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SICAV

Asian ex-Japan Equity Fund

A diversified fund, with a focus on sustainable growth.

ISIN LU0860350064 Bloomberg TRPAXJQ:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

7.32%
$565.7m

1YR Return
(View Total Returns)

Manager Tenure

0.30%
6yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

0.22
3.83%

Inception Date 31-Jan-2013

Performance figures calculated in USD

Other Literature

31-Aug-2019 - Anh Lu, Portfolio Manager,
We continue to find attractive investment opportunities in Asia ex-Japan despite the long-drawn out U.S.-China trade discord. We see resilience in selected sectors such as consumer staples, health care, and technology hardware, particularly semiconductors. While trade frictions are creating concerns about growth, Asian economies are holding up, supported by domestic demand even as we see broad-based weakness in trade. Valuations in Asia ex-Japan are reasonable relative to long-term history and developed markets.
Anh Lu
Anh Lu, Portfolio Manager

Anh Lu is a portfolio manager in the Equity Division of T. Rowe Price Hong Kong Limited. Ms. Lu is the lead portfolio manager for the Asia ex-Japan Equity Strategy. She is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price Hong Kong Limited.

Click for Manager Outlook
 

Strategy

Manager's Outlook

We remain constructive on the long-term prospects for Asia ex-Japan equities and at the same time are cognizant that the trade conflict between the U.S. and China may be protracted.

This trade dispute will likely remain a source of uncertainty for the markets in the region and the issues may recur until they have been fully addressed. We believe that both the U.S. and China recognize the damaging effects of a drawn-out trade war and we continue to keep a close watch on developments, especially following the broadening of the conflict to technology and other areas. We think that given China's debt levels, an all-out, large-scale stimulus may be unlikely and near-term, policymakers may look for more targeted measures to counter the growth slowdown.

The portfolio has adjusted in the first half of the year amid the trade war but given the uncertainty of the outcome, we are also adopting a slightly barbell approach. Aside from taking on less cyclical stock exposure, the portfolio is also positioned to capture gains if a trade agreement is reached.

On India, the decisive win by the ruling party is positive for sentiment as well as for the trajectory of reforms. Post-election, the focus will now shift to how Prime Minister Narendra Modi will tackle issues such as the rise in unemployment and the second round of structural reforms. We believe in the country's long-term growth potential due to its favorable demographics but continue to await the recovery in the capital expenditure cycle.

In Southeast Asia, we are seeing an improved regulatory environment across some countries. We continue to keep a close eye on policy changes in South Korea, following earlier measures such as the aggressive minimum wage increases that have been tough on business.

We continue to prefer domestically-oriented companies, favoring innovative firms, businesses with an edge in research and development, and companies that will benefit from reforms and from import substitution. We think that earnings in the region will improve in 2019, although at a more subdued pace than in the previous two years. Moreover, valuations in Asia ex-Japan are reasonable relative to long-term history and developed markets.

Overall, the broad stability in the region's economies and the easing of interest rates will provide a favorable backdrop for the continued upturn in profits in 2019. The drive of Asian companies toward innovation enhances the region's prospects, as firms spend more on research and development to become more competitive globally.

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 Asia (excluding Japan).

Investment Approach

  • Employ fundamental analysis to identify companies with sustainable above-market earnings growth rates.
  • Focus on franchise strength, management team quality, free cash flow, and financing/balance sheet structure.
  • Verify relative valuation appeal versus both local market and region.
  • Apply negative screening for macroeconomic and political factors to temper bottom-up enthusiasm for specific securities.

Portfolio Construction

  • 80-120 stock portfolio
  • Individual positions typically range from 0.40% to 5.00% - average position size of 1.00%
  • Country and sector weightings a residual of stock selection. Significant deviations expected.
  • Reserves range from 0% to 10%, but typically less than 5%

Performance (Class Q)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 0.30% 7.32% 3.47% 4.31%
Indicative Benchmark % -6.34% 6.31% 2.64% 3.87%
Excess Return % 6.64% 1.01% 0.83% 0.44%

Inception Date 31-Jan-2013

Indicative Benchmark: MSCI All Country Asia ex Japan Index Net

Data as of  31-Aug-2019

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 0.22% 11.15% 4.97% 4.97%
Indicative Benchmark % -0.48% 11.50% 4.84% 5.00%
Excess Return % 0.70% -0.35% 0.13% -0.03%

Inception Date 31-Jan-2013

Indicative Benchmark: MSCI All Country Asia ex Japan Index Net

Data as of  30-Jun-2019

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 13-Sep-2019 Quarter to DateData as of 13-Sep-2019 Year to DateData as of 13-Sep-2019 1 MonthData as of 31-Aug-2019 3 MonthsData as of 31-Aug-2019
Fund % 4.32% 0.88% 14.85% -2.80% 2.80%
Indicative Benchmark % 4.52% -1.82% 8.68% -4.38% 0.11%
Excess Return % -0.20% 2.70% 6.17% 1.58% 2.69%

Inception Date 31-Jan-2013

Indicative Benchmark: MSCI All Country Asia ex Japan Index Net

Indicative Benchmark: MSCI All Country Asia ex Japan Index 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.

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-Aug-2019 - Anh Lu, Portfolio Manager,
Asia ex-Japan equities declined for a second month in a row in August as the trade conflict between the U.S. and China ramped up sharply after both sides initiated new tariffs on each other’s goods. This in turn increased worries about slowing global growth and the risk of recession in certain countries intensified. Hong Kong led declines in the region but stock selection in this market, particularly in defensive names such as HKT Trust, drove the portfolio’s outperformance. HKT Trust, which has a strong balance sheet, reported positive first-half results. Stock choices in China, particularly in consumer-related names such as China Resources Beer (CRB), supported relative returns. CRB registered strong first-half results and we are confident about the outlook for the company due to its well-controlled expenses and the industry’s expanding profit pool, which is likely to be driven more by product mix upgrades rather than volume. From a sector perspective, our stock preferences in industrials helped performance. Owning Hong Kong property management company Greentown Service benefitted the portfolio as its first-half results showed the start of gradual margin recovery. Conversely, our relative underweight to consumer discretionary crimped performance as the sector outpaced the benchmark and most of the other sectors in August.

Holdings

Total
Holdings
81
Largest Holding Tencent Holdings 7.00% Was (31-Mar-2019) 6.75%
Other View Full Holdings Quarterly data as of 30-Jun-2019
Top 10 Holdings 42.17% View Top 10 Holdings Monthly data as of 31-Aug-2019

Largest Top Contributor^

Samsung Electronics
By 2.75%
% of fund 7.41%

Largest Top Detractor^

Alibaba Group Holding
By -4.13%
% of fund 5.66%

^Absolute

Quarterly Data as of 30-Jun-2019

Top Purchase

MediaTek (N)
1.50%
Was (31-Mar-2019) 0.00%

Top Sale

Jiangsu Hengrui Medicine (E)
0.00%
Was (31-Mar-2019) 1.60%

Quarterly Data as of 30-Jun-2019

30-Jun-2019 - Anh Lu, Portfolio Manager,

China remained our largest country position in the quarter but as a result of our bottom-up approach we eliminated some of positions in favor of companies with better earnings acceleration, more solid management, and more attractive valuations. Despite the lingering trade tensions between the U.S. and China, we continue to believe in the China story as free cash flows continue to accelerate and stocks are trading at more convincing valuations. We have fairly high exposure to Chinese state-owned enterprises compared with our historical positions, but our focus lies on companies with changes in the quality of management through new incentive programs that are aligned with shareholder interests.

We turned more overweight to India, which emerged as the biggest relative country overweight at the end of the second quarter, by adding to our existing positions in attractive financials and industrials names. We view the landslide re-election of Prime Minister Narendra Modi and the ruling Bharatiya Janata Party as positive for macro stability. It will also likely boost confidence in the capital markets, which is significant given the recent concerns about non-bank financial companies. We think that the positions we added will likely benefit from a future recovery in the capital expenditure cycle.

Within the greater China markets, we reduced our underweight to Taiwan. In Taiwan, we found idiosyncratic ideas which are not reliant on the Apple supply chain. In Hong Kong, where we remained underweight, we added to our exposure to high-quality and defensive names. Across the region's markets, Taiwan is our largest relative underweight followed by South Korea.

Within Southeast Asia, we continued to be selective and are finding that the regulatory environment is improving in many markets. In the quarter, we established a position in a Philippine utility and added to our exposure in a Vietnamese company that we own.

From a sector perspective, the portfolio retains its preference for domestic consumption or income-related opportunities such as consumer staples and communication services. The consumer staples sector continues to be the portfolio's largest relative overweight followed by communication services, where we turned more overweight in the quarter. We continue to be more judicious about our technology investments, focusing on companies exposed to the new growth areas.

In financials and IT, our two biggest sector positions in absolute terms, we turned overweight. In financials, we started positions in companies with recovering return-on-equities and margins while in IT we invested in companies that are poised to benefit from product cycles.

In general, companies that are boosting their innovation capabilities in areas such as health care, automotive, home appliances, robotics, environment, and other consumer applications are the ones of interest to us. We continue to favor companies that are gaining market share and those that will benefit from pricing changes and industry consolidation. We see value in companies with improving fundamentals due to capital expenditure (capex) discipline.

Reduced our Overweight to China

Although we trimmed our overweight to China, we continue to stay well diversified in this market by investing in new health care, insurance, industrials and business services, and consumer staples names. We also retained our existing holdings in IT and communication services.

Within the Chinese consumer staples space, we closed our positions in Tsingtao Brewery, China's second- largest brewery due to its low margins, more difficult-than-expected turnaround, and the competitive dynamics in the sector. This has been exacerbated by China Resources Beer catering to the mass market and the entry of Anheuser-Busch Inbev, which is seeking to list its Asian subsidiary in Hong Kong. We also exited liquor make Sichuan Swellfun on valuation grounds, increasing competition and rising channel inventories.

However, outside of the beverage sector, we started positions in Yixintang Pharmaceutical, and Jiajiayue Group. Yixingtang is a non-state-owned enterprise pharmacy chain, which is looking to become the leading player in Southwest China, home to about 200 million people. Its dominance in the Yunnan province provides it with a solid profit base for which to expand to nearby regions. We view Yixintang as a low-beta growth compounder and its relationship with Alibaba provides additional value. China's pharmacy retail sector offers exposure to the country's rising health care spending with lower policy risks.

We see Jiajiayue, which is a food retailer with a focus on fresh products, as an earnings compounder in a defensive sector. It is a durable share gainer in China's food retail sector with a recurring free cash flow. We think that this fresh food segment will have less pressure from the rapid growth of ecommerce given that the supply chain is longer and more complicated. So far, there is no successful mass-market fresh food ecommerce player in China.

In the real estate sector, we exited China Vanke, following its share bounce, and China Overseas Property as we decided to focus on the companies within the sector that are showing more earnings acceleration this year and in 2020, such as Shimao Property and China Overseas Land and Investment.

Within China health care, we eliminated Jiangsu Hengrui and trimmed our stake in Wuxi Biologics. In April, we cut our holdings in Chinese cyclical companies, select health care names with demanding valuations, such as Hengrui, a biopharmaceutical company that caters to China's oncology market.

Turned More Overweight India on Valuation Grounds

We turned more overweight India in the second quarter after a brief period of underweighting this market in 2018. We added to our existing position in Axis Bank a private lender, which is showing signs of an improvement in its pre-provision operating profit margin under new senior management. We also increased our exposure to Voltas, a leading cooling appliance maker, which has a net cash balance sheet and strong corporate governance, and which we expect to benefit from the low penetration of air conditioners in India.

We remain comfortable with our financial holdings in India and we think there will be investment opportunities until the issues concerning the nonbank financial companies are completely resolved. We believe high-quality private banks in India will be the first beneficiaries of an eventual revival in the capital expenditure cycle. We like banks with strong franchises, which should be able to capture market share from lower-quality state banks. As mentioned, we have positions in HDFC Bank and KMB, which we see as historically well-managed lenders that have done well even in periods of volatility.

We Pared our Taiwan Underweight

We started a position in MediaTek, a fabless semiconductor company, which has been shunned by market participants as it was seen to be affected by the tapering demand for handset and the slower replacement cycle. MediaTek, however, recognized its smartphone revenue dependence and diversified into segments that offer more growth. We believe that new product cycles involving the Internet of Things and 5G will drive MediaTek's margin improvement and core profit growth over the next two years. Its first-quarter results with better-than-expected gross margin due to an improving mix and cost structure indicated a turnaround story for MediaTek. As a result, we reduced our underweight to Taiwan.

In Hong Kong, we opened a position in Hansoh Pharmaceuticals, one of the high-quality pharmaceutical companies in China, by participating in its Hong Kong initial public offering. Hansoh has a diversified drug portfolio and we think its favorable product cycle over the next years will help earnings compound. We remained underweight Hong Kong.

We Tapped Opportunities in Southeast Asia

In Southeast Asia, particularly in the Philippines, we initiated a position in Manila Water, which provides water services to the eastern side of Metro Manila, under a 40-year concession agreement. The water company traded below its intrinsic value due to a water shortage. We believe that the eventual solution to the water shortage issue along with potential tax recovery may provide a significant boost. We like its tariff framework and we see long-term value in its overseas projects in Vietnam and Thailand.

In Vietnam, we added to our position in Joint Stock Commercial Bank for Foreign Trade of Vietnam, commonly referred to as Vietcombank, which is a state-owned enterprise bank that has been improving its credit quality with better net interest margins as it targets consumer lending. We view Vietnam as a country with positive long-term growth prospects and Vietcombank will likely benefit from its continued urbanization.

We Turned Overweight to Financials, Industrials, and IT

We became overweight financials as we started investing in in PICC Property and Casualty, the country's biggest property and casualty insurer. We believe that PICC's new chairman will seek to improve the productivity of its salesforce. Moreover, we think that PICC's return-on-equity will likely benefit from the regulator's crackdown on industry acquisition costs and reforms on the tax rate cap on commissions. Its earnings may likely improve because of the shift away from auto insurance. Aside from this Chinese insurer, we also added to our existing stake in India's Axis Bank as earlier discussed.

Within industrials, we established positions in Shenzhen Inovance, which produces inverters and controllers and is expanding into factory automation and electric vehicles. We expect this company to gain market share in China's growing automation market.

In IT, the new position in MediaTek and the increase in our Samsung Electronics stake turned us overweight to this sector. Samsung Electronics, one of the world's biggest memory chipmakers, is poised to benefit from a recovery in the DRAM cycle and may gain from the U.S. restrictions on China-based technology company Huawei in terms of short-term handset sales. The DRAM cycle may start to stabilize from the second half of 2019 and recovery will be driven by decreasing inventory and rising demand for artificial intelligence-related applications, cloud gaming, the 5G cycle, and new server platforms.

We Became Underweight to Consumer Discretionary

We shifted to a relative underweight in consumer discretionary from an overweight position in the first quarter. Our elimination of LG Electronics from the portfolio contributed to this allocation change. We decided to lock in gains after LG Electronics shares reacted to talk that it may be among the beneficiaries of the U.S. restrictions on Huawei. Its mobile division has been a key concern for us given the intense competition in the sector and the slowdown in demand.

In consumer discretionary, we�trimmed Huayu Automotive Systems, an auto component manufacturer, following sharp gains for most of the first half of the year.��

Sectors

Total
Sectors
10
Largest Sector Financials 23.08% Was (31-Jul-2019) 24.35%
Other View complete Sector Diversification

Monthly Data as of 31-Aug-2019

Indicative Benchmark: MSCI All Country Asia ex Japan Index (unhedged)

Top Contributor^

Consumer Staples
Net Contribution 1.08%
Sector
0.09%
Selection 0.99%

Top Detractor^

Consumer Discretionary
Net Contribution -0.73%
Sector
-0.04%
Selection
-0.68%

^Relative

Quarterly Data as of 30-Jun-2019

Largest Overweight

Consumer Staples
By5.78%
Fund 11.21%
Indicative Benchmark 5.44%

Largest Underweight

Materials
By-4.38%
Fund 0.00%
Indicative Benchmark 4.38%

Monthly Data as of 31-Aug-2019

31-Aug-2019 - Anh Lu, Portfolio Manager,
We increased our allocation to consumer staples, our biggest relative overweight, as we initiated a position in an Indian liquor company that is poised to improve margins following better cost management, the cleanup of its balance sheet, and cash flow improvement. We, however, trimmed our position in a Chinese food and beverage company, which is expecting sluggish revenue growth. We started taking profit in this consumer staples name as it is unlikely to improve margins further especially amid stiff competition.

Countries

Total
Countries
14
Largest Country China 41.89% Was (31-Jul-2019) 41.05%
Other View complete Country Diversification

Monthly Data as of 31-Aug-2019

Indicative Benchmark: MSCI All Country Asia ex Japan Index (unhedged)

Top Contributor

N/A

Top Detractor

N/A

Largest Overweight

China
By3.53%
Fund 41.89%
Indicative Benchmark 38.36%

Largest Underweight

South Korea
By-3.38%
Fund 10.21%
Indicative Benchmark 13.58%

Monthly Data as of 31-Aug-2019

31-Aug-2019 - Anh Lu, Portfolio Manager,
In China, our biggest position in country terms, we started to invest in a beneficiary of domestic travel and leisure growth and a high-quality tutoring provider, which will likely gain share in a highly fragmented market and compound earnings over the long run. We also added to existing holdings, which we expect will gain from continued import substitution. In India, we introduced a high-quality rural housing finance company to the portfolio, giving us exposure to another unique banking franchise at a discount. This trade turned us more overweight to India, where we are very heavily skewed towards privately owned financials.

Team (As of 31-Aug-2019)

Anh Lu

Anh Lu is a portfolio manager in the Equity Division of T. Rowe Price Hong Kong Limited. Ms. Lu is the lead portfolio manager for the Asia ex-Japan Equity Strategy. She is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price Hong Kong Limited.

Ms. Lu has 24 years of investment experience, 18 of which have been with T. Rowe Price. Prior to joining the firm, she was a vice president of the Asia Pacific Technology Investment Banking Division of Salomon Smith Barney in Hong Kong. Before Salomon Smith Barney, Ms. Lu spent three years at LGT Asset Management as an analyst and portfolio manager.

Ms. Lu earned a B.A. with honours from the University of Western Ontario.

  • Fund manager
    since
    2013
  • Years at
    T. Rowe Price
    18
  • Years investment
    experience
    24
Nick Beecroft

Nicholas Beecroft is a portfolio specialist in the Equity Division at T. Rowe Price, representing the firm's global equity strategies. He is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Mr. Beecroft has 18 years of investment experience, 14 of which have been with T. Rowe Price. He joined the firm in London in 2005 and spent many years working with our emerging markets equity team. Mr. Beecroft has been based in Hong Kong since 2011. Prior to joining T. Rowe Price, he was an investment analyst at Mercer Investment Consulting.

Mr. Beecroft earned a B.A, with honours, in contemporary European studies from the University of Southampton. He also has earned the Chartered Financial Analyst designation.

  • Years at
    T. Rowe Price
    14
  • Years investment
    experience
    18
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% 160 basis points 2.04%
Class I $2,500,000 $100,000 $0 0.00% 75 basis points 1.09%
Class Q $15,000 $100 $100 0.00% 75 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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