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SICAV

US Smaller Companies Equity Fund

Seeks capital appreciation using both value and growth approaches.

ISIN LU1562330560 Bloomberg TRPUSQH:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

9.27%
$1.3b

1YR Return
(View Total Returns)

Manager Tenure

8.59%
1yr

Inception Date 15-Feb-2017

Performance figures calculated in GBP

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31-May-2020 - Curt Organt, Portfolio Manager ,
We seek to capitalise on opportunities across the broad range of the small- and mid-cap U.S. equity market. Overall, we remain modestly overweight high-quality companies that compound their earnings. We also look for select investments in “deeper-value” opportunities – those stocks that we believe are significantly undervalued – and hold a number of income-oriented dividend growth companies.
Curt J. Organt, CFA
Curt J. Organt, CFA, Portfolio Manager

Curt Organt is the portfolio manager of the US Smaller Companies Equity Strategy and an associate portfolio manager of the US Small-Cap Core Equity Strategy in the U.S. Equity Division. Curt is a vice president and an Investment Advisory Committee member of the US Small-Cap Core Equity, US Diversified Small-Cap Value Equity, and US Small-Cap Growth Equity Strategies. He also is a vice president of T. Rowe Price Group, Inc.

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Strategy

Manager's Outlook

As the world continues to grapple with the global coronavirus pandemic, an 11-year U.S. equity bull market came to an abrupt end and indices suffered one of their worst quarters ever. While all indices were substantially down in the quarter, large-cap stocks significantly outperformed small-cap and growth handily outpaced value. The Russell 2500 trailed the Russell 1000 by 950 bps, after posting the worst quarter in the history of the index. During the quarter, the Russell 2500 was down -29.7%, with every sector posting negative returns, and financials, industrials, and consumer discretionary being the largest detractors.

The market started the year on a strong note, with most major U.S. indexes rising to record highs by the middle of February amid hopes that China was having some success in containing the spread of COVID-19, the disease caused by the coronavirus. However, in the closing days of February, investor sentiment turned sharply negative and stocks fell on the news of spiking cases in other countries, especially Italy, Iran, and South Korea. This raised fears that the coronavirus was spreading much more rapidly than anticipated and that it could turn into a global pandemic-which the World Health Organization declared it was on March 11. The sell-off intensified in March, as the coronavirus spread rapidly in the U.S., prompting government officials to close schools, nonessential businesses, and public facilities. Federal Reserve (Fed) rate cuts and asset purchases initially seemed to have had little effect on stopping the equity market decline. Stocks did pare some losses in the final days of the quarter, however, as the Trump administration and Congress passed into law a massive economic stimulus bill and as the Fed rolled out a variety of programs and "facilities" intended to support the flow of credit to consumers and businesses.

The US Smaller Companies Equity Strategy seeks to capitalize on opportunities across the broad range of the small-cap and mid-cap U.S. equity market. The portfolio has a collection of core holdings in high-quality companies that we expect to compound value over time and looks for select investments in "deeper value" opportunities; companies experiencing a challenge or controversy of one sort or another that the investment team believes can be resolved in a reasonable period of time. The portfolio holds a number of income-oriented, dividend-growth companies, as well as a collection of high-growth investments in which the investment team believes other investors do not yet fully appreciate the companies' long-term growth potential.�Overall, the strategy remains modestly overweight the high-quality compounding companies but has been finding opportunities in consumer discretionary, materials, health care, and energy.

Since the strategy's inception over 15 years ago, it has relied upon T. Rowe Price's team of fundamental research analysts to provide unique perspective and insight on the companies they follow. Going forward, the portfolio manager will continue to work closely with this talented team of investment professionals to identify the most attractive opportunities across the full range of the small-cap and mid-cap segment of the U.S. equity market.

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 from smaller capitalization companies in the United States.

Investment Approach

  • Focus on companies within the market cap range of the Russell 2500 Index at time of purchase.
  • Assess valuation using relevant sector/industry metrics — absolute and relative price to earnings, price to cash flow, and price to assets.
  • Integrate fundamental research by a dedicated Small-Cap research team to discover underfollowed companies possessing clear business plans, financial flexibility, and proven management teams.
  • Identification of a “value creation” catalyst is key.
  • Broadly diversify holdings to manage portfolio risk profile.
  • Employ a low turnover and patient trading strategy to promote full value realization.

Portfolio Construction

  • 200-250 securities
  • Position sizes typically range from 0.15% to 2.50%
  • Primary sector weights generally vary from 0.5X to 2.0X the Russell 2500 Index weights

Performance (Class Qh | GBP)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Since Manager Inception
Annualised
Fund % 8.59% 9.27% N/A 9.01% 6.49%
Indicative Benchmark % -4.04% 0.99% N/A 0.46% -7.19%
Excess Return % 12.63% 8.28% N/A 8.55% 13.68%

Inception Date 15-Feb-2017

Manager Inception Date 31-Mar-2019

Indicative Benchmark: Russell 2500 Index Net 30% Hedged to GBP

Data as of  31-May-2020

Performance figures calculated in USD

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % -11.18% 2.93% N/A 2.98%
Indicative Benchmark % -25.31% -5.86% N/A -5.90%
Excess Return % 14.13% 8.79% N/A 8.88%

Inception Date 15-Feb-2017

Indicative Benchmark: Russell 2500 Index Net 30% Hedged to GBP

Data as of  31-Mar-2020

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 02-Jul-2020 Quarter to DateData as of 02-Jul-2020 Year to DateData as of 02-Jul-2020 1 MonthData as of 31-May-2020 3 MonthsData as of 31-May-2020
Fund % 2.83% 2.83% -1.92% 5.65% 4.32%
Indicative Benchmark % -0.17% -0.17% -12.95% 7.44% -4.97%
Excess Return % 3.00% 3.00% 11.03% -1.79% 9.29%

Inception Date 15-Feb-2017

Indicative Benchmark: Russell 2500 Index Net 30% Hedged to GBP

Indicative Benchmark: Russell 2500 Index Net 30% Hedged to GBP

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 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-May-2020 - Curt Organt, Portfolio Manager ,
Equities recorded strong gains in May as optimism grew that economic conditions were bottoming, while investors also appeared encouraged about reports of progress in developing treatments and a vaccine for the new coronavirus. At the portfolio level, stock selection in consumer discretionary had the most negative impact on relative results. Shares of Bright Horizons Family Solutions declined on quarterly results that fell short of consensus following the global disruption of operations in the wake of the coronavirus pandemic. We believe the company’s employer-sponsored model can withstand current pressures and anticipate a post-crisis snapback in demand. Conversely, stock selection in information technology (IT) contributed to relative results, led by strong performance from Twilio. The company posted surprisingly strong results in the first quarter as a coronavirus-driven acceleration in digital platforms fuelled growth that more than offset the negative effect of its exposure to highly impacted industries. We appreciate Twilio’s leverage to digital transformations underway across industries, the breadth of its opportunity set, and its investments in potentially high-impact product initiatives.

Holdings

Total
Holdings
169
Largest Holding CoStar Group 2.23% Was (31-Dec-2019) 2.07%
Other View Full Holdings Quarterly data as of 31-Mar-2020
Top 10 Holdings 16.51% View Top 10 Holdings Monthly data as of 31-May-2020

Largest Top Contributor^

Quidel
By 0.25%
% of fund 1.73%

Largest Top Detractor^

Avery Dennison
By -0.65%
% of fund 1.60%

^Absolute

Quarterly Data as of 31-Mar-2020

Top Purchase

Knight-Swift Transportation Holdings (N)
0.68%
Was (31-Dec-2019) 0.00%

Top Sale

FNF (E)
0.00%
Was (31-Dec-2019) 0.80%

Quarterly Data as of 31-Mar-2020

31-Mar-2020 - Curt Organt, Portfolio Manager ,

We do not make sector "bets," and sector weightings are formed as a residual of our bottom-up investment process. We used the sell-off as an opportunity to upgrade the portfolio and increase exposure to our highest-conviction companies. During the quarter, trading activity spanned the various sectors. We've highlighted some of the larger purchases and sales occurring within industrials and business services, health care, financials, and information technology.

Industrials and Business Services

In the industrials and business services sector, the portfolio is overweight compared with the benchmark allocation due in particular to sizable positions in machinery, professional services, and aerospace and defense. The sector tends to be cyclical, with strong surges during economic recovery. We have exposure to cyclical holdings to take advantage of economic recovery, but we also hold positions in more stalwart areas that allow steady and measured returns to provide a more balanced risk exposure.

We took advantage of the recent sell-off, which disproportionately impacted the transportation sector, and increased road and rail names.

  • We initiated a position in Knight-Swift Transportation Holdings, the largest trucking company in the U.S. and a beneficiary of improving spot rates.
  • J.B. Hunt Transport Services is a diversified domestic transportation company that provides rail intermodal service, truckload service, and freight brokerage. We believe this to be a solid company with long-term growth potential and defensive attributes.
  • We eliminated our position in Schneider National, a provider of transportation and logistics services, to fund these higher-conviction names.

Health Care

In health care, we maintain a large, but underweight, allocation relative to the benchmark. We have a sizable allocation to equipment and supplies, providers and services, and biotechnology names. The health care segment has been a sector of controversy over recent years amid reform legislation, attempts at repeal, and the uncertainty regarding its outcomes. We have focused on investments that we feel will benefit from the environment regardless of the end result by sticking to fundamentals and a diversified approach within biotechnology to mitigate risk.

  • We received shares of Medicaid-focused managed care company Centene upon its acquisition of WellCare Health, which had been held in the portfolio. The combined entity would be the largest government-sponsored managed care organization with a focus on Medicare and Medicaid, which are the fastest-growing areas of managed care.
  • We added a position in health care equipment company iRhythm Technologies. The company's Zio Service enables a faster and more accurate diagnosis of arrhythmia, and we believe it is poised to capture significant market share over the next three to five years.

Financials

We are underweight the financials sector, which still represents one of the largest allocations within the portfolio and the benchmark. Up until the 2016 carveout of real estate from the sector to create its own standalone sector, the segment reflected our largest allocation (albeit underweight the index). Our largest allocation is to the banks industry. We also maintain a sizable allocation to the insurance industry. While the sector faces new challenges from the fallout of COVID-19 on borrowers, interest rates and continued uncertainty in financial markets, we believe our investments will not only survive the impending recession but come out stronger on the other side.

  • We added a position in Chicago-based multiline insurance company Kemper. Turnaround initiatives have yielded results, including significant revenue growth aided by the company's acquisition of Infinity Property Casualty Company in 2018. Kemper has an experienced leadership team, a strong balance sheet, and an attractive valuation.
  • We exited our position in E*Trade Financial upon the announcement that the company would be acquired by Morgan Stanley.
  • We eliminated FNF, the largest title insurer in the U.S., upon the announcement of its acquisition of FGL Holdings, an annuity and life insurance provider. While the addition of FGL Holdings could provide a countercyclical balance given its earnings increase in a higher interest rate environment, the merger introduces material credit risk and might prove dilutive to the FNF franchise.

Information Technology

Our information technology allocation is now relatively in line with the benchmark. A number of the disruptive companies that are on the right side of change are featured in the sector. We remain sanguine on the sector as a whole. We have large allocations in the software, IT services, semiconductors, and electronic equipment and instruments segments. We have been able to find many niche software providers that we believe have attractive growth opportunities and barriers to ward off their competition.

  • We initiated a position in semiconductor company Semtech. The company offers differentiated products in data center, communications, mobile, and industrial end markets. While supply chain issues may weigh on near-term earnings, we believe the longer-term risk/reward profile appears favorable at current valuations.

Sectors

Total
Sectors
11
Largest Sector Information Technology 19.44% Was (30-Apr-2020) 18.45%
Other View complete Sector Diversification

Monthly Data as of 31-May-2020

Indicative Benchmark: Russell 2500 Index

Top Contributor^

Industrials & Business Services
Net Contribution 3.03%
Sector
-0.22%
Selection 3.25%

Top Detractor^

Health Care
Net Contribution -0.18%
Sector
-0.30%
Selection
0.13%

^Relative

Quarterly Data as of 31-Mar-2020

Largest Overweight

Industrials & Business Services
By4.08%
Fund 18.19%
Indicative Benchmark 14.11%

Largest Underweight

Financials
By-2.31%
Fund 11.20%
Indicative Benchmark 13.52%

Monthly Data as of 31-May-2020

31-May-2020 - Curt Organt, Portfolio Manager ,
Industrials and business services, IT, financials, and health care remain the dominating sectors in the portfolio, all with greater than 10% of the equity allocation. We continue to invest in select companies across various industries where we feel valuations may underestimate the sustainability of their growth or turnaround potential. This included boosting our positions within chemicals; electric utilities; and hotels, restaurants, and leisure.

Team (As of 02-Jul-2020)

Curt J. Organt, CFA

Curt Organt is the portfolio manager of the US Smaller Companies Equity Strategy and an associate portfolio manager of the US Small-Cap Core Equity Strategy in the U.S. Equity Division. Curt is a vice president and an Investment Advisory Committee member of the US Small-Cap Core Equity, US Diversified Small-Cap Value Equity, and US Small-Cap Growth Equity Strategies. He also is a vice president of T. Rowe Price Group, Inc.

Curt’s investment experience began in 1993, and he has been with T. Rowe Price since 1995, beginning in the U.S. Equity Division. Prior to this, Curt was employed by DAP Products, Inc., as a financial and marketing analyst. 

Curt earned a B.S. in finance and philosophy from LaSalle University and an M.B.A. from Wake Forest University. Curt also has earned the Chartered Financial Analyst® designation.

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

  • Fund manager
    since
    2019
  • Years at
    T. Rowe Price
    24
  • Years investment
    experience
    28
Eric Papesh

Eric Papesh is a portfolio specialist in the U.S. Equity Division of T. Rowe Price. He is based in London and serves as a proxy for equity portfolio managers with institutional clients, consultants and prospects. Mr. Papesh supports T. Rowe Price's US Smaller Companies Equity and US Large-Cap Equity Strategies offered in the Europe, Middle East and Africa (EMEA) and Asia-Pacific (APAC) regions. He is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Mr. Papesh has 22 years of financial services experience, two of which have been with T. Rowe Price. Before joining the firm in 2014, he was a senior research analyst with Russell Investments, where he focused on US equity investment strategies.

Mr. Papesh earned a B.A. in business administration and an M.B.A. from the University of Washington. He has also earned the Chartered Financial Analyst designation.

  • Years at
    T. Rowe Price
    5
  • Years investment
    experience
    25

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 UK Tax Reporting Status
Class A $1,000 $100 $100 5.00% 160 basis points 1.68% Yes
Class I $2,500,000 $100,000 $0 0.00% 95 basis points 0.99% Yes
Class Q $1,000 $100 $100 0.00% 95 basis points 1.04% Yes
Class S $10,000,000 $0 $0 0.00% 0 basis points 0.04% 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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