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SICAV

US Smaller Companies Equity Fund

Seeks capital appreciation using both value and growth approaches.

ISIN LU0929966207 Bloomberg TRPUSCQ:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

15.27%
$1.6b

1YR Return
(View Total Returns)

Manager Tenure

37.48%
<1yr

Information Ratio
(5 Years)

Tracking Error
(5 Years)

0.82
3.82%

Inception Date 08-May-2013

Performance figures calculated in USD

Other Literature

31-Dec-2019 - Curt Organt, Portfolio Manager ,
We seek to capitalise on opportunities across the broad range of the small- and mid-cap U.S. equity market. Overall, we remain modestly overweight high-quality companies that compound their earnings. We also look for select investments in “deeper-value” opportunities – those stocks that we believe are significantly undervalued – and hold a number of income-oriented dividend growth companies.
Curt J. Organt, CFA
Curt J. Organt, CFA, Portfolio Manager

Curt Organt is the portfolio manager of the US Smaller Companies Equity Strategy and the associate portfolio manager of the US Small-Cap Core Equity Strategy in the U.S. Equity Division of T. Rowe Price. Mr. Organt is a vice president and an Investment Advisory Committee member of the Small-Cap Stock, Small-Cap Value, Global Industrials Equity, New Horizons, and US Small-Cap Growth II Equity  Strategies. He is a vice president of T. Rowe Price Group, Inc.

Click for Manager Outlook
 

Strategy

Manager's Outlook

U.S. equity markets surged in the fourth quarter of 2019, with small-cap stocks slightly edging large-caps and growth beating value. For the full-year period, large-cap stocks led their small- and mid-cap peers and growth significantly outpaced value across the market cap spectrum. The Russell 2500 trailed the Russell 1000 by 366 bps in 2019. During the quarter, the Russell 2500 was up 854 bps, with health care and technology being the largest contributors, primarily driven by strong performance in the biotech/pharma and semiconductor/electronic equipment, instruments, and component industries. Utilities was the only Russell 2500 sector to not post positive returns for the quarter.

Central bank interest rate cuts around the world in response to slowing growth were a major factor behind the markets' gains. In the U.S., the Federal Reserve reduced short-term interest rates in late October, its third reduction since late July, and took steps to increase liquidity in short-term lending markets. This included outright purchases of Treasury bills, resulting in a renewed expansion of the Fed's balance sheet. Investors also welcomed progress in U.S.-China trade negotiations, which led to what U.S. Trade Representative Robert Lighthizer called "an historic and enforceable" phase one trade agreement in December. Although many details of the agreement are unclear, and while the deal is not expected to be signed until mid-January, the U.S. decided to cancel an expected tariff increase on December 15 and reduce tariffs on certain Chinese goods from 15% to 7.5%.

The US Smaller Companies Strategy portfolio seeks to capitalize on opportunities across the broad range of the small-cap and mid-cap U.S. equity market. The portfolio has a collection of core holdings in high-quality companies we expect to compound value over time and looks for select investments in "deeper value" opportunities; companies experiencing challenge or controversy of one sort or another that the investment team believes can be resolved in a reasonable period of time. The portfolio holds a number of income-oriented, dividend-growth companies, as well as a collection of high-growth investments in which the investment team believes other investors do not yet fully appreciate the companies' long-term growth potential.�Overall, the strategy remains modestly overweight the high-quality compounding companies but has been finding opportunities in financials, consumer staples, and energy.

Since the strategy's inception over 15 years ago, it has relied upon T. Rowe Price's team of fundamental research analysts to provide unique perspective and insight on the companies they follow. Going forward, the portfolio manager will continue to work closely with this talented team of investment professionals to identify the most attractive opportunities across the full range of the small-cap and mid-cap segments of the U.S. equity market.

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 from smaller capitalization companies in the United States.

Investment Approach

  • Focus on companies within the market cap range of the Russell 2500 Index at time of purchase.
  • Assess valuation using relevant sector/industry metrics — absolute and relative price to earnings, price to cash flow, and price to assets.
  • Integrate fundamental research by a dedicated Small-Cap research team to discover underfollowed companies possessing clear business plans, financial flexibility, and proven management teams.
  • Identification of a “value creation” catalyst is key.
  • Broadly diversify holdings to manage portfolio risk profile.
  • Employ a low turnover and patient trading strategy to promote full value realization.

Portfolio Construction

  • 200-250 securities
  • Position sizes typically range from 0.15% to 2.50%
  • Primary sector weights generally vary from 0.5X to 2.0X the Russell 2500 Index weights

Performance (Class Q)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Since Manager Inception
Fund % 37.48% 15.27% 11.58% 13.42% 15.43%
Indicative Benchmark % 27.16% 9.84% 8.44% 9.97% 9.92%
Excess Return % 10.32% 5.43% 3.14% 3.45% 5.51%

Inception Date 08-May-2013

Manager Inception Date 31-Mar-2019

Indicative Benchmark: Russell 2500 Net 30% Index

Data as of  31-Dec-2019

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 37.48% 15.27% 11.58% 13.42%
Indicative Benchmark % 27.16% 9.84% 8.44% 9.97%
Excess Return % 10.32% 5.43% 3.14% 3.45%

Inception Date 08-May-2013

Indicative Benchmark: Russell 2500 Net 30% Index

Data as of  31-Dec-2019

Performance figures calculated in USD

Recent Performance

  Month to Date Quarter to Date Year to Date 1 MonthData as of 31-Dec-2019 3 MonthsData as of 31-Dec-2019
Fund % N/A N/A N/A 1.45% 7.09%
Indicative Benchmark % N/A N/A N/A 2.06% 8.40%
Excess Return % N/A N/A N/A -0.61% -1.31%

Inception Date 08-May-2013

Indicative Benchmark: Russell 2500 Net 30% Index

Indicative Benchmark: Russell 2500 Net 30% Index

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.

Returns shown with reinvestment of dividends after the deduction of withholding taxes. 

Effective 1 June 2019, 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 - Curt Organt, Portfolio Manager ,
U.S. stocks advanced in December, capping a robust year, with most major indices reaching new all-time highs. U.S.-China trade negotiations continued to influence investor sentiment and the announcement that both sides had reached a verbal agreement on a much anticipated “phase one” trade deal lifted share prices. At the portfolio level, our underweight position in energy, the best-performing sector in the benchmark, had the most negative impact on relative results. Stock selection in consumer discretionary also hindered performance. Shares of Aaron’s, the U.S. leader in rent-to-own retail services, declined after it missed revenue and earnings’ expectations, as accelerating traffic in core stores pulled manpower from the servicing of collections. We believe this is a small hiccup in an ongoing transition toward an improved business mix. Conversely, health care contributed the most to relative returns due to stock choices. Shares of Kodiak Sciences, a clinical stage retinal disease biotech company, jumped on the announcement that it had secured an attractive royalty rights deal for its KSI-301 drug, removing a significant financing overhang. KSI-301 is an anti-VEGF treatment for retinal diseases and has shown signs of efficacy durability that exceeds that of commercially available drugs.

Holdings

Total
Holdings
176
Largest Holding CoStar Group 2.07% Was (30-Sep-2019) 2.23%
Other View Full Holdings Quarterly data as of 31-Dec-2019
Top 10 Holdings 14.92% View Top 10 Holdings Monthly data as of 31-Dec-2019

Largest Top Contributor^

Avery Dennison
By 0.26%
% of fund 1.49%

Largest Top Detractor^

Vulcan Materials
By -0.11%
% of fund 1.29%

^Absolute

Quarterly Data as of 31-Dec-2019

Top Purchase

E*TRADE Financial (N)
0.45%
Was (30-Sep-2019) 0.00%

Top Sale

JBG SMITH Properties
1.28%
Was (30-Sep-2019) 1.91%

Quarterly Data as of 31-Dec-2019

31-Dec-2019 - Curt Organt, Portfolio Manager ,

We do not make sector "bets," and sector weightings are formed as a residual of our bottom-up investment process. During the quarter, trading activity spanned the various sectors. We've highlighted some of the larger purchases and sales occurring within the real estate, information technology, financials, and industrials and business services sectors.

Real Estate

A low interest rate environment over recent years has by and large pushed valuations in the segment up to levels that are elevated relative to history, although investors have begun to factor in the prospects for rising rates ahead, bringing valuation levels down somewhat. As the path of interest rates has a significant impact on funding for the firms that operate in the segment and thus the forward performance of real estate investment trusts (REITs), we remain mindful of the risks involved with the potential for upcoming Federal Reserve hikes.

  • We pared JBG SMITH Properties, a REIT trust headquartered in Chevy Chase, MD, but continue to favor the company for its strong management team, attractively located real estate, and long-term growth potential. The development of an Amazon headquarters in northern Virginia provides an additional boost to the company's earnings growth profile.
  • We added to our position in U.S. student housing REIT American Campus Communities. We like the company's defensive qualities and lengthy runway for growth given its potential to take share in a fragmented industry.

Information Technology

Our information technology allocation is now significantly overweight relative to the benchmark, as a number of the disruptive companies that are on the right side of change are featured in the sector. We remain sanguine on the sector as a whole. We have large allocations in the software, semiconductors, IT services, and electronic equipment and instruments segments. We have been able to find many niche software providers that we believe have attractive growth opportunities and barriers to ward off their competition.

  • We took advantage of strength in the semiconductors and semiconductor equipment industry. Shares of Lattice Semiconductor, a fabless designer of field programmable gate array chips, have risen steadily on consecutive quarters of strong results reflecting improving profitability. We exited our position on strength. Similarly, we trimmed Entegris following strong performance.
  • We took advantage of share price weakness, following a messy quarter due to internal billings errors, to add to our position in Twilio, the leader in the cloud communications platform market. We believe the current headwinds are not indicative of any fundamental weakness and maintain a favorable long-term view of the company, which is levered to the secular growth of the digital economy.

Financials

We are underweight the financials sector, which still represents one of the largest allocations within the portfolio and the benchmark. Up until the 2016 carveout of real estate from the sector to create its own standalone sector, the segment reflected our largest allocation (albeit underweight the index). Our largest allocation is to the banks industry. We also maintain a sizable allocation, and overweight, to the insurance industry. Many financial firms have been troubled in recent years on fallout from the credit crisis and have suffered the results of deleveraging, whether it be from retail business or their own balance sheet. We see a favorable environment for many financials sector firms due to the prospect of a less onerous regulatory environment.

  • We initiated a position in E*Trade Financial, the fourth-largest discount broker in the U.S. and one of the largest corporate stock plan administrators. We believe the company's recently announced efficiency initiatives, along with an improved net interest margin outlook, more than offset the industry-driven pressure of moving to a zero-commission offering.
  • We increased our position in Cboe Global Markets. We view the stock and option exchange operator as a solid durable growth company with a high-quality, proprietary technology that we think will improve efficiency and lower costs. As long-term investors, we also have a favorable view of the company's recent acquisition of the remainder of EuroCCP, a European clearinghouse, which advances Cboe's intention to build out an equity derivatives platform in Europe.

Industrials and Business Services

In the industrials and business services sector, the portfolio is overweight compared with the benchmark allocation due in particular to sizable positions in aerospace and defense, machinery, and professional services. The sector tends to be cyclical, with strong surges during economic recovery. We have exposure to cyclical holdings to take advantage of economic recovery, but we also hold positions in more stalwart areas that allow steady and measured returns to provide a more balanced risk exposure.

  • We added a position in Beacon Roofing, a distributor of roofing supplies. The company is an industry consolidator and stands to benefit from strategic acquisitions, including the ongoing integration of Allied Building Products, in addition to a strengthening market for homebuilders.
  • We pared our position in Brink's, the largest provider of cash management logistics and security solutions, following strong performance. We have a positive view of management's turnaround efforts, including a demonstrated commitment to improving margins, and the company continues to drive growth through strategic acquisitions in a fragmented industry.

Sectors

Total
Sectors
11
Largest Sector Industrials & Business Services 19.87% Was (30-Nov-2019) 19.74%
Other View complete Sector Diversification

Monthly Data as of 31-Dec-2019

Indicative Benchmark: Russell 2500 Index

Top Contributor^

Financials
Net Contribution 0.10%
Sector
0.02%
Selection 0.08%

Top Detractor^

Information Technology
Net Contribution -0.66%
Sector
0.04%
Selection
-0.70%

^Relative

Quarterly Data as of 31-Dec-2019

Largest Overweight

Industrials & Business Services
By4.83%
Fund 19.87%
Indicative Benchmark 15.04%

Largest Underweight

Real Estate
By-3.42%
Fund 6.83%
Indicative Benchmark 10.25%

Monthly Data as of 31-Dec-2019

31-Dec-2019 - Curt Organt, Portfolio Manager ,
Industrials and business services, information technology (IT), financials, and health care remain the dominating sectors in the portfolio, all with greater than 10% of the equity allocation. We continue to invest in select companies across various industries where we feel valuations may underestimate the sustainability of their growth or turnaround potential. This included boosting positions within commercial services and supplies, software, IT services, and oil, gas, and consumable fuels.

Team (As of 06-Jan-2020)

Curt J. Organt, CFA

Curt Organt is the portfolio manager of the US Smaller Companies Equity Strategy and the associate portfolio manager of the US Small-Cap Core Equity Strategy in the U.S. Equity Division of T. Rowe Price. Mr. Organt is a vice president and an Investment Advisory Committee member of the Small-Cap Stock, Small-Cap Value, Global Industrials Equity, New Horizons, and US Small-Cap Growth II Equity  Strategies. He is a vice president of T. Rowe Price Group, Inc.

Mr. Organt has 25 years of investment experience, 23 of which have been with T. Rowe Price. Prior to joining the firm in 1995, he was a financial analyst and a marketing analyst at DAP Products, Inc.

Mr. Organt earned a B.S. in finance and philosophy from La Salle University and an M.B.A. from Wake Forest University. He also has earned the Chartered Financial Analyst designation.

  • Fund manager
    since
    2019
  • Years at
    T. Rowe Price
    24
  • Years investment
    experience
    28
Eric Papesh

Eric Papesh is a portfolio specialist in the U.S. Equity Division of T. Rowe Price. He is based in London and serves as a proxy for equity portfolio managers with institutional clients, consultants and prospects. Mr. Papesh supports T. Rowe Price's US Smaller Companies Equity and US Large-Cap Equity Strategies offered in the Europe, Middle East and Africa (EMEA) and Asia-Pacific (APAC) regions. He is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Mr. Papesh has 22 years of financial services experience, two of which have been with T. Rowe Price. Before joining the firm in 2014, he was a senior research analyst with Russell Investments, where he focused on US equity investment strategies.

Mr. Papesh earned a B.A. in business administration and an M.B.A. from the University of Washington. He has also earned the Chartered Financial Analyst designation.

  • Years at
    T. Rowe Price
    5
  • Years investment
    experience
    25

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% 160 basis points 1.71%
Class I $2,500,000 $100,000 $0 0.00% 95 basis points 1.01%
Class Q $15,000 $100 $100 0.00% 95 basis points 1.10%
Class S $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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