SICAV

Emerging Markets Discovery Equity Fund

Formerly Emerging Markets Value Equity Fund

Utilises a contrarian approach to invest in undervalued emerging markets companies positioned to benefit from a re-rating thesis for change.

ISIN LU1244138852 Bloomberg TREMVEQ:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

-0.50%
$114.9m

1YR Return
(View Total Returns)

Manager Tenure

-8.31%
4yrs

Information Ratio
(3 Years)

Tracking Error
(3 Years)

-0.65
5.11%

Inception Date 14-Sep-2015

Performance figures calculated in USD

Other Literature

31-Jul-2020 - Ernest Yeung, Portfolio Manager,
Our long-term outlook for emerging market equities remains constructive. We think the divergence between value- and growth-oriented securities in the asset class has been extreme and that the scale may tilt back in former’s favour. We believe that the deeper value cyclical stocks are likely to benefit from a potential market recovery, emerging in a stronger position once conditions return to normal.
Ernest C.  Yeung
Ernest C. Yeung, Portfolio Manager

Ernest Yeung is a portfolio manager for the Emerging Markets Discovery Equity Strategy at T. Rowe Price. He was the co-portfolio manager for the International Small-Cap Equity Strategies from 2009 to 2014. Mr. Yeung 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 towards emerging market equities. With the extreme valuation divergence between growth-oriented stocks and those with value characteristics and the recovery from the coronavirus outbreak, we believe that such a bifurcation may not be sustainable and there is a good chance that value may outperform growth.

We think that the reflationary market environment resulting from the stimulus efforts will be an opportunity for emerging market value stocks to gain traction. We seek to identify cyclical winners which are likely to outperform as we emerge from the crisis.

We are mindful that the path to recovery may not be quick and that the near-term earnings outlook is highly uncertain, but we will continue to weigh the risks and rewards carefully in a post-pandemic recovery. The significant monetary and fiscal measures that have been put in place to stem the impact of the coronavirus provide encouragement.

Oil prices are a key risk for our portfolio. With the oil price slump earlier this year, we may have seen the worst and we look forward to a period of greater price stability.

We continue to see EM as fertile terrain for finding "forgotten" pockets of opportunities in stocks with asymmetrical risk-return profiles, wherein fundamental changes or operational improvement may drive a rerating while at the same there is potential downside support in terms of a strong balance sheet and healthy dividends. We think EM companies are still focused on better capital allocation and cash flow generation after years of reckless spending.

We think this is an opportune time to harness the deep insights and resources of T. Rowe Price's global research platform, which provide us with an information edge that is crucial for identifying forgotten emerging markets companies with solid improvement potential.

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 emerging market companies.

Investment Approach

  • Aim to exploit the valuation anomalies that arise across the diverse and inefficient emerging market opportunity set.
  • Employ a contrarian approach using fundamental research, quantitative screen and industry contacts to identify companies that are out of favour, undervalued and that offer an attractive risk and reward profile.
  • Minimize the risk of value traps by focusing on companies offering yield or a book value anchor to the valuation, and where we have identified re-rating thesis that can lead to an expansion in valuation over time.
  • Risk management is an integral part of the portfolio construction process.

Portfolio Construction

  • Typically 50-80 stock portfolio
  • Expected 4-8% tracking error
  • Individual position typically 0.5% to 5%, position sized by prospective risks
  • Country ranges +/-10% absolute deviation from the benchmark
  • Sector ranges +/-15% absolute deviation from the benchmark
  • Reserves are normally less than 5%, max 10%

Performance (Class Q)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Since Manager Inception
Annualised
Fund % -8.31% -0.50% N/A 6.83% 6.83%
Indicative Benchmark % 6.55% 2.84% N/A 8.66% 8.66%
Excess Return % -14.86% -3.34% N/A -1.83% -1.83%

Inception Date 14-Sep-2015

Manager Inception Date 14-Sep-2015

Indicative Benchmark: MSCI Emerging Markets Index Net

Data as of  31-Jul-2020

Performance figures calculated in USD

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % -16.62% -0.58% N/A 5.61%
Indicative Benchmark % -3.39% 1.90% N/A 6.89%
Excess Return % -13.23% -2.48% N/A -1.28%

Inception Date 14-Sep-2015

Indicative Benchmark: MSCI Emerging Markets Index Net

Data as of  30-Jun-2020

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 14-Aug-2020 Quarter to DateData as of 14-Aug-2020 Year to DateData as of 14-Aug-2020 1 MonthData as of 31-Jul-2020 3 MonthsData as of 31-Jul-2020
Fund % 2.25% 8.62% -11.48% 6.24% 13.86%
Indicative Benchmark % 1.39% 10.45% -0.36% 8.94% 17.84%
Excess Return % 0.86% -1.83% -11.12% -2.70% -3.98%

Inception Date 14-Sep-2015

Indicative Benchmark: MSCI Emerging Markets Index Net

Indicative Benchmark: MSCI Emerging Markets 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.

Index 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-Jul-2020 - Ernest Yeung, Portfolio Manager,
Emerging market equities rose for a fourth straight month in July as indications that China’s economy is normalising, weakness of the U.S. dollar, and large-scale global stimulus efforts all supported risk assets. These factors helped investors look past worries about the resurgence in coronvirus infections in certain countries. Within the portfolio, stock selection in China hurt performance. In particular, not owning Alibaba whose share price has risen sharply due to arbitrage as investors shifted into the Hong Kong-listed shares of the ecommerce platform which had underperformed its peers earlier this year. Given our investment criteria, we prefer to own “forgotten” or out-of-favour stocks with asymmetric risk/reward profiles. JOYY, a large videolive streaming platform in China, also dragged as the stock took a breather after first-half gains when it benefitted from the pandemic. Our stock choices in Taiwan, notably our lack of exposure to Taiwan Semiconductor whose shares outperformed on increasing expectations that they may benefit from Intel’s plan to outsource more chip manufacturing, hampered performance further. In contrast, stock selection in Mexico boosted relative returns. Shares of precious metals miner Fresnillo posted double-digit gains due to its strong first-half results on higher gold and silver prices.

Holdings

Total
Holdings
63
Largest Holding Samsung Electronics 6.23% Was (31-Mar-2020) 6.34%
Other View Full Holdings Quarterly data as of 30-Jun-2020
Top 10 Holdings 27.27% View Top 10 Holdings Monthly data as of 31-Jul-2020

Largest Top Contributor^

Samsung Electronics
By 3.43%
% of fund 6.20%

Largest Top Detractor^

Dongfeng Motor
By -0.06%
% of fund 1.84%

^Absolute

Quarterly Data as of 30-Jun-2020

Top Purchase

Ping An Insurance (N)
1.80%
Was (31-Mar-2020) 0.00%

Top Sale

Ping An Insurance (E)
0.00%
Was (31-Mar-2020) 1.87%

Quarterly Data as of 30-Jun-2020

30-Jun-2020 - Ernest Yeung, Portfolio Manager,

With governments deploying massive stimulus packages to support the recovery of their economies from the coronavirus outbreak, we expect the resulting reflationary environment to augur well for cyclical and value names. The divergence between value stocks and growth-oriented securities in emerging markets has been so extreme that we think the scale may tilt back in value's favor. In order to capture opportunities, we positioned the portfolio into deep cyclical stocks to benefit from the reflationary scenario and from a world that's recovering from the pandemic. We think they will survive through the downturn and emerge as attractive sources of outperformance once the coronavirus outbreak passes and market and business conditions return to normal.

During the quarter, we turned overweight in energy for the first time since the portfolio's inception as we believe that the oil price may continue to climb out of its trough. We found a downside anchor in the oil price falling below its cash cost in the first quarter. We funded the increased allocation to energy by reducing our exposure to financials and industrials. Financials, however, remains our biggest sector position in absolute terms while materials was our largest overweight at period-end.

From a country perspective, we turned underweight in China, while we reduced substantially our underweight in India by increasing our exposure in materials. Elsewhere, we increased our overweight to Russia as we added to our existing energy positions.

We Turned Overweight in Energy as We Increased Deep Cyclical Bets

As we sought to increase our deep cyclical positions in the portfolio, we reversed our longstanding underweight to the energy sector due to our belief that oil prices are poised to recover after hitting unsustainably low levels that made it difficult for producers to continue production. We increased positions in oil and gas-related names that have strong execution track record, a solid balance sheet, or improving operations.

We added to our existing holdings in Lukoil, a leading Russian integrated oil and gas company, which has a net cash balance sheet and generates a solid free cash flow yield. We boosted our holdings in Gazprom, Russia's major state-owned energy company, which has a strong competitive position in Europe.

Within the China energy space, we added to our holdings in CNOOC, a pure upstream oil and gas exploration and production company, which will benefit from the recovery in oil prices.

We increased our holdings in Petrobras, which we discussed earlier, as well as in Tenaris, an Argentina-based leading producer of seamless and welded pipes for the oil and gas industry. The company has a solid balance sheet and its focus on efficiency should lead to future gains in market share.

India Underweight Reduced; Increased Materials Exposure

In India, we decreased our underweight allocation during the quarter as we established positions in deep value names within the materials sector. We initiated a position in Hindalco Industries, an aluminum producer that was excessively sold down but which will likely benefit from a rebound in aluminum prices. We increased our position in cement maker Ambuja Cement which had been sold down year-to-date.

Aside from names in India's materials sector, we started a position in South Korea's POSCO, which we discussed earlier, ahead of a potential post-coronavirus recovery. We also added to our holdings in Anhui Conch, a Chinese cement producer with low production costs and an unlevered balance sheet. Materials emerged as our biggest overweight sector allocation.

We Turned Underweight China

In China, which outperformed the benchmark and other emerging market countries in the year to June, we turned underweight during the quarter. Given the move to cyclicals, we exited China Mobile, the dominant mobile service provider in a three-player market in China. We eliminated Baoshan Iron & Steel, one of the world's largest steel groups, as we think POSCO is a better choice to leverage a potential steel sector recovery, as discussed earlier. Moreover, Baoshan has a large debt repayment due this year but is unperturbed by the domestic financing environment. We also exited Sinopec Engineering, a provider of petrochemical engineering and construction services, for more compelling investment opportunities.

However, we initiated new names such as Kingboard Holdings, a Hong Kong-listed maker of laminates, that is expected to benefit from the growth in data center demand. We also started to invest in Hisense Home Appliance Group, which we think will gain from expectations of strong growth in its central air-con business in China where it is a market leader. We also like the potential improvement in corporate government due to the mixed ownership reform plan of its ultimate owner.

Financials Overweight Trimmed

Financials remained our biggest sector position in absolute terms but as we moved into cyclical stocks, we reduced our overweight in this sector. We exited Standard Chartered and Gulf Bank of Kuwait. Standard Chartered is a unique corporate banking franchise in emerging markets that overlaps with China's Belt and Road Initiative and its shares have fallen sharply in the year to date amid the coronavirus pandemic. Within financials, we prefer to hold select "forgotten" Chinese insurers and have reduced our exposure to names in central and eastern Europe due to concerns about regulatory risks with dividend payouts being put on hold.

Sectors

Total
Sectors
11
Largest Sector Financials 18.48% Was (30-Jun-2020) 20.09%
Other View complete Sector Diversification

Monthly Data as of 31-Jul-2020

Indicative Benchmark: MSCI Emerging Markets Index

Top Contributor^

Consumer Staples
Net Contribution 0.97%
Sector
0.13%
Selection 0.84%

Top Detractor^

Health Care
Net Contribution -0.69%
Sector
-0.44%
Selection
-0.25%

^Relative

Quarterly Data as of 30-Jun-2020

Largest Overweight

Materials
By5.51%
Fund 12.48%
Indicative Benchmark 6.97%

Largest Underweight

Communication Services
By-5.32%
Fund 7.75%
Indicative Benchmark 13.08%

Monthly Data as of 31-Jul-2020

31-Jul-2020 - Ernest Yeung, Portfolio Manager,
We turned less underweight to consumer discretionary after initiating a position in a high-quality Chinese automotive glass maker. We think it will benefit from the favourable progress of its higher value-added products such as head-up displays as well as from the cyclical recovery of the auto sector. It is a low-cost producer and market share gainer in an oligopolistic market. In financials, our biggest absolute sector position, we trimmed our exposure after we reduced holdings in a Chinese property and casualty insurer. The departure of its chairman and recent risk management issues dampened our expectations of an improving return-on-equity.

Countries

Total
Countries
16
Largest Country China 37.33% Was (30-Jun-2020) 37.34%
Other View complete Country Diversification

Monthly Data as of 31-Jul-2020

Indicative Benchmark: MSCI Emerging Markets Index

Top Contributor^

Brazil
Net Contribution 0.74%
Country
0.22%
Selection 0.52%

Top Detractor^

South Korea
Net Contribution -1.00%
Country
-0.02%
Selection
-0.98%

^Relative

Quarterly Data as of 30-Jun-2020

Largest Overweight

Russia
By3.64%
Fund 6.62%
Indicative Benchmark 2.99%

Largest Underweight

Taiwan
By-7.50%
Fund 5.44%
Indicative Benchmark 12.94%

Monthly Data as of 31-Jul-2020

31-Jul-2020 - Ernest Yeung, Portfolio Manager,
We exited Bank Negara Indonesia and switched into another Indonesian lender with better franchise quality. We think that over the long term, this new banking addition to the portfolio will become a more valuable franchise with its dominant positioning in micro lending. We like this bank despite the possibility of national service risk for large state-owned banks in the current environment. We maintained a slight overweight position in Indonesia. In Taiwan, we became more underweight as we locked in some gains in technology stocks which had rallied sharply in the year to date. Energy-heavy Russia remains our biggest country overweight position.

Team (As of 05-Aug-2020)

Ernest C.  Yeung

Ernest Yeung is a portfolio manager for the Emerging Markets Discovery Equity Strategy at T. Rowe Price. He was the co-portfolio manager for the International Small-Cap Equity Strategies from 2009 to 2014. Mr. Yeung is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price Hong Kong Limited.

Mr. Yeung has 17 years of investment experience, 15 of which have been with T. Rowe Price. Prior to joining the firm in 2003, he was an analyst with HSBC Asset Management in London.

Mr. Yeung earned an M.A., with honours, in economics from Cambridge University. He also has earned the Chartered Financial Analyst designation and the Investment Management Certificate. 

  • Fund manager
    since
    2015
  • Years at
    T. Rowe Price
    17
  • Years investment
    experience
    19
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
    15
  • Years investment
    experience
    19

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%
Class Q $1,000 $100 $100 0.00% 100 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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