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T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. T. Rowe Price has been independently verified for the twenty four-year period ended June 30, 2020, by KPMG LLP. The verification report is available upon request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. Verification does not provide assurance on the accuracy of any specific performance report.

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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 LU0310187579 Bloomberg TRPMEAA:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

10.16%
$6.8m

1YR Return
(View Total Returns)

Manager Tenure

47.96%
1yr

Information Ratio
(5 Years)

Tracking Error
(5 Years)

-0.11
5.36%

Inception Date 24-Dec-2007

Performance figures calculated in USD

31-Jan-2020 - Oliver Bell, Portfolio Manager ,
A recovery in regional growth and meaningful country-specific improvements are supportive of Middle East and African markets. Company valuations look attractive and reform is high on the agenda for many of the countries in our investment universe. We believe the outlook for the region is robust, with improvement likely to be driven by favourable demographics, rising urbanisation and levels of infrastructure investment, and a strong asset base in natural resources.
Seun Oyegunle, CFA
Seun Oyegunle, CFA, Portfolio Manager

Seun Oyegunle is the portfolio manager of the Africa & Middle East Fund in the Equity Division.

Click for Manager Outlook
 

Strategy

Manager's Outlook

Against a challenging backdrop, we continue to focus on the long-term fundamentals, and look to hold high conviction ideas, in quality companies that we believe are well-positioned to withstand the current environment and emerge stronger on the other side of the health crisis. Over the longer-term, this region is likely to be bolstered by a recovery in regional growth and meaningful country-specific improvements, including economic reform. Over recent years, we have been encouraged by policymakers' attempts to cut subsidies to fuel, electricity and gas as part of fiscal consolidation plans.

In South Africa, we hold a cautiously positive view for the longer-term outlook. We have seen indications of incremental progress on the anti-corruption agenda and some positive steps towards reform. This has supported business and consumer confidence. Rises in commodity prices this year have been a boon to the economy and South Africa's balance of payments position. While the vaccination rate remains relatively slow, a decline in infections has softened the near-term risk. We focus on our highest conviction ideas, in well-run, quality companies.

Elsewhere in Africa, the removal of an interest rate cap in Kenya in 2019 was a positive catalyst for the market. We focus on high conviction ideas in the market. Egypt completed an International Monetary Fund-backed reform agenda and loan program in 2019. If the political situation remains stable, this should drive a material improvement to the country's economic backdrop. While challenges still exist, including those to the tourism sector during the current crisis, we are starting to see signs of easing inflation, an improving budget deficit and currency stability. We are also increasingly cautious on the outlook in Morocco. The country has had a difficult COVID crisis, stimulus measures have been underwhelming and the economy is also tourist dependent. We maintain selective high conviction ideas here.

In the Middle East, oil exporting nations have been challenged by oil price volatility amid the pandemic and associated lockdowns measures around the globe. We are constructive on the Saudi Arabian market, but valuations generally appear expensive. We remain selective on bottom-up ideas. In Qatar, we have seen a normalization in relations with the nation's gulf neighbors. The economy is also likely to be boosted by the World Cup 2022 and significant investments in natural gas projects. We are able to find some attractively valued names in the market.

Overall, we believe the long-term outlook for the Africa and Middle East region remains robust, as we look beyond the impacts of the pandemic. Longer-term growth in this region is likely to be 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. There is much scope for economic improvement, driven by reform implementation and growing structural domestic demand. This will likely translate into strong corporate earnings growth that we believe can be sustained by various businesses in the years ahead. We believe the fundamentals generally remain intact and that strong growth will resume on the other side of the crisis.

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%

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
10 YR
Annualised
Since Manager Inception
Fund % 47.96% 10.16% 8.27% 6.66% 29.24%
Indicative Benchmark % 43.21% 11.60% 8.87% 5.48% 25.90%
Excess Return % 4.75% -1.44% -0.60% 1.18% 3.34%

Inception Date 24-Dec-2007

Manager Inception Date 01-Jan-2021

Indicative Benchmark: Linked Benchmark Net

Data as of 31-Oct-2021

Performance figures calculated in USD

  1 YR 3 YR
Annualised
5 YR
Annualised
10 YR
Annualised
Fund % 44.54% 6.91% 7.83% 6.76%
Indicative Benchmark % 38.41% 9.26% 8.55% 5.79%
Excess Return % 6.13% -2.35% -0.72% 0.97%

Inception Date 24-Dec-2007

Indicative Benchmark: Linked Benchmark Net

Data as of 30-Sep-2021

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 26-Nov-2021 Quarter to DateData as of 26-Nov-2021 Year to DateData as of 26-Nov-2021 1 MonthData as of 31-Oct-2021 3 MonthsData as of 31-Oct-2021
Fund % -2.00% 1.18% 26.66% 3.24% 7.46%
Indicative Benchmark % -3.76% -1.70% 21.17% 2.14% 4.99%
Excess Return % 1.76% 2.88% 5.49% 1.10% 2.47%

Inception Date 24-Dec-2007

Indicative Benchmark: Linked Benchmark Net

Indicative Benchmark: Linked Benchmark Net

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.

Where the base currency of the fund differs from the share class currency, exchange rate movements may affect returns.

Index returns shown with reinvestment of dividends after the deduction of withholding taxes. 

Effective 1 January 2018, the indicative benchmark for the fund was changed to MSCI Arabian Markets & Africa 10/40 IMI Net Index. Prior to 1 January 2018, the indicative benchmark for the fund was S&P Emerging Market/Frontier Middle East & Africa Broad Market Index ex Israel. Prior to 30 September 2010, the indicative benchmark for the fund was MSCI Arabian Markets and Africa Index. Prior to 1 July 2009, the indicative benchmark for the fund was S&P IFCG Africa and Middle East ex-Saudi Arabia and ex-Israel. Prior to 1 September 2008, this indicative benchmark also excluded Kuwait. The benchmark changes were made because the portfolio manager viewed the new benchmark composition to be a better representation of the investment strategy of the fund. Historical benchmark representations have not been restated.

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-2021 - Seun Oyegunle, CFA, Portfolio Manager ,
Middle Eastern and African equities rose in October, underperforming their developed market peers but delivering superior returns to the wider emerging market universe. South Africa was broadly flat over the month. In a reversal of the trend in August and September, platinum and gold mining stocks posted robust gains, due to higher underlying prices for both metals. The equity market in Saudi Arabia continued to post gains, supported in part by the continued rise in oil prices. Within the portfolio, our holdings in Saudi Arabia, including several large banks and a gym company, contributed to performance. At the sector level, our choices of securities within consumer discretionary and financials were particularly beneficial. Conversely, our holdings in several South African banks detracted from relative performance as the market underwent a rotation out of financials and domestic names into gold and platinum mining stocks. The portfolio’s sizeable overweight to health care also detracted from relative returns, as this defensive sector was the weakest performing within the MSCI Arabian Markets & Africa 10-40 Investable Market Index Net.

Holdings

Total
Holdings
45
Largest Holding Al Rajhi Bank 9.72% Was (30-Jun-2021) 8.78%
Other View Full Holdings Quarterly data as of  30-Sep-2021
Top 10 Holdings 45.68% View Top 10 Holdings Monthly data as of  31-Oct-2021

Largest Top Contributor^

Al Rajhi Bank
% of fund 9.60%

Largest Top Detractor^

Prosus
% of fund 4.48%

^Absolute, percentages based on the difference between the total net assets of the two largest holdings of the fund.

Quarterly Data as of 30-Sep-2021

Top Purchase

Prosus
4.47%
Was (30-Jun-2021) 0.94%

Top Sale

Naspers
3.00%
Was (30-Jun-2021) 9.54%

Quarterly Data as of 30-Sep-2021

30-Sep-2021 - Seun Oyegunle, CFA, Portfolio Manager ,

Overall, the portfolio remains quite defensively positioned. On a sector basis, we have overweight exposures to the consumer discretionary, health care, IT, and consumer staples sectors. The most significant underweight position is in materials. Country-wise, the portfolio is overweight Egypt and the UAE while key country underweight exposures include Kuwait and Saudi Arabia. In terms of portfolio activity over the quarter, we raised our weighting to the consumer discretionary sector and reduced our exposure to financials. We participated in an IPO, which raised the portfolio's weighting to Qatar and made some adjustments within our holdings in the UAE.

Consumer Discretionary

Our most significant sector overweight position is in consumer discretionary and we made a number of switches within our holdings in the third quarter.

  • We reduced the combined weight of South African conglomerate Naspers, and its Amsterdam-listed investment unit, Prosus, and accepted a share exchange offer which moved a greater proportion of our holding from Naspers into Prosus. The conglomerate is dominated by a stake in Chinese technology company Tencent, but also offers exposure to other social media ecosystems, classifieds, food delivery businesses and fintech. We believe that the holding continues to offer an attractive risk/reward profile, despite the high level of uncertainty around regulatory changes in China (which have influenced the value of key underlying asset Tencent).
  • Downstream petroleum company Vivo Energy is headquartered in London but maintains subsidiaries and operations in 23 countries across Africa. It operates in the supply, storage, distribution, and sale of a range of petroleum products. Following strong recent outperformance, we eliminated our position as the valuation is less compelling, and we prefer to focus on higher conviction ideas with more attractive fundamentals.

Financials

Bank stocks as a whole were particularly strong globally in recent months on the back of expectations of an economic recovery and higher inflation, long-term interest rates, and a steepening yield curve. We felt that in some cases, prices had run up so quickly that valuations had become stretched or the investment case had played out and been priced into the share price.� In recent months, we have been selectively reducing our financials exposure and in the third quarter we trimmed further. By the end of September, we were broadly benchmark neutral.

  • We reduced our position in the Dubai-based bank Emirates NBD, which is one of the largest banks in the UAE by market share. We believe the company will continue to expand returns on equity, driven by a recovery in fees as economic recovery continues to improve, the maintenance of strong control over operational expenses and incremental efficiencies driven by aggressive cost cutting measures and a decline in the cost of risk. The company is one of the most diversified banks in the UAE, with activities across the corporate and consumer spectrum. We maintain an overweight position in the holding but reduced it slightly following strong outperformance and a slightly less compelling valuation on a relative basis from here.
  • Capitec started out as a micro-lender in 2000 but has since transformed into a full-service retail transactional bank with a large distribution network in South Africa. The company's management has established an innovative, niche, low-cost business model in retail banking, leveraging technology while keeping its product offering relatively simple. We identify key medium-term growth drivers for the company including ongoing share gains in transactional banking, substantial growth in funeral income given a competitive insurance policy, and growth in business banking driven by both credit and value-added services. However, the stock reached a fair valuation level, and we chose to moderate our position size over the quarter.

Qatar

We have been gradually increasing our exposure to Qatar in recent months, and we continued this shift in the third quarter. By the end of the period, we had a small overweight position in the country. Qatar has lagged the rise in other equity markets.� Over the next three to five years, we believe Qatar has some of the best growth prospects in the region.

  • We initiated a position in the conglomerate Industries of Qatar, which has subsidiaries and investments in the petrochemicals, fertilizers and steel industries. We have a positive view on urea, which is one of the key products produced by subsidiary Qatar Fertiliser Company (QAFCO). Urea is widely used in fertilizers and is an important raw material for the chemical industry. The supply demand backdrop is improving, especially within agriculture. We find the company's valuation compelling, particularly when compared to other companies within the industry.

UAE

Although we retained a small overweight position in the UAE, we made a number of adjustments to our positions within this market. We participated in an IPO and made a couple of changes within financials.

  • We participated in the IPO of Adnoc Drilling, the sole provider of drilling services for the Abu Dhabi state oil company (ADNOC). The company benefits from a guaranteed backlog, young fleet, and above average EBITDA margins. Due to the contract guarantees and the quasi-sovereign backing, we believe the company is less likely to be exposed to the typical cyclical downturns faced by peers, while offering exposure to growth projects. We expect a solid and increasing dividend yield. We found this proposition to be attractively valued, and believe that the downside risk is limited, and there is optionality on the upside.
  • Abu Dhabi Commercial Bank has a strong franchise across retail and corporate banking, operating in four business segments including consumer banking, wholesale banking, treasury and investments and property management. We added to our existing position as we believe that accelerating loan growth, margin expansion on a higher rate cycle and efficiency improvements can drive a recovery in returns. An improving macroeconomic backdrop could provide a further tailwind for the stock.

Sectors

Total
Sectors
11
Largest Sector Financials 45.45% Was (30-Sep-2021) 45.38%
Other View complete Sector Diversification

Monthly Data as of 31-Oct-2021

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

Top Contributor^

Consumer Discretionary
Net Contribution 0.96%
Sector
-1.53%
Selection 2.49%

Top Detractor^

Information Technology
Net Contribution -0.30%
Sector
0.15%
Selection
-0.45%

^Relative

Quarterly Data as of 30-Sep-2021

Largest Overweight

Consumer Discretionary
By8.05%
Fund 15.06%
Indicative Benchmark 7.00%

Largest Underweight

Materials
By-12.76%
Fund 5.94%
Indicative Benchmark 18.70%

Monthly Data as of 31-Oct-2021

31-Oct-2021 - Seun Oyegunle, CFA, Portfolio Manager ,
Overall, the portfolio remains quite defensively positioned. On a sector basis, we have overweight exposures to the consumer discretionary, health care, information technology (IT), and consumer staples sectors. The most significant underweight position is in materials. Within the technology space, we continued to build a position in a provider of IT services. In our view, the company stands to be a beneficiary of several trends in Saudi Arabia, including the digitization of health care, the shift of retailers toward omnichannel approaches, cybersecurity, and a shift to the cloud.

Countries

Total
Countries
11
Largest Country Saudi Arabia 36.84% Was (30-Sep-2021) 34.14%
Other View complete Country Diversification

Monthly Data as of 31-Oct-2021

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

Top Contributor^

South Africa
Net Contribution 2.15%
Country
0.35%
Selection 1.80%

Top Detractor^

Netherlands
Net Contribution -0.90%
Country
-0.90%
Selection
0.00%

^Relative

Quarterly Data as of 30-Sep-2021

Largest Overweight

Netherlands
By4.98%
Fund 4.98%
Indicative Benchmark 0.00%

Largest Underweight

Kuwait
By-6.27%
Fund 0.00%
Indicative Benchmark 6.27%

Monthly Data as of 31-Oct-2021

31-Oct-2021 - Seun Oyegunle, CFA, Portfolio Manager ,
We continued to identify what we believe to be compelling investment opportunities in Saudi Arabia. In October, we participated in the IPO of a developer, investor, and operator of power generation and desalinated water production plants across the Middle East and North Africa, Southern Africa, and South East Asia. The company has announced plans to double its renewable energy portfolio over the next five years, which aligns with the kingdom’s wider goal of diversifying away from fossil fuels.

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 $1,000 $100 $100 5.00% 190 basis points 2.07%
Class I $2,500,000 $100,000 $0 0.00% 100 basis points 1.10%
N/A

Please note that the Ongoing Charges figure is inclusive of the Investment Management Fee and is charged per annum.