focus on credit selection.

Currency

Total
Currencies
5
Largest Currency euro 100.01% Was (30-Sep-2019) 99.98%
Other View complete Currency Diversification

Monthly Data as of 31-Oct-2019

Indicative Benchmark : ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Largest Overweight

euro
By 11.97%
Fund 100.01%
Indicative Benchmark 88.03%

Largest Underweight

British pound sterling
By -11.98%
Fund -0.01%
Indicative Benchmark 11.97%

Monthly Data as of 31-Oct-2019

The fund is fully hedged back to euro, although direct exposure may total less than 100%. It is important to note that there can be no assurances that the currency hedging employed will fully eliminate the shareholder's exposure to exchange rate fluctuations.

31-Jul-2017 - Mike Della Vedova, Portfolio Manager,
We do not expect to add value via currency management and typically hedge our non-euro exposure back to euros to limit volatility, keeping the focus on credit selection.

Team (As of 31-Aug-2019)

Michael Della Vedova

Michael Della Vedova is a global high yield portfolio manager in the Fixed Income Division at T. Rowe Price. Mr. Della Vedova is a portfolio manager of the European High Yield Strategy and co-portfolio manager for the firm's Global High Yield Strategy. He is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Mr. Della Vedova has 26 years of investment experience, 10 of which have been with T. Rowe Price. Prior to joining the firm in 2009, he was a cofounder and partner of Four Quarter Capital, a credit hedge fund focusing on below investment-grade European corporate debt. Mr. Della Vedova also spent six years as a senior analyst and assistant portfolio manager with Muzinich & Company Limited in London.

Mr. Della Vedova earned both an LL.B. and a B.Com. in finance from the University of New South Wales and a G.D.L.P. from the University of Technology, Sydney, Australia. He also was admitted as a solicitor to the Supreme Court of New South Wales, Sydney.

  • Fund manager
    since
    2014
  • Years at
    T. Rowe Price
    10
  • Years investment
    experience
    26
Michael Lesesne

Michael Lesesne is a global high yield portfolio specialist in the Fixed Income Division at T. Rowe Price. He supports the High Yield, Bank Loan, and Credit Opportunities Strategies, working closely with clients, prospects, and consultants. Mr. Lesesne is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price Associates, Inc.

Mr. Lesesne has 28 years of investment experience, seven of which have been with T. Rowe Price. Prior to joining the firm in 2012, Mr. Lesesne was a partner and director of credit research at Lord Abbett and, before that, a senior high yield credit analyst at Weiss, Peck & Greer and TIAA-CREF.

Mr. Lesesne earned a B.A. in business economics from Brown University  and an M.B.A. in finance from Columbia Business School.

  • Years at
    T. Rowe Price
    7
  • Years investment
    experience
    28

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% 115 basis points 1.29%
Class I €2,500,000 €100,000 €0 0.00% 60 basis points 0.68%
Class Q €15,000 €100 €100 0.00% 60 basis points 0.74%
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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