SICAV

European Smaller Companies Equity Fund

Seeking to identify tomorrow’s winning European growth companies.

ISIN LU1028171921 Bloomberg TRESCQG:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(EUR)

4.35%
€137.0m

1YR Return
(View Total Returns)

Manager Tenure

11.66%
4yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

0.79
6.10%

Inception Date 31-Jan-2014

Performance figures calculated in GBP

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31-Jul-2020 - Ben Griffiths, Portfolio Manager,
We sense that the market fundamentals could still deteriorate further, more than the recent rally seems to be discounting, and so we are being patient. Previous sell-offs have taught us that the correct actions in such an environment can have a marked impact upon long-term performance. In our view, not only will we be rewarded for identifying the exceptional companies for the next decade, but they can also be accessed at exceptional prices.
Benjamin Griffiths
Benjamin Griffiths, Portfolio Manager

Ben Griffiths is the portfolio manager for the European Smaller Companies Equity Strategy in the International Equity Division, covering European small-cap stocks and co-portfolio manager of the International Small-Cap Equity Strategy.  Ben 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 novel coronavirus pandemic is causing a severe economic and social shock globally. In Europe, which has lagged other regions, we now face a deep recession, with almost unprecedented strains on many industries. Both the depth and duration of the crisis caused by the outbreak are unknown.

The monetary policy response has been appreciable as have been some national fiscal actions, although a more concerted effort across the eurozone has taken longer to materialize. These waves of stimulus have underpinned a strong rebound from the March lows, which has made valuations less attractive for the moment.

However, it is still too soon to say how far company earnings might drop. Nor do dividends or sales provide any anchor. We sense that the market fundamentals could still deteriorate further, more than the recent rally seems to be discounting, and so we are being patient.

We are working hard with our analysts to identify those companies that will emerge stronger on the other side of the crisis. The dramatic rate of deterioration is likely to result in shocks to many companies' liquidity and leverage, and we, and the better-managed companies will look to be ahead of any such outcomes. �

Experience in previous sell-offs has taught us that the correct actions in this environment can have a marked impact upon long-term performance.� Not only will we be rewarded for identifying the exceptional companies of the next decade, but they can also be accessed at exceptional prices.

We are taking selective advantage of relative strength to cut our exposures if we cannot identify any meaningful fundamental change. We are also using bouts of weakness to defend existing positions where we have a high degree of confidence in their franchise, management, and financial position.

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 smaller publicly traded European companies.

Investment Approach

  • Invests in European small- and mid-cap companies capable of sustaining above-average, long-term earnings growth and selling at reasonable prices.
  • Benchmark-unconstrained approach exploits diverse opportunities in developed Europe, peripheral, and European Union (EU) accession countries.
  • Exposure to companies at different stages in the growth cycle offers the potential for more consistent performance across market cycles.
  • Long-term investment horizon emphasizes bottom-up stock selection as the primary source of excess return.
  • Dedicated London-based research team seeks companies with:
    • Attractive industry structure.
    • Compelling business models.
    • Strong growth prospects.
    • Solid management teams.
    • Reasonable valuations.

Portfolio Construction

  • Typically 70-100 stock portfolio
  • Diversification at the security, country, region, and sector levels offers the potential for attractive risk-adjusted returns
  • Bias toward high-quality stocks provides the potential for downside risk protection
  • Risk parameters
    • Emerging Europe exposure: maximum 10%
    • Typical position size: 0.50% to 5.00%
    • Low turnover expected
    • Expected tracking error: 3% to 7%

Performance (Class Q | GBP)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Since Manager Inception
Annualised
Fund % 11.66% 4.35% 12.29% 11.19% 11.51%
Indicative Benchmark % -3.82% 0.45% 7.46% 7.74% 7.37%
Excess Return % 15.48% 3.90% 4.83% 3.45% 4.14%

Inception Date 31-Jan-2014

Manager Inception Date 31-Dec-2015

Indicative Benchmark: MSCI Europe Small Cap Index Net

Data as of  31-Jul-2020

Performance figures calculated in EUR

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 10.31% 4.00% 12.41% 10.87%
Indicative Benchmark % -2.62% 1.36% 8.12% 7.81%
Excess Return % 12.93% 2.64% 4.29% 3.06%

Inception Date 31-Jan-2014

Indicative Benchmark: MSCI Europe Small Cap Index Net

Data as of  30-Jun-2020

Performance figures calculated in EUR

Recent Performance

  Month to DateData as of 12-Aug-2020 Quarter to DateData as of 12-Aug-2020 Year to DateData as of 12-Aug-2020 1 MonthData as of 31-Jul-2020 3 MonthsData as of 31-Jul-2020
Fund % 6.33% 9.34% 17.28% 2.84% 18.22%
Indicative Benchmark % 6.27% 6.50% -3.56% 0.21% 11.77%
Excess Return % 0.06% 2.84% 20.84% 2.63% 6.45%

Inception Date 31-Jan-2014

Indicative Benchmark: MSCI Europe Small Cap Index Net

Indicative Benchmark: MSCI Europe Small Cap 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.

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 - Ben Griffiths, Portfolio Manager,
The MSCI Europe Small Cap Index rose in July, boosted by hopes of developments in a vaccine and the European Union agreement on a recovery fund. However, increasing concerns about an economic recovery from the coronavirus pandemic and escalating U.S.-China tensions curbed equity market gains. At the portfolio level, financials and consumer discretionary were the top contributors due to our stock picking. Stock selection in real estate and an overweight in health care also supported relative performance. Consumer staples, industrials and business services and information technology were a modest drag on returns, however, due mainly to our choice of securities. Draper Esprit, a pan-European venture capital fund that invests in disruptive technology companies at the early stages of growth, rose on a new investment in an anti-fraud company and a successful fund raise by one of its core holdings, a robotics company, significantly raising its value and possibly paving the way for a market launch next year. On the negative side, Zur Rose, Europe’s largest online pharmacy, delivered a loss in consumer staples. The shares rose to a new peak in the middle of July and then fell on profit taking after second-quarter results showed a decline in sales growth momentum.

Holdings

Total
Holdings
98
Largest Holding Ambu 3.06% Was (31-Mar-2020) 3.60%
Other View Full Holdings Quarterly data as of 30-Jun-2020
Top 10 Holdings 20.81% View Top 10 Holdings Monthly data as of 31-Jul-2020

Largest Top Contributor^

Ambu
By 0.60%
% of fund 3.01%

Largest Top Detractor^

Galapagos
By -0.37%
% of fund 1.52%

^Absolute

Quarterly Data as of 30-Jun-2020

Top Purchase

ASOS
1.74%
Was (31-Mar-2020) 0.68%

Top Sale

Mail.Ru (E)
0.00%
Was (31-Mar-2020) 0.70%

Quarterly Data as of 30-Jun-2020

30-Jun-2020 - Ben Griffiths, Portfolio Manager,

Reduced Overweight Sectors

Over the quarter, we added four new names and eliminated 10, leaving us with 98 stocks in the portfolio. We also trimmed names that have done exceptionally well, such as in health care and consumer discretionary, and those where we lost conviction.

The strategy's profile continues to reflect our focus on durable growth companies with a sustainable competitive advantage. We have maintained a bias toward health care and information technology, and we also have an overweight position in communication services, largely due to our holdings of computer gaming stocks.

Although we remained overweight to micro-cap names (names with a market capitalization of less than USD $500 million), we took selective advantage of relative strength to cut our exposures if we could not identify any meaningful fundamental change. Since the start of the year, eight of the 19 names that we exited were in the micro-cap bucket.

Industrials and Business Services

We further increased our underweight in industrials and business services and changed the composition of our holdings. We sold Stemmer Imaging, a Germany-based provider of machine vision technology, which has not met expectations, and Konecranes, a Finland-based industrials cranes manufacturer, that is likely to struggle in the economic slump caused by the coronavirus.

We also opened positions in Italy-based specialty filters-maker GVS at its market launch, Homeserve, a UK-based home assistance company that provides policies for repair services, and Howden Joinery, the leading supplier of kitchens in the UK.

The machinery industry is our largest overweight. We own Weir Group, a global manufacturer of industrial pumps and fracking equipment; Va-Q-Tec, which designs and manufactures customized vacuum insulation panels; and Rotork, the world's leading designer and manufacturer of heavy-duty industrial valve actuator devices.�

We are also overweight professional services and industrial conglomerates. In the former, our largest position is Intertrust, an international trust and corporate management company. In the latter, we own shares in DCC,�which provides international sales, marketing, and support services. The company offers diversified exposure to the UK/Irish economies and has an impressive long-term record of growing earnings and dividends.

  • We exited our position in Stemmer Imaging, a bet we placed at the company's IPO in 2018. However, its subsequent performance has been disappointing, and the company now faces challenging conditions. We decided to recycle the funds in more interesting opportunities.
  • We participated in the initial public offering of Italy-based GVS, a global high-quality maker of filters for medical devices, such as ventilators, specialist filters for the auto industry and biohazard masks. The family-owned business is exposed to growing markets and has a long track record of double-digit growth. The company has been expanding to meet increased demand from hospitals due to the coronavirus pandemic.

Health Care

We reduced our overweight exposure to the health care sector, which is still a key long-term bet, pruning Ambu, a Denmark-based provider of diagnostic and life-supporting devices for hospitals and rescue services, after strong performance and exiting LivaNova, a UK-based medical device manufacturer.

Our largest industry allocations are life sciences tools and services, biotechnology, and health care providers and services. Eurofins Scientific, a leading global provider of bioanalytical laboratory testing services is our main holding in the first industry. In biotechnology, we hold Galapagos, a Belgium-based clinical-stage biotechnology company. In the health care providers and services industry, we own shares in Amplifon, an Italian company that distributes, adjusts, and personalizes hearing aids.

Within health care equipment and supplies, we are optimistic about innovative companies with strong competitive positioning and leading technology in niche markets. We are invested in Ambu, which is the largest holding in the portfolio. We also own shares in Elekta, a Sweden-listed medical technology company.

  • We sold our holding in LivaNova, a global medical technology company with strong leadership positions in neuromodulation and cardiac surgery, to recycle funds into more interesting opportunities. First-quarter results showed revenue and earnings missed estimates, while the company issued lower guidance for the year, due to the interruption of elective surgical procedures caused by the coronavirus.

Communication Services

We reduced our overweight in communication services, exiting Cineworld, an operator of movie houses in the UK, central and Eastern Europe, and Israel, and Russian internet company Mail.Ru, which offers a range of online communication products and entertainment services.

Our largest industry bet is entertainment, where we hold shares in four games developers, one of the fastest-growing segments of the industry. Our holdings include Codemasters Group Holdings, a UK-based video game developer and publisher; Team17, a company that is one of the longest-running independent video game developers; Frontier Developments, a world management games specialist; and Stillfront, a Sweden-based publisher of digital games.

We are also overweight interactive media and services, where we hold Scout24 Holding, an online classified advertising company that operates mainly in Germany.

  • We exited Cineworld as the coronavirus has caused great uncertainty for the business, leading to closures of cinemas, delays of major releases, and funding strains relating to the Cineplex acquisition.
  • We exited our position in Mail.ru to raise funds for investment in more attractive opportunities. The company withdrew guidance for 2020 due to the uncertainty caused by the coronavirus, and we lost confidence in the management.

Consumer Discretionary

We also trimmed our overweight allocation to the consumer discretionary sector. We exited Basic-Fit, Europe's largest fitness group, and B&S Group, a Luxembourg-based consumer goods distributor. We pared Mips, a maker of helmets for reducing rotational forces on the brain caused by impacts to the head.

We own a broad swath of companies, with our largest industry bets in internet and direct marketing; textiles, apparel, and luxury goods; leisure products; and hotels, restaurants, and leisure. In internet and direct marketing, we own shares in Takeaway.com, a leading online takeaway food delivery aggregator, and Trainline, the UK's leading online rail and coach booking platform.

Our textiles, apparel, and luxury goods holdings include Watches of Switzerland, a retailer of watches and jewelry in the UK. Our leisure product names include Mips and Thule, a Sweden-based company that develops and manufactures sport, outdoor, and cargo products. In hotels, restaurants, and leisure, our largest position is Kambi, which provides online sports betting services.

  • We exited Basic-Fit, taking advantage of a recovery in the share price since the market correction in March. We believe the business model based on new gym openings will struggle due to reduced consumer spending and social distancing.

Financials

We reduced our underweight in financials, opening a position in Hiscox, a specialist non-life insurer.

We remain overweight the capital markets industry, focusing on the relatively higher-quality asset managers that are durable growth companies. Our largest holdings include Intermediate Capital, a UK-based specialist asset manager, and XPS Pension Group, a UK-based holding company that�is engaged in the pensions actuarial, consulting, and administration business.

We are underweight in banks. In addition to the headwinds deleveraging, litigation issues, and increased regulation, they must now cope with a sharp recession and a more prolonged period of low interest rates that will further erode earnings.�Our holdings include�Bawag, Austria's fourth-biggest bank, and Italian financial services company FinecoBank Banca Fineco.

  • We initiated a position in Hiscox after an exaggerated decline in the shares amid concerns the company would have to raise substantial amounts of capital to cover business interruption cover claims due to the coronavirus. The company said that only a relatively small number of clients might seek to make a claim, and the sharply lower share price presented us with the opportunity to buy a unique financial asset�which, in our view,�could grow strongly over the long term.

Sectors

Total
Sectors
10
Largest Sector Health Care 20.97% Was (30-Jun-2020) 19.99%
Other View complete Sector Diversification

Monthly Data as of 31-Jul-2020

Indicative Benchmark: MSCI Europe Small Cap Index

Top Contributor^

Consumer Discretionary
Net Contribution 3.33%
Sector
0.79%
Selection 2.53%

Top Detractor^

Health Care
Net Contribution -0.60%
Sector
0.13%
Selection
-0.73%

^Relative

Quarterly Data as of 30-Jun-2020

Largest Overweight

Health Care
By11.20%
Fund 20.97%
Indicative Benchmark 9.77%

Largest Underweight

Industrials & Business Services
By-11.78%
Fund 11.90%
Indicative Benchmark 23.68%

Monthly Data as of 31-Jul-2020

31-Jul-2020 - Ben Griffiths, Portfolio Manager,
We made few changes to the portfolio in July as attractively valued smaller companies that are interesting opportunities became scarcer. We continued to eliminate holdings that have performed strongly and have little room to rise further, such as Karnov, a legal information provider. The company has performed strongly since its IPO last year. Company results have been stable and met expectations, but we believe its ability to deliver strong compounded growth may be hampered as economies struggle to recover. We added a Netherlands-based industrials company that we believe should perform more strongly than expected as its end markets recover.

Countries

Total
Countries
14
Largest Country United Kingdom 37.64% Was (30-Jun-2020) 37.36%
Other View complete Country Diversification

Monthly Data as of 31-Jul-2020

Indicative Benchmark: MSCI Europe Small Cap Index

Top Contributor^

United Kingdom
Net Contribution 3.85%
Country
-0.45%
Selection 4.29%

Top Detractor^

Norway
Net Contribution -0.29%
Country
-0.29%
Selection
0.00%

^Relative

Quarterly Data as of 30-Jun-2020

Largest Overweight

United Kingdom
By7.39%
Fund 37.64%
Indicative Benchmark 30.25%

Largest Underweight

Norway
By-4.13%
Fund 0.00%
Indicative Benchmark 4.13%

Monthly Data as of 31-Jul-2020

30-Sep-2018 - Ben Griffiths, Portfolio Manager,
By paring back our position in the aforementioned online payments processor, we reduced our exposure to Germany. Our country positions otherwise did not change materially during the month.

Team (As of 05-Aug-2020)

Benjamin Griffiths

Ben Griffiths is the portfolio manager for the European Smaller Companies Equity Strategy in the International Equity Division, covering European small-cap stocks and co-portfolio manager of the International Small-Cap Equity Strategy.  Ben is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price International Ltd. 

Ben’s investment experience began in 1999, and he has been with T. Rowe Price since 2006, beginning in the Equity Division. Prior to this, Ben was employed by Baillie Gifford as an investment manager. 

Ben earned a B.A. in investment analysis from Stirling University and an M.Eng. in engineering science from Oxford University. Ben also has earned the Chartered Financial Analyst® designation.

CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.

  • Fund manager
    since
    2016
  • Years at
    T. Rowe Price
    13
  • Years investment
    experience
    0
Andrew Clifton

Andrew Clifton is a portfolio specialist in the Equity Division at T. Rowe Price. He is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price International Ltd.

Mr. Clifton has over 30 years of investment experience, nine of which have been at T. Rowe Price. Prior to joining the firm in 2010, he was an executive director at UBS Global Asset Management. Prior to that, he was a vice president at Merrill Lynch.

Mr. Clifton earned a B.Sc. in economics from the London School of Economics and an M.Sc. in econometrics from the University of Southampton.

  • Years at
    T. Rowe Price
    10
  • Years investment
    experience
    31

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 UK Tax Reporting Status
Class A €1,000 €100 €100 5.00% 160 basis points 1.77% No
Class I €2,500,000 €100,000 €0 0.00% 95 basis points 1.05% No
Class Q €1,000 €100 €100 0.00% 95 basis points 1.12% No

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

T. Rowe Price Funds SICAV and its sub-funds are domiciled in Luxembourg and therefore considered offshore funds for UK tax purposes. Selected share classes of T. Rowe Price Funds SICAV have been designated “Reporting Funds” by HM Revenue & Customs (HMRC) under the guidelines of the UK Offshore Funds Regulation. These share classes report all relevant tax information to HMRC on an annual basis. Details on the information reported are outlined in the SICAV Shareholder Tax Reporting document that is available in the Fund Range Docs drop-down. Investors in “Reporting Fund” share classes who are considered United Kingdom residents for tax purposes will have any accrued gains treated as a capital gain rather than income upon sale or other disposal of their shares. 

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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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