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SICAV

Global Natural Resources Equity Fund

Seeking to identify long-term global winners in the arena of natural resources extraction and production.

ISIN LU1382644919 Bloomberg TRPGNQR:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

-0.60%
$217.2m

1YR Return
(View Total Returns)

Manager Tenure

12.29%
3yrs

Inception Date 18-Mar-2016

Performance figures calculated in GBP

Other Literature

31-Dec-2019 - Shawn T. Driscoll, Portfolio Manager,
We believe the global commodities market is in middle of a long-term, secular downcycle. Although countercyclical rallies in oil prices can occur, we believe any periods of outperformance will likely be brief, due to a declining cost curve and the disruptive effects of short-cycle shale production. Nevertheless, we continue to find pockets of opportunity in several areas of the market.
Shawn T.  Driscoll
Shawn T. Driscoll, Portfolio Manager

Shawn Driscoll is a portfolio manager in the U.S. Equity Division of T. Rowe Price. He is the portfolio manager for the Global Natural Resources Strategy and is president and chairman of its Investment Advisory Committee. He is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price Associates, Inc.

Click for Manager Outlook
 

Strategy

Manager's Outlook

We continue to believe that the global commodities market is in a long-term, secular downcycle, although we acknowledge that there will be periods of disruption. In our view, the market is in the midst of one such disruption, and we think that 2020 stands to be a relatively positive year for commodities and energy. To be clear, there is no structural change in our strongly held views regarding the sustainable impact of U.S. shale production growth and the flattening oil cost curve, nor in our view that these developments put a ceiling on the long-term average oil price. We do, however, believe that the coming year will be reminiscent of the countercyclical move experienced in 2016. This rally should be shorter in duration and less violent, but we believe it could be a tactically better period for commodities and the energy sector. Our work suggests that the global economy is likely to experience an increase in demand for oil, and recent underinvestment in onshore and offshore exploration and production should result in a cyclical upswing.

We have seen such movements before and expect any periods of oil and commodity outperformance to be brief, with oil prices ultimately settling into a long-term average in the $40 to $50 per barrel range. We note, however, that the eventual average ultimately depends on the degree to which technological innovation continues to improve productivity and recovery rates while driving down costs.

Since November 2014, we have seen volatility in the markets for commodities and high-yield debt, with prices trading in a wide cyclical range. We expect this volatility to persist and during such periods we will continue to make tactical portfolio adjustments as appropriate in the context of a secular downcycle in commodities. In that spirit, we have added to our stable of higher-quality beta holdings in anticipation of a better 2020.

Although the opportunity set has structurally narrowed in natural resources as commodities prices trend lower over time and balance sheets come under pressure, we are still finding pockets of opportunity in the context of the secular bear market:

  • Majors and integrated oil companies with clean balance sheets and a significant number of financial and operating levers to pull.
  • Commodity-related companies that stand to benefit from relatively low input costs and growing demand from end markets, including specialty chemicals and packaging.
  • Regulated utilities that can maintain durable growth in a low interest rate environment, with an emphasis on electric utilities. The industry also stands to benefit from the thematic tailwind in renewables
  • Companies with lower financial leverage and no hidden counterparty risk, given the bankruptcy potential in the commodities marketplace.
  • Industries, including specific segments of utilities, chemicals, and metals, with exposure to the emerging electric vehicle theme stand to benefit from disruption and boast long runways for growth.
  • Energy exploration and production companies that are able to cut costs and maintain growth, with North American shale producers among the best examples.

We remain committed to our bottom-up stock selection process and our philosophy of buying and holding a diverse selection of fundamentally sound natural resources companies with solid balance sheets and talented management. Our expansive global research platform continues to assist in identifying those companies that can provide long-term capital appreciation for our clients. Even if the near-term environment poses challenges, we believe the market will reward our disciplined and consistent approach to investing over the long term.

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 widely diversified portfolio of stocks of natural resources or commodities-related companies. The companies may be anywhere in the world, including emerging markets.

Investment Approach

  • Focus on well-managed companies that own or develop natural resources and other basic commodities with attractive long-term supply-demand fundamentals.
  • Invest in companies that operate “downstream” from these resources, e.g., refining, paper manufacturing, steel fabrication, and petrochemicals.
  • The portfolio invests in resource companies on a global basis including — international energy, forest products, mining, and commodities.
  • Assessment of resource/commodity cycle, industry valuation, and company fundamentals is key.
  • Broadly diversify holdings to manage portfolio risk profile relative to highly concentrated energy or gold strategies.

Portfolio Construction

  • Typically 90-120 securities
  • Positions typically range to 5%
  • Reserves typically range from 0% to 5%

Performance (Class Q | GBP)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 12.29% -0.60% N/A 7.32%
Indicative Benchmark % 12.24% -0.03% N/A 9.03%
Excess Return % 0.05% -0.57% N/A -1.71%

Inception Date 18-Mar-2016

Indicative Benchmark: MSCI World Select Natural Resources Index Net

Data as of  31-Dec-2019

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 12.29% -0.60% N/A 7.32%
Indicative Benchmark % 12.24% -0.03% N/A 9.03%
Excess Return % 0.05% -0.57% N/A -1.71%

Inception Date 18-Mar-2016

Indicative Benchmark: MSCI World Select Natural Resources Index Net

Data as of  31-Dec-2019

Performance figures calculated in GBP

Recent Performance

  Month to DateData as of 27-Jan-2020 Quarter to DateData as of 27-Jan-2020 Year to DateData as of 27-Jan-2020 1 MonthData as of 31-Dec-2019 3 MonthsData as of 31-Dec-2019
Fund % -3.29% -3.29% -3.29% 3.32% -0.15%
Indicative Benchmark % -4.31% -4.31% -4.31% 3.52% 0.06%
Excess Return % 1.02% 1.02% 1.02% -0.20% -0.21%

Inception Date 18-Mar-2016

Indicative Benchmark: MSCI World Select Natural Resources Index Net

Indicative Benchmark: MSCI World Select Natural Resources Index Net

Performance figures calculated in GBP

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-Dec-2019 - Shawn T. Driscoll, Portfolio Manager,
Many commodity prices gained ground in December, although natural gas and coal prices came under pressure. West Texas Intermediate and Brent crude prices rallied on an OPEC output cut amid optimism surrounding the potential “phase one” trade agreement between the U.S. and China. Silver and gold prices increased, as did platinum and palladium. Within the portfolio, our above-benchmark allocations to industrial gases and electric utilities hurt as investors rotated out of defensive industries as part of a broader reflation trade. Stock selection and an overweight position in specialty chemicals also held back relative returns. Shares of coatings companies Sherwin-Williams and RPM International, both of which have reputations as durable businesses that can grow through the cycle, lagged stocks with greater sensitivity to macroeconomic conditions. Conversely, the portfolio’s underweight in oil and gas refining and marketing was a source of strength, as this sector underperformed on concerns that higher oil prices would compress their profit margins.

Holdings

Total
Holdings
126
Largest Holding Total 5.21% Was (30-Sep-2019) 5.27%
Other View Full Holdings Quarterly data as of 31-Dec-2019
Top 10 Holdings 27.16% View Top 10 Holdings Monthly data as of 31-Dec-2019

Largest Top Contributor^

Total
By 2.24%
% of fund 5.19%

Largest Top Detractor^

Ball
By -0.25%
% of fund 1.32%

^Absolute

Quarterly Data as of 31-Dec-2019

Top Purchase

Caterpillar (N)
0.89%
Was (30-Sep-2019) 0.00%

Top Sale

Atmos Energy
0.94%
Was (30-Sep-2019) 1.60%

Quarterly Data as of 31-Dec-2019

31-Dec-2019 - Shawn T. Driscoll, Portfolio Manager,

Our bearish outlook for oil prices and belief that we are in the middle of a secular downcycle for commodities have not changed. Accordingly, we continue to favor defensive industries and areas of the natural resources universe, such as specialty chemicals, that we believe stand to benefit from lower commodity prices that reduce their input costs. However, we aren't averse to taking advantage of the countercyclical rallies that may crop up during secular bear markets. During the quarter, we shifted some basis points from defensive groups, such as utilities, to "quality-beta" names with exposure to a potential catch-up cycle in capital spending after a period of underinvestment by miners and oil and gas producers. To be clear, these adjustments do not mark a major shift in our views or investment strategy. As always, we remain conscious of valuation, industry fundamentals, and longer-term risk/reward propositions for the individual companies in which we invest.

Oil and Gas Equipment and Services

During the quarter, we increased�the portfolio's position in this subsector and broadened its holdings, adding primarily to "quality-beta" names that we believe could benefit from a recovery in spending and activity levels after a period of underinvestment in oil and gas exploration and development. Although we have tactically positioned the portfolio to participate in a potential countercyclical opportunity in this downtrodden industry, we still believe that ongoing well productivity gains and a declining cost curve should present challenges during what we regard as an extended bear market in commodities.

  • We initiated a position in Apergy, a leading provider of artificial lift solutions that enhance production over a well's life cycle. We value the company's strong free cash flow and the advantages of its equipment rental model, which offers higher margins and appeals to capital-constrained exploration and production companies that operate in U.S. shale plays. In our view, the company's proposed combination with Ecolab's oil and gas production chemicals business should create meaningful cross-selling opportunities and increase its exposure to international markets.
  • The portfolio finished the period overweight Schlumberger. In our view, the world's largest oil-field services company represents one of the better ways to gain exposure to the uptick in international exploration and development activity. The new CEO also plans to exit some of Schlumberger's lower-quality business lines in commodified industries.

Construction and Farm Machinery and Heavy Trucks

We increased the portfolio's exposure to this industry, focusing on high-quality names that we believe stand to benefit from a recovery cycle in mining-related spending and farm machinery companies that historically have captured a significant proportion of value during through the cycle.

  • We initiated a position in Caterpillar, a leading manufacturer of construction and mining equipment as well as engines and turbines. We value the cyclical company's strong balance sheet, history of free cash flow generation, and exposure to a potential spending recovery among producers of precious and industrial metals.
  • We initiated a position in Deere for its exposure to what we regard as an improving outlook for corn after weather-related disruptions in 2019 helped to normalize inventories. We appreciate the farm and construction equipment company's strong brand and ability to capture a significant proportion of rent in bull and bear markets for agricultural commodities.

Allocation to Utilities

We appreciate utilities for their defensive qualities but remain selective and valuation-conscious, focusing on names that should be able to deliver solid cash flow and dividend growth during periods of deceleration in the broader economy. In our view, the trends toward increasing adoption of renewable energy and electric vehicles, as well as the associated need for grid modernization, should be secular tailwinds for the industry. For these reasons, we believe electric utilities�could benefit from increasing interest in investment strategies that involve environmental, social, and governance considerations.

  • Alliant Energy operates regulated utilities in Iowa and Wisconsin, states that we believe offer favorable regulatory environments and ample opportunities for system investment, especially in wind power. We have higher-conviction exposure to renewable energy elsewhere in the portfolio�and exited this position in favor of other opportunities.
  • We reduced the portfolio's position in Atmos Energy, a Texas-based gas utility that we believe stands to benefit from generally supportive regulatory environments and a robust capital-spending plan that should support cash flow and dividend growth. We�acknowledge that�increasing competition from renewable energy could be a�headwind for the company over the longer term.

Metal and Glass Containers

We reduced the portfolio's weighting and refined our positioning in metal and glass containers to emphasize investment ideas that we believe offer the most compelling risk/reward profiles.

  • We exited Silgan Holdings, a packaging company that boasts the largest share in the U.S. market for food cans, in favor of other opportunities.
  • We eliminated Vidrala, a Spain-based company that specializes in glass packaging.
  • We initiated a position in France-based glass packaging company Verallia SASU, which completed an initial public offering October. We appreciate the company's attractive valuation, free cash flow generation, and focus on the premium wine and spirits market, where customers are less sensitive to price. In our view, glass packaging should continue to take market share from plastic because of its superior recyclability.

Specialty Chemicals

Our bearish long-term outlook for commodities makes specialty chemicals an area of focus, thanks in part to the potential margin uplift from lower input costs. We prefer names that operate high-quality businesses and offer exposure to potential upside drivers that are independent of the macro environment. The industry was the portfolio's largest overweight at the end of the quarter.

  • We started a position in Shin-Etsu Chemical, a Japan-based company with a diversified revenue mix, strong balance sheet, and ample free cash flow. In our view, the firm's chlor-alkali business�should benefit from�lower input costs and the industry's underinvestment in incremental capacity. Despite near-term challenges in the market for silicon wafers, this business could be another earnings driver once inventories normalize and orders for memory chips accelerate. We value the wafer industry's favorable structure and long-term demand tailwinds related to the growing importance of big data and artificial intelligence in a wide range of industries.
  • We trimmed RPM International on strength to manage position size. We appreciate�the company's�efforts, in response to an activist investor, to expand its profit margins by restructuring and streamlining its operations.

Precious Metals and Mining

The portfolio remained underweight precious metals and minerals, an industry where we prefer small- to mid-cap producers pursuing mining projects that are lower on the cost curve and should drive significant�output and cash flow growth upon completion.

  • We exited Saracen Holdings after the Australia-based gold miner announced plans to acquire Barrick Gold's non-operated stake in a potentially long-lived gold mine that has experienced structural problems in recent years and will require significant investment to restore production. This transaction marked a departure from our investment thesis.
  • We added to Northern Star Resources after the stock pulled back on weaker-than-expected gold production from its Pogo mine in Alaska. We believe that success in turning around Pogo, coupled with the potential for�the company�to apply a similar strategy to future acquisitions, should unlock value for shareholders.

Sectors

Total
Sectors
9
Largest Sector Chemicals 17.52% Was (30-Nov-2019) 18.31%
Other View complete Sector Diversification

Monthly Data as of 31-Dec-2019

Indicative Benchmark: Lipper Global Natural Resources Funds Index

Largest Overweight

Chemicals
By12.92%
Fund 17.52%
Indicative Benchmark 4.60%

Largest Underweight

Metals & Mining
By-9.97%
Fund 10.97%
Indicative Benchmark 20.94%

Monthly Data as of 31-Dec-2019

31-Dec-2019 - Shawn T. Driscoll, Portfolio Manager,
We think that 2020 stands to be a relatively positive year for commodities and energy. To be clear, there is no structural change in our strongly held views regarding the flatting of the oil cost curve and belief that we are in the middle of a long-term bear market in commodities. We do, however, believe that the coming year will be reminiscent of the countercyclical move experienced in 2016, albeit shorter-lived. Against this backdrop, we added to our stable of higher-quality beta holdings in anticipation of a better 2020.

Countries

Total
Countries
21
Largest Country United States 57.06% Was (30-Nov-2019) 57.00%
Other View complete Country Diversification

Monthly Data as of 31-Dec-2019

Indicative Benchmark: Lipper Global Natural Resources Funds Index

Largest Overweight

France
By2.54%
Fund 6.24%
Indicative Benchmark 3.70%

Largest Underweight

United Kingdom
By-4.73%
Fund 6.82%
Indicative Benchmark 11.55%

Monthly Data as of 31-Dec-2019

31-Jul-2015 - Shawn T. Driscoll, Portfolio Manager,
From a country perspective, our allocation to Norway saw the largest percentage increase during the month of July. There were no notable reductions for the period.

Currency

Total
Currencies
10
Largest Currency U.S. dollar 62.11% Was (30-Nov-2019) 62.53%
Other View complete Currency Diversification

Monthly Data as of 31-Dec-2019

Indicative Benchmark : MSCI World Select Natural Resources Index

Largest Overweight

U.S. dollar
By 10.30%
Fund 62.11%
Indicative Benchmark 51.81%

Largest Underweight

Canadian dollar
By -7.93%
Fund 4.93%
Indicative Benchmark 12.86%

Monthly Data as of 31-Dec-2019

Team (As of 06-Jan-2020)

Shawn T.  Driscoll

Shawn Driscoll is a portfolio manager in the U.S. Equity Division of T. Rowe Price. He is the portfolio manager for the Global Natural Resources Strategy and is president and chairman of its Investment Advisory Committee. He is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price Associates, Inc.

Mr. Driscoll has 16 years of investment experience, 13 of which have been with T. Rowe Price. Prior to joining the firm in 2006, he was employed by MTB Investment Advisors as an equity research analyst. He also worked for MPower Communications as an information technology project manager.

Mr. Driscoll earned a B.A. in economics and mathematics from the University of Rochester and an M.B.A. in finance and global business from New York University, Leonard N. Stern School of Business.

  • Fund manager
    since
    2016
  • Years at
    T. Rowe Price
    13
  • Years investment
    experience
    16
Brian Dausch

Brian Dausch is a portfolio specialist in the U.S. Equity Division of T. Rowe Price. He is a member of the Global Natural Resources Equity, US Mid-Cap Growth Equity, US Small-Cap Growth Equity, QM US Small-Cap Growth Equity, and Health Sciences Strategy teams, working closely with institutional clients, consultants, and prospects. Mr. Dausch is a vice president of T. Rowe Price Group, Inc.

Mr. Dausch has 22 years of investment experience, 21 of which have been at T. Rowe Price. He joined the firm in 1998; prior to his current position, he managed the U.S. Equity Portfolio Analysis Group. Mr. Dausch also served as an associate research analyst in the U.S. Equity Division in health care, specializing in biotechnology and pharmaceutical company research.

Mr. Dausch earned a B.S. in business administration, with a concentration in finance, from the University of Delaware. He also has earned the Chartered Financial Analyst designation.

  • Years at
    T. Rowe Price
    21
  • Years investment
    experience
    22

Fee Schedule

Share Class Minimum Initial Investment and Holding Amount(GBP) Minimum Subsequent Investment(GBP) Minimum Redemption Amount(GBP) Sales Charge (up to) Investment Management Fee (up to) Ongoing Charges
Class A $15,000 $100 $100 5.00% 160 basis points 1.77%
Class I $2,500,000 $100,000 $0 0.00% 75 basis points 0.83%
Class Q $15,000 $100 $100 0.00% 75 basis points 0.92%

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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