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SICAV

European High Yield Bond Fund

Research-driven, targeting consistent high income.

ISIN LU1148396556 Bloomberg TREHADU:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(EUR)

4.25%
€261.5m

1YR Return
(View Total Returns)

Manager Tenure

12.21%
5yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

-0.41
2.07%

Inception Date 08-Dec-2014

Performance figures calculated in USD

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31-Jan-2020 - Mike Della Vedova, Portfolio Manager,
Concerns about the impact of the coronavirus weighed on sentiment, suggesting that the largest risks to European high yield bonds lie outside the market. While the long-term repercussions are still unclear, European high yield bonds still benefit from positive fundamental and technical factors. We will continue to monitor the development of the ongoing coronavirus outbreak as well as seek to identify companies that can better withstand periods of near-term risk aversion.
Michael Della Vedova
Michael Della Vedova, Portfolio Manager

Michael Della Vedova is a global high yield portfolio manager in the Fixed Income Division at T. Rowe Price. Mr. Della Vedova is a portfolio manager of the European High Yield Strategy and co-portfolio manager for the firm's Global High Yield Strategy. He is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Click for Manager Outlook
 

Strategy

Manager's Outlook

The European high yield market outperformed most expectations in 2019. Following this strong result, we see the potential for further performance in 2020. The favorable technical environment will likely remain in place with the ECB's corporate bond purchases and overall accommodative stance expected to continue throughout the year.

However, we remain conscious of the risk that sentiment could shift. After the strong 2019 returns, valuations appear tight based on historical averages, offering less protection from periods of volatility. Although geopolitical concerns surrounding Brexit and U.S.-China trade have eased compared with most of 2019, geopolitical events could still trigger bouts of risk aversion.�

We are cautiously optimistic regarding the eurozone economic outlook. Although the manufacturing sector and persistently low inflation remain concerns, there have been further signs that the data slowdown has bottomed. The reduction in political uncertainty should help the economy post modest improvement in the coming months, which could help keep corporate fundamentals stable and default rates low.

With valuations more stretched than they were a year ago, our focus is on opportunities identified through our rigorous, bottom-up research process where we see potential for long-term performance.�

Investment Objective

To maximise the value of its shares through both growth in the value of, and income from, its investments. The fund invests mainly in a diversified portfolio of high yield corporate bonds that are denominated in European currencies.

Investment Approach

  • The fund focuses primarily on European currency-denominated corporate debt issued by below investment-grade companies.
  • Invests mainly in BB and B rated bonds, with the ability to purchase lower-quality securities when compelling valuation and risk/reward opportunities arise.
  • The fund integrates fundamental proprietary research at the corporate bond, sovereign, and equity levels. This integral collaboration provides a holistic view of a company’s capital structure and management team, as well as its position in the larger market environment unique to each country.
  • Research focuses on quantitative and qualitative factors that drive an independent credit rating. Analysts look to identify long-term potential for balance sheet and external rating improvements while adhering to strict risk management practices.
  • Target excess-return will be primarily driven by individual security selection and, secondarily, by relative sector and credit quality allocations.

Portfolio Construction

  • At least 80% of assets will be invested in securities denominated in European currencies—mainly the euro and the pound.
  • Currency exposure is fully hedged back to the euro.
  • Up to 20% of assets may be invested outside of European currencies, including U.S. dollar high yield and investment-grade corporate bonds.
  • Target excess return: 100–150 basis points over a full market cycle. (Not a formal objective and it can be changed without prior notice. Please reference prospectus for formal objective.)
  • Target tracking error: 200–400 basis points

Performance (Class Adh | USD)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 12.21% 4.25% 5.85% 5.66%
Indicative Benchmark % 11.81% 7.00% 6.69% 6.58%
Excess Return % 0.40% -2.75% -0.84% -0.92%

Inception Date 08-Dec-2014

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to USD

Data as of  31-Jan-2020

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 16.36% 4.37% 5.92% 5.75%
Indicative Benchmark % 14.30% 7.20% 6.85% 6.63%
Excess Return % 2.06% -2.83% -0.93% -0.88%

Inception Date 08-Dec-2014

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to USD

Data as of  31-Dec-2019

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 20-Feb-2020 Quarter to DateData as of 20-Feb-2020 Year to DateData as of 20-Feb-2020 1 MonthData as of 31-Jan-2020 3 MonthsData as of 31-Jan-2020
Fund % 1.33% 1.37% 1.37% 0.05% 2.71%
Indicative Benchmark % 1.04% 1.37% 1.37% 0.33% 2.94%
Excess Return % 0.29% 0.00% 0.00% -0.28% -0.23%

Inception Date 08-Dec-2014

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to USD

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to USD

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.

31-Jan-2020 - Mike Della Vedova, Portfolio Manager,
The European high yield market delivered moderately positive returns in January. The rise in risk aversion late in the month resulted in the asset class giving back gains posted earlier in the period. Spreads ended the month wider, largely due to the sharp rally in underlying government bonds. Within the portfolio, our security selection had a slight drag on performance. Our holdings in the retail sector worked against us, largely due to idiosyncratic weakness in UK supermarket Iceland, which faced growing concerns surrounding its debt levels. While recognising these headwinds, we believe the company remains well positioning in the UK market, has a strong track record of growth, and ability to perform in different economic backdrops. These losses were partially offset by a positive contribution from German retailer Douglas. Our exposure to the services sector also aided relative returns.

Holdings

Issuers

Top
Issuers
10
Top 10 Issuers 27.58% Was (31-Dec-2019) 24.99%
Other View Top 10 Issuers

Monthly data as of 31-Jan-2020

Holdings

Total
Holdings
86
Largest Holding Cabot Financial Luxembourg 3.04% Was (30-Sep-2019) 2.86%
Top 10 Holdings 21.57%
Other View Full Holdings Quarterly data as of 31-Dec-2019

Quality Rating View quality analysis

  Largest Overweight Largest Underweight
Quality Rating B Rated BB Rated
By % 18.68% -40.88%
Fund 44.72% 26.39%
Indicative Benchmark 26.04% 67.27%

Average Credit Quality

B+

Monthly Data as of 31-Jan-2020
Indicative Benchmark:  ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Sources for Credit Quality Diversification: Moody's Investors Service and Standard & Poor's (S&P) split ratings (i.e. BB/B and B/CCC) are assigned when the Moody's and S&P ratings differ. Short-Term holdings are not rated.

Maturity View maturity analysis

  Largest Overweight Largest Underweight
Maturity 5-7 Years 1-3 Years
By % 15.16% -8.74%
Fund 43.83% 7.94%
Indicative Benchmark 28.67% 16.68%

Weighted Average Maturity

5.66 Years

Monthly Data as of 31-Jan-2020
Indicative Benchmark:  ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Duration View duration analysis

  Largest Overweight Largest Underweight
Duration Under 1 Year 3-5 Years
By % 23.15% -18.24%
Fund 36.33% 19.21%
Indicative Benchmark 13.18% 37.45%

Weighted Average Duration

2.13 Years

Monthly Data as of 31-Jan-2020
Indicative Benchmark:  ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

31-Dec-2019 - Mike Della Vedova, Portfolio Manager,

The primary market remained active for much of October and November before tapering off, as usual, ahead of the December holiday period. Our primary market focus was on new issuers with strong business fundamentals that needed to pay an additional new issuer premium.

Fundamental credit convictions drive industry allocation

We maintain an overweight position in the cable and satellite TV sector, which benefits from secular trends in media consumption, while remaining insulated from global trade tensions. The sector aided relative performance for much of 2019, we continue to see further potential and retain an overweight exposure.

We continue to hold a corresponding underweight to wirelines. While this industry shares similar characteristics to the cable and satellite TV sector, wirelines have been in secular decline at the expense of cable and wireless companies.�

B rated names continue to offer attractive relative value

The European high yield market is a higher-quality option compared with U.S. high yield and particularly demarcated by credit quality, as each rating reveals a stark contrast of characteristics. We maintain an overweight in B rated securities and maintain that our fundamental research process can reveal opportunities for alpha generation in the sector. It remains important to focus on names that can perform in different market environments, but the potential for the eurozone economy to improve in 2020 could lend further support to the B rated sector.

Sovereign views are a key input to risk assessment

While our investment process is primarily driven by bottom-up credit selection, proprietary sovereign views serve as a key input in our overall risk assessment. The firm's sovereign analysts identify and convey top-down macro trends to help evaluate exogenous risks related to individual companies. An additional layer of complexity is divergent bankruptcy policies with low recovery rates across countries. Our holistic view of capital structures and willingness to invest in holding companies is reflected in an allocation to companies domiciled in Luxembourg. Any non-euro-denominated bonds are fully hedged back to the euro.

Industry

Total
Industries
25
Largest Industry Cable & Satellite TV 16.12% Was (31-Dec-2019) 12.61%
Other View complete Industry Diversification

Monthly Data as of 31-Jan-2020

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Largest Overweight

Cable & Satellite TV
By10.19%
Fund 16.12%
Indicative Benchmark 5.93%

Largest Underweight

Telecom - Wireline Integrated & Services
By-6.62%
Fund 1.67%
Indicative Benchmark 8.28%

Monthly Data as of 31-Jan-2020

31-Jan-2020 - Mike Della Vedova, Portfolio Manager,
We maintain an overweight position in the cable and satellite TV sector where we are identifying attractive opportunities offering positive, long-term fundamentals. Conversely, we maintain an underweight in the wirelines sector, which faces secular headwinds. We also remain underweight the automotive sector, which could come under heightened pressure linked to industry disruption due to the coronavirus.

Countries

Total
Countries
19
Largest Country United Kingdom 24.72% Was (31-Dec-2019) 21.93%
Other View complete Country Diversification

Monthly Data as of 31-Jan-2020

Indicative Benchmark: ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Largest Overweight

United Kingdom
By10.29%
Fund 24.72%
Indicative Benchmark 14.43%

Largest Underweight

Italy
By-5.52%
Fund 4.55%
Indicative Benchmark 10.07%

Monthly Data as of 31-Jan-2020

30-Sep-2017 - Mike Della Vedova, Portfolio Manager,
We do not expect to add value via currency management and typically hedge our non-euro exposure back to euros to limit volatility, keeping the focus on credit selection.

Currency

Total
Currencies
5
Largest Currency euro 99.71% Was (31-Dec-2019) 99.46%
Other View complete Currency Diversification

Monthly Data as of 31-Jan-2020

Indicative Benchmark : ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

Largest Overweight

euro
By 12.17%
Fund 99.71%
Indicative Benchmark 87.53%

Largest Underweight

British pound sterling
By -12.40%
Fund 0.07%
Indicative Benchmark 12.47%

Monthly Data as of 31-Jan-2020

The fund is fully hedged back to euro, although direct exposure may total less than 100%. It is important to note that there can be no assurances that the currency hedging employed will fully eliminate the shareholder's exposure to exchange rate fluctuations.

31-Jul-2017 - Mike Della Vedova, Portfolio Manager,
We do not expect to add value via currency management and typically hedge our non-euro exposure back to euros to limit volatility, keeping the focus on credit selection.

Team (As of 06-Feb-2020)

Michael Della Vedova

Michael Della Vedova is a global high yield portfolio manager in the Fixed Income Division at T. Rowe Price. Mr. Della Vedova is a portfolio manager of the European High Yield Strategy and co-portfolio manager for the firm's Global High Yield Strategy. He is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Mr. Della Vedova has 26 years of investment experience, 10 of which have been with T. Rowe Price. Prior to joining the firm in 2009, he was a cofounder and partner of Four Quarter Capital, a credit hedge fund focusing on below investment-grade European corporate debt. Mr. Della Vedova also spent six years as a senior analyst and assistant portfolio manager with Muzinich & Company Limited in London.

Mr. Della Vedova earned both an LL.B. and a B.Com. in finance from the University of New South Wales and a G.D.L.P. from the University of Technology, Sydney, Australia. He also was admitted as a solicitor to the Supreme Court of New South Wales, Sydney.

  • Fund manager
    since
    2014
  • Years at
    T. Rowe Price
    10
  • Years investment
    experience
    26
Michael Lesesne

Michael Lesesne is a global high yield portfolio specialist in the Fixed Income Division at T. Rowe Price. He supports the High Yield, Bank Loan, and Credit Opportunities Strategies, working closely with clients, prospects, and consultants. Mr. Lesesne is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price Associates, Inc.

Mr. Lesesne has 28 years of investment experience, seven of which have been with T. Rowe Price. Prior to joining the firm in 2012, Mr. Lesesne was a partner and director of credit research at Lord Abbett and, before that, a senior high yield credit analyst at Weiss, Peck & Greer and TIAA-CREF.

Mr. Lesesne earned a B.A. in business economics from Brown University  and an M.B.A. in finance from Columbia Business School.

  • Years at
    T. Rowe Price
    7
  • Years investment
    experience
    28

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 A €15,000 €100 €100 5.00% 115 basis points 1.29%
Class I €2,500,000 €100,000 €0 0.00% 60 basis points 0.68%
Class Q €15,000 €100 €100 0.00% 60 basis points 0.74%
Class Sd €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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