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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

Continental European Equity Fund

Style-agnostic, quality-driven European equity investment.

ISIN LU0285832068 Bloomberg TRPEXEI:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(EUR)

16.65%
€98.3m

1YR Return
(View Total Returns)

Manager Tenure

39.51%
1yr

Information Ratio
(5 Years)

Tracking Error
(5 Years)

0.80
2.81%

Inception Date 26-Feb-2007

Performance figures calculated in EUR

31-Oct-2021 - Tobias Mueller, Portfolio Manager ,
Investor appetite for European assets has been rekindled this year by hopes of an economic recovery based on the speedy rollout of coronavirus vaccines. However, the notable progress we have seen so far may be less pronounced next year. The strong market move upward has pushed stock valuations to levels that are less attractive.
Tobias Mueller, CFA
Tobias Mueller, CFA, Portfolio Manager

Tobias Mueller is a regional portfolio manager for the European Select Strategy, effective October 2018, and for the Europe Equity and Europe ex-UK Equity Strategies, effective October 2020. He is a vice president of T. Rowe Price International Ltd.

Click for Manager Outlook
 

Strategy

Manager's Outlook

Investor appetite for European assets has been rekindled this year by growing hopes of an economic recovery based on the speedy rollout of effective coronavirus vaccines. However, the notable progress we have seen so far may be less pronounced next year. The strong market move upward has pushed overall stock valuations to levels that are less attractive, especially when concerns about the fundamental economic outlook remain.

After a sharp rise in consumption fueled by pent-up demand as economies reopened there are signs that spending has begun to normalize. Companies have also largely rebuilt inventories depleted during lockdowns. There is evidence that the impact of a massive fiscal and monetary support for economies, while still necessary, has begun to wane as well. Fiscal support is being scaled back, and some G10 central banks have started to reduce quantitative easing.

Although there are signs that Europe is turning a corner after a decade of underperformance against the U.S., it is our view that the evolution of the COVID-19 disease and the efficacy and distribution of vaccines are still likely to have a significant influence on the recovery for at least another year. Also, the level of continuing policy support, the state of corporate and consumer confidence, and the degree of disruption caused by newly agreed post-Brexit trading arrangements are likely to determine the longer-term trajectory of activity.

The pandemic has served as a catalyst for change, accelerating trends that were emerging before the crisis, particularly the shift from the offline to the online world and the further heightening of awareness around sustainability.

In these uncertain times, it is important to be prepared for market dislocations triggered by events. Opportunities may emerge to buy companies at attractive valuations that have become stronger due to the coronavirus crisis and to sell those that are likely to be fundamentally weakened. Among these opportunities, in our view, are high-quality companies, which have lagged markedly since the market rotation sparked by the introduction of vaccines last year.

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 Europe (excluding the UK).

Investment Approach

  • Fundamental research is critical to successfully identify and assess long-term investment opportunities. We look for companies with high returns on capital and capable of providing sustainable earnings across the market cycle.
  • Style agnostic, focus on quality. By avoiding style constraints, we can invest in quality companies and maintain a balanced portfolio through market cycles.
  • Disciplined approach to valuation. We aim to buy businesses at a clear discount to their intrinsic value.
  • Risk management is essential and is assisted by diversification, quantitative analysis, and automatic stabilizers built in to our investment process.
  • Environmental, social and governance ("ESG") factors with particular focus on those considered most likely to have a material impact on the performance of the holdings or potential holdings in the funds’ portfolio are assessed. These ESG factors, which are incorporated into the investment process alongside financials, valuation, macro-economics and other factors, are components of the investment decision. Consequently, ESG factors are not the sole driver of an investment decision but are instead one of several important inputs considered during investment analysis.

Portfolio Construction

  • Typically 40-70 stocks
  • Individual position size up to 4.0% relative to the indicative benchmark
  • Sector ranges: typically +/- 10% relative to the indicative benchmark
  • Country ranges: typically +/- 10% relative to the indicative benchmark
  • Expected Tracking Error: typically 3.0% to 6.0%
  • Information Ratio objective: >0.5
  • Cash target range: fully invested, typically less than 5.0%
  • Turnover range: 40%-100%

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
10 YR
Annualised
Since Manager Inception
Annualised
Fund % 39.51% 16.65% 12.98% 13.07% 28.62%
Indicative Benchmark % 41.72% 13.74% 10.74% 10.54% N/A
Excess Return % -2.21% 2.91% 2.24% 2.53% N/A

Inception Date 26-Feb-2007

Manager Inception Date 01-Oct-2020

Indicative Benchmark: FTSE Developed Europe ex United Kingdom Index Net

Data as of 31-Oct-2021

Performance figures calculated in EUR

  1 YR 3 YR
Annualised
5 YR
Annualised
10 YR
Annualised
Fund % 24.85% 12.43% 11.48% 13.46%
Indicative Benchmark % 27.83% 9.76% 9.67% 10.86%
Excess Return % -2.98% 2.67% 1.81% 2.60%

Inception Date 26-Feb-2007

Indicative Benchmark: FTSE Developed Europe ex United Kingdom Index Net

Data as of 30-Sep-2021

Performance figures calculated in EUR

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 % -0.50% 5.04% 21.01% 5.57% 2.38%
Indicative Benchmark % -2.18% 2.58% 18.70% 4.86% 3.05%
Excess Return % 1.68% 2.46% 2.31% 0.71% -0.67%

Inception Date 26-Feb-2007

Indicative Benchmark: FTSE Developed Europe ex United Kingdom Index Net

Indicative Benchmark: FTSE Developed Europe ex United Kingdom Index Net

Performance figures calculated in EUR

Past performance is not a reliable indicator of future performance.  Source for fund performance: T. Rowe Price. Fund performance is calculated using the official NAV with dividends reinvested, if any. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested. It will be affected by changes in the exchange rate between the base currency of the fund and the subscription currency, if different. Sales charges (up to a maximum of 5% for the A Class), taxes and other locally applied costs have not been deducted and if applicable, they will reduce the performance figures. Where the base currency of the fund differs from the share class currency, exchange rate movements may affect returns.

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 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-Oct-2021 - Tobias Mueller, Portfolio Manager ,
The FTSE All-World Developed Europe ex UK Index climbed in October as solid company earnings reports helped to counter worries that elevated inflation, supply chain disruptions, the energy crisis, and tightening monetary policy may hobble an economic recovery. Large-cap stocks gained significantly more than mid- and small-cap names; growth comfortably beat value. In style terms, a rotation back to growth from value and defensive stocks benefited the portfolio. The main contributor to relative performance was stock picking in the consumer discretionary, financials, and materials sectors. A Sweden-based company that makes sports cargo products was the top performer among our consumer discretionary holdings. The shares rose after the company posted strong third-quarter results, with revenue and margins growth beating consensus estimates, despite a challenging supply chain backdrop and high comparative figures for the same period last year. On the negative side, our underweight allocation to consumer staples weighed on relative returns. Our holding in a large spirits producer disappointed as the stock underperformed within the benchmark. The company reported strong like-for-like sales growth in the third quarter, but also flagged margin pressure due to logistics problems.

Holdings

Total
Holdings
57
Largest Holding ASML Holding 4.98% Was (30-Jun-2021) 4.48%
Other View Full Holdings Quarterly data as of  30-Sep-2021
Top 10 Holdings 28.90% View Top 10 Holdings Monthly data as of  31-Oct-2021

Largest Top Contributor^

ASML Holding
% of fund 4.90%

Largest Top Detractor^

Sanofi
% of fund 2.86%

^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

Edenred (N)
1.47%
Was (30-Jun-2021) 0%

Top Sale

SEB (E)
0.00%
Was (30-Jun-2021) 1.76%

Quarterly Data as of 30-Sep-2021

30-Sep-2021 - Tobias Mueller, Portfolio Manager ,

Continued Focus on Quality

We have identified themes where we believe we can find stocks on the right side of change. These include sustainability, offline to online, and biologics. There may also be idiosyncratic reasons to buy a stock where "change" is more internally driven.

We look for quality businesses that benefit from change where we have an insight on the key drivers for the stock, and we continue to seek to exploit a heightened opportunity set to acquire even better companies at even more attractive valuations. The quarter presented us with an opportunity to invest in a new high-quality name. We exited two holdings.

Our largest sector bets remain industrials and business services and materials. We trimmed our consumer discretionary overweight. Consumer staples and energy are the biggest underweights.

Information Technology

We increased our exposure to information technology, moving to a modest underweight. The sector has been buoyed by the high number of companies issuing positive revenue and earnings per share guidance for the year. Although many IT stocks are trading now on extended valuations, careful analysis may identify continued growth potential.

Our largest position in the sector is in the semiconductors and semiconductor equipment industry, namely ASML Holding, the dominant supplier of high-end lithography equipment for semiconductor manufacturing. We are also overweight IT services, where we own Amadeus IT, a leading provider of global distribution systems and IT solutions for the travel industry, and Infineon Technologies, a German semiconductor company.

  • We initiated a position in Edenred, a French company that specializes in prepaid corporate services, because we believe the market underestimates the earnings potential of the digital platform, which could deliver double-digit growth and significant margin expansion for years to come. Edenred has emerged stronger from the coronavirus pandemic, which has accelerated its digital strategy and swelled its coffers, giving it scope to grow by mergers and acquisitions.

Financials

We also increased our overweight allocation to financials. Banks and insurers rode on a wave of optimism due to economic reopenings and expectations of tighter monetary policy that drove bond yields higher. In general, we favor businesses that can produce strong returns on a sustainable basis, weathering the impact of low interest rates and regulatory rules that weigh on earnings in the sector.

Our main exposure in the sector is to capital markets, where we own Julius Baer, a global private bank based in Switzerland. We have moved to modest overweight in banks now that central banks are contemplating or beginning to remove stimulus. Banks have also used the low interest era to spruce up their balance sheets and reduce nonperforming loans.

Consumer Discretionary

We trimmed our exposure to the consumer discretionary sector for stock-specific reasons. The sector covers a diverse set of industries that a strong research platform like ours can analyze to identify those opportunities that we feel are on the right side of change and present an attractive risk/reward profile.

Our largest industry exposures are to household durables and leisure products. In the former, we hold De'Longhi, which designs, produces, and markets home and business appliances. In the latter, our largest investment is Sweden-based Thule, which develops and manufactures sport, outdoor, and cargo products.

  • We exited SEB because we believe sales could struggle to recover anytime soon from slowing demand and increased competition in China, one of the company's largest markets.

Industrials and Business Services

We favored industrials and business services in the first quarter as we added to cyclicality in the portfolio to capitalize on the nascent economic recovery. Since then, we reduced our cyclical exposure, taking some profits on names that have performed strongly or have not met expectations.

Our largest industry exposures are to aerospace and defense and to machinery. In the former, our largest investment is in Airbus. In the latter industry, Epiroc, a leading provider of products, solutions, and services to the global mining and infrastructure markets, is our main holding.

  • We exited Norma, a leading specialist in engineering joining technology, after a strong run. We believe the valuation now looks extended.

Sectors

Total
Sectors
10
Largest Sector Industrials & Business Services 21.36% Was (30-Sep-2021) 20.47%
Other View complete Sector Diversification

Monthly Data as of 31-Oct-2021

Indicative Benchmark: FTSE Developed Europe ex United Kingdom Index

Top Contributor^

Consumer Staples
Net Contribution 0.66%
Sector
0.16%
Selection 0.50%

Top Detractor^

Consumer Discretionary
Net Contribution -0.80%
Sector
-0.28%
Selection
-0.53%

^Relative

Quarterly Data as of 30-Sep-2021

Largest Overweight

Industrials & Business Services
By4.95%
Fund 21.36%
Indicative Benchmark 16.41%

Largest Underweight

Consumer Staples
By-5.52%
Fund 4.84%
Indicative Benchmark 10.36%

Monthly Data as of 31-Oct-2021

31-Oct-2021 - Tobias Mueller, Portfolio Manager ,
We made few positioning adjustments this month for stock specific reasons. We are still finding attractive opportunities among high-quality names despite extended valuations. We adjusted our holdings in consumer discretionary, raising our allocation to the sector. We added a leading luxury goods company to the portfolio that we believe is on the brink of stronger sales growth, while we exited a maker and retailer of high-quality affordable jewellery after a strong run.

Countries

Total
Countries
11
Largest Country Switzerland 16.51% Was (30-Sep-2021) 16.52%
Other View complete Country Diversification

Monthly Data as of 31-Oct-2021

Indicative Benchmark: FTSE Developed Europe ex United Kingdom Index

Top Contributor^

Switzerland
Net Contribution 1.09%
Country
0.04%
Selection 1.05%

Top Detractor^

Germany
Net Contribution -0.70%
Country
0.03%
Selection
-0.73%

^Relative

Quarterly Data as of 30-Sep-2021

Largest Overweight

Italy
By5.19%
Fund 10.39%
Indicative Benchmark 5.19%

Largest Underweight

France
By-7.16%
Fund 14.52%
Indicative Benchmark 21.68%

Monthly Data as of 31-Oct-2021

30-Sep-2019 - Dean Tenerelli, Portfolio Manager ,
We deepened our underweight allocation in consumer staples, the largest in the portfolio, by selling Essity Aktiebolag, a global hygiene products company, taking profits after a strong run. In our view, the margin-improvement thesis has largely played out and is factored into the share price. Raw material prices have also started to decline, and the company could find it more challenging to maintain price increases. Consequently, the shares may struggle to rise much further. In contrast, we increased our overweight exposure to industrial and business services, health care and real estate.

Fee Schedule

Share Class Minimum Initial Investment and Holding Amount (EUR) Minimum Subsequent Investment (EUR) Minimum Redemption Amount (EUR) Sales Charge (up to) Investment Management Fee (up to) Ongoing Charges
Class I €2,500,000 €100,000 €0 0.00% 65 basis points 0.75%
Class Q €1,000 €100 €100 0.00% 65 basis points 0.82%

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