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SICAV

European High Yield Bond Fund

Research-driven, targeting consistent high income.

ISIN LU1558474414 Bloomberg TREHQDH:LX

Since Inception Annualised
(View Total Returns)

Total Assets
(EUR)

2.73%
€280.6m

1YR Return
(View Total Returns)

Manager Tenure

4.85%
2yrs

Information Ratio

Tracking Error

N/A
N/A

Inception Date 16-Mar-2017

Performance figures calculated in GBP

Other Literature

31-Aug-2019 - Mike Della Vedova, Portfolio Manager,
After strong year-to-date returns, valuations in the European high yield asset class appear fair, although risks stemming from global trade and Brexit uncertainty continue to rise. Accommodative central banks and strong demand amid the low-yield environment should continue to provide a tailwind. We also see signs that the European economy may stabilise; however, average leverage has increased, and fundamentals could come under pressure if growth weakens further. Therefore, we remain selective by focussing on names with stable long-term fundamentals.
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

A favorable technical environment will likely drive the European high yield asset class in the near term. The corporate bond market anticipates that the ECB will likely begin another round of corporate sector purchase program (CSPP) purchases in the coming months. Although the purchases do not include high yield bonds, the added liquidity would impact the entire corporate market and boost demand for higher-yielding assets. Therefore, we see room for European high yields bonds to continue to perform but are conscious of the downside risk should the ECB not confirm the new CSPP by year-end.

Corporate fundamentals remain broadly stable with default rates low. Economic data remain mixed, but we see signs that the eurozone economy will continue to show moderate improvement in the coming months. Potential monetary stimulus or rate cuts could lend additional support.

However, the economy and corporate bond markets remain susceptible to geopolitical headwinds. Concerns over a disorderly Brexit on October 31 have increased as Boris Johnson, the most likely candidate to replace Theresa May as prime minister this summer, has expressed a willingness to leave the EU without a deal. Italy's fiscal agenda could return to the forefront, despite recent signs that the Italian coalition government could modify its budget proposals to avoid triggering the European Commission's excessive deficit procedure. Elsewhere, escalating global trade disputes or a deepening slowdown in the U.S. and China would also weigh on European markets.�

Overall, the European high yield market is positioned to perform into 2019. However, it is important for investors to remain selective and not focus simply on the top-down, technical-driven risk rally. A shift in central bank policy or a geopolitical shock could trigger a sudden return to risk aversion. We will continue to look for names with strong fundamentals and attractive valuations identified through our bottom-up research.�

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 Qdh | GBP)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 4.85% N/A N/A 2.73%
Indicative Benchmark % 6.32% N/A N/A 5.07%
Excess Return % -1.47% N/A N/A -2.34%

Inception Date 16-Mar-2017

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

Data as of  31-Aug-2019

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 4.08% N/A N/A 2.13%
Indicative Benchmark % 6.58% N/A N/A 4.80%
Excess Return % -2.50% N/A N/A -2.67%

Inception Date 16-Mar-2017

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

Data as of  30-Jun-2019

Performance figures calculated in GBP

Recent Performance

  Month to Date Quarter to Date Year to Date 1 MonthData as of 31-Aug-2019 3 MonthsData as of 31-Aug-2019
Fund % N/A N/A N/A 1.05% 4.07%
Indicative Benchmark % N/A N/A N/A 0.72% 3.88%
Excess Return % N/A N/A N/A 0.33% 0.19%

Inception Date 16-Mar-2017

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

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

Performance figures calculated in GBP

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-Aug-2019 - Mike Della Vedova, Portfolio Manager,
The European high yield market saw positive returns in August. Yields fell and spreads ended the period slightly tighter as strong demand combined with the low supply levels during the summer period helped the asset class overcome continued mixed signals surrounding the region’s economy. Within the portfolio, our security selection drove relative returns over the month. Our exposure to the cable and satellite TV sector led the way with Altice continuing its run of strong performance in recent months. Our security selection in the financial services and media sectors also made strong contributions. Conversely, our holdings in the transportation and building and construction sectors dragged moderately on returns in August. Credit selection in the B and CCC categories also made strong contributions to performance, particularly due to German retailer Douglas, which has continued to recover in 2019 as the market as refocused on positive fundamental steps taken by the company.

Holdings

Issuers

Top
Issuers
10
Top 10 Issuers 23.41% Was (31-Jul-2019) 24.81%
Other View Top 10 Issuers

Monthly data as of 31-Aug-2019

Holdings

Total
Holdings
95
Largest Holding Cabot Financial Luxembourg 2.99% Was (31-Mar-2019) 2.84%
Top 10 Holdings 22.36%
Other View Full Holdings Quarterly data as of 30-Jun-2019

Quality Rating View quality analysis

  Largest Overweight Largest Underweight
Quality Rating B Rated BB Rated
By % 17.55% -46.68%
Fund 43.98% 21.43%
Indicative Benchmark 26.43% 68.10%

Average Credit Quality

B+

Monthly Data as of 31-Aug-2019
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 % 15.13% -13.70%
Fund 46.71% 6.35%
Indicative Benchmark 31.57% 20.06%

Weighted Average Maturity

5.44 Years

Monthly Data as of 31-Aug-2019
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 1-3 Years 3-5 Years
By % 9.18% -11.53%
Fund 45.14% 20.16%
Indicative Benchmark 35.95% 31.69%

Weighted Average Duration

2.13 Years

Monthly Data as of 31-Aug-2019
Indicative Benchmark:  ICE BofAML European Currency High Yield Constrained Excluding Subordinated Financials Index Hedged to EUR

30-Jun-2019 - Mike Della Vedova, Portfolio Manager,

We remain focused on names that can deliver performance through different market environments. Therefore, we resisted the temptation to add risk simply due to the technical tailwinds and continued to be selective regarding sectors and individual names.

Fundamental credit convictions drive industry allocation

We maintain an overweight position in the cable and satellite TV sector where we are identifying attractive opportunities offering positive, long-term potential and also benefiting from the supportive technicals. We are also finding value in the euro-denominated debt of American companies looking to take advantage of the lower yields in the European high yield market compared to the U.S. These companies allow us to gain exposure to attractive bonds with stable fundamentals.

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.�

Finding opportunities in higher-quality names

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. However, recognizing that the technical-driven demand for longer duration may hold for the near term, we have also added to higher quality, BB rated names with proven credit stories in which we were already overweight.

Industry

Total
Industries
26
Largest Industry Cable & Satellite TV 13.42% Was (31-Jul-2019) 13.53%
Other View complete Industry Diversification

Monthly Data as of 31-Aug-2019

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

Largest Overweight

Financial Services
By5.89%
Fund 11.77%
Indicative Benchmark 5.88%

Largest Underweight

Telecom - Wireline Integrated & Services
By-7.63%
Fund 1.48%
Indicative Benchmark 9.11%

Monthly Data as of 31-Aug-2019

31-Aug-2019 - 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 to the wirelines sector, which faces secular headwinds despite strong short-term performance over the course of 2019. Select companies within the financial services sector also represents a top overweight, as many issuers continue to generate strong cash flow and appear attractive on a global basis, highlighting the importance of fundamental research.

Countries

Total
Countries
19
Largest Country United States 23.66% Was (31-Jul-2019) 23.76%
Other View complete Country Diversification

Monthly Data as of 31-Aug-2019

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

Largest Overweight

United States
By9.34%
Fund 23.66%
Indicative Benchmark 14.32%

Largest Underweight

Italy
By-5.79%
Fund 5.69%
Indicative Benchmark 11.48%

Monthly Data as of 31-Aug-2019

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 99.68% Was (31-Jul-2019) 100.04%
Other View complete Currency Diversification

Monthly Data as of 31-Aug-2019

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

Largest Overweight

euro
By 11.02%
Fund 99.68%
Indicative Benchmark 88.66%

Largest Underweight

British pound sterling
By -11.12%
Fund 0.22%
Indicative Benchmark 11.34%

Monthly Data as of 31-Aug-2019

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 31-Aug-2019)

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 24 years of investment experience, eight 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
    2017
  • 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 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% 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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