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The T. Rowe Price Global Equity Approach

Positive Results Driven by T. Rowe Price's Strategic Investing Approach

Rigor and conviction have created opportunities for clients.

T. Rowe Price

Executive Summary

  • A T. Rowe Price performance study of 16 of our actively managed non-U.S. equity funds compared with competing passive investment vehicles found that the value added by our strategic investing process was significantly positive for a majority of the funds included in the study.1
  • Over the rolling three-year periods we studied, 94% of the T. Rowe Price funds (15 of 16) posted positive active success rates after fees and costs (Figure 1).2 The average excess return over those periods was 1.38% (Figure 2).3
  • We attribute our success to our practice of going beyond the numbers, by traveling to meet companies we invest in and debating and sharing investment insights to understand the complex dynamics of investment opportunities.

Methodology

To measure the value added by our strategic investing process, we studied the relative performance of our actively managed global, international, and emerging markets (GIEM) equity funds compared against a passive competitor universe (“passive competitors” or “passive competitor composites”) created by T. Rowe Price. Our study covered 16 active GIEM funds currently advised by T. Rowe Price and its affiliates (Figure 3).

The funds in the study accounted for 16 of the 24 U.S.‑domiciled active strategies specializing in GIEM equities currently offered by T. Rowe Price and represented approximately 64% of the equity assets advised by the firm’s U.S.‑domiciled GIEM funds as of December 31, 2018.4 The time period covered by the study was December 31, 1998 through December 31, 2018. All study results are as of December 31, 2018 unless otherwise noted.

Seven active T. Rowe Price GIEM equity funds were not included in the study because insufficient passive competitors existed (e.g., the Emerging Europe Fund). The Quantitatively Managed (QM) Global Equity Fund also was excluded from the study because of its extremely short performance history, which consisted of only 19 rolling one‑year periods and no rolling 3‑, 5‑, or 10‑year periods as of December 31, 2018.

Two additional funds with sizable assets under management—the International Stock Fund and the International Discovery Fund—were excluded because comparable passive competitors could not be identified under our methodology.

The Institutional International Disciplined Equity Fund and the International Disciplined Equity Fund are managed in a substantially similar investment style with the same investment process and philosophy. To avoid the potential for double-counting results, the Institutional fund was chosen to be included as it has the longest track record.

The study also included two institutional funds (the Institutional Frontier Markets Equity Fund and the Institutional Global Value Fund) that are available to individual investors with USD 1,000,000 initial investment. Retail versions of these strategies are not available.

For each T. Rowe Price fund in the study, we measured average excess returns over its designated passive competitor composite for all periods covered by the study where data were available.5 These returns were based on fund net asset value (NAV) data and thus included the impact of management fees, operating expenses, and trading costs.

The returns for each T. Rowe Price fund in the study were compared with return composites that tracked the performance of passive competitors in their particular equity categories or geographic regions. Relative performance was measured over periods for which sufficient passive comparison data were available.

(Fig. 1) Percentage of Funds With Positive Active Success Rates
Rolling Periods December 31, 1998, Through December 31, 2018

Sources: T. Rowe Price and Morningstar; all data analysis by T. Rowe Price. ©2019 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or
timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

Active Success Rates

The active success rate records the percentage of times a fund beat its passive competitors in
rolling periods over a specified time horizon (say, 10 years).

We’ve defined a positive active success rate as a fund beating the performance of its passive
competitors in more than half of the periods measured.

Excess Returns

The return on a fund over a given period compared with its passive performance composite. Excess returns can be positive or negative and typically are annualized over different time periods, so an equity fund that returned 10% while its passive composite returned 9% would have a positive excess return of one percentage point, or 1.00%.

(Fig. 2) Average Excess Returns for T. Rowe Price Funds
Equal-Weighted Average for All Periods for All Funds Rolling Periods December 31, 1998, Through December 31, 2018

Sources: T. Rowe Price and Morningstar (see Fig. 1); all data analysis by T. Rowe Price.

Equity Categories

Global: Funds that invest in the full range of markets around the world, including the U.S. market.

International: Funds that invest primarily in countries outside the U.S.

Emerging Markets: Funds that invest primarily in developing countries in Europe, Asia, and
Latin America.

Rolling Periods

Instead of just looking at the most recent 1‑, 3‑, 5‑, and 10‑year periods, we measured performance over all such periods covered by our study. Every calendar month marked the start of a new rolling period—so the full study covered a total of 191 rolling five‑year periods, if sufficient performance data were available for a given fund.

(Fig. 3) T. Rowe Price Funds Included in Performance Study

Source: T. Rowe Price.

Study Results

Relative to the passive competitor composites, the value added by our strategic investing process was strongly positive for nearly all of the T. Rowe Price funds included in the study.7 Some of the specific findings:

  • Over the rolling five-year periods examined, almost 85% of our funds (11 of 13) posted positive active success rates.8
  • Thirteen of the 16 T. Rowe Price funds in the study showed higher returns on average, after fees and costs, compared with passive competitors in their respective equity categories over all rolling time horizons for which they had performance histories (Figure 4).
  • Average excess returns were positive across rolling one‑year periods for 14 of 16 funds and positive across rolling three‑year periods for 15 of 16 funds.
  • Over rolling five‑year periods, 11 of the 13 funds with relative performance track records in that time frame showed positive average excess returns, after fees and costs.
  • Twelve of the 16 T. Rowe Price funds had positive active success rates across every time horizon for which performance comparison data were available (Figure 5).
  • Nine of the 13 funds with one‑, three‑, and five‑year relative performance records (or almost 70%) showed positive active success rates versus their passive competitors across all three time frames. Ten of the 13 funds (or almost 77%) showed positive average excess returns across all three time frames.
  • To provide a high‑level summary of the effectiveness of our strategic investing process, we also calculated broader performance measures for all of the T. Rowe Price funds included in the study, based on equally weighted averages of all performance periods for all funds included across each rolling time horizon. The results are shown in Figures 1 and 2.

(Fig. 4) Average Annualized Excess Returns Over Passive Composites Net of Fees
Rolling Periods December 31, 1998, Through December 31, 2018

Sources: T. Rowe Price and Morningstar (see Fig. 1); all data analysis by T. Rowe Price.

Research Study

Positive Results Driven by T. Rowe Price's Strategic Investing Approach

Past performance is not a reliable indicator of future performance.

1In this study, we compared the returns achieved by our funds over various time horizons with the returns for competing passively managed funds pursuing similar investment objectives. All funds included in the passive competitor composites were flagged by Morningstar as index funds or ETFs in its U.S. classification database. Funds were further screened by T. Rowe Price analysts to ensure they were truly representative of their assigned passive categories and had investment characteristics consistent with the objectives of the T. Rowe Price funds. See the appendix for additional details on our methodology.

2A positive active success rate is defined as a T. Rowe Price fund beating the performance of its passive competitors in more than half of the rolling periods measured.

3All excess return data for the T. Rowe Price funds and passive competitors referenced in this study take into account both the payment of investment management fees and other fund expenses, such as trading costs, and thus are after fees and costs.

4For a complete list of T. Rowe Price GIEM equity funds excluded from the study, please see the appendix.

5Rolling 10‑year performance comparisons for the 10 funds for which they were available can be found in Figures A4 and A5 in the appendix.

6The Institutional Global Value Equity Fund, the Institutional International Disciplined Equity Fund, and the Institutional Frontier Markets Equity Fund have a minimum investment of USD 1 million and feature lower management fees than the fund shares typically available to individual investors.

7For each fund, we calculated active success rates (the percentage of total rolling periods in which the fund outperformed its passive competitors) and average excess returns (the performance difference, positive or negative, between the T. Rowe Price fund and its passive competitors, averaged across all of the rolling periods in each time frame).

8The Asia Opportunities Fund, the Emerging Markets Discovery Stock Fund, and the Institutional Frontier Markets Equity Fund did not have 5‑year performance histories as of December 31, 2018.


Additional Disclosures
Morningstar—© 2019 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not becopied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

London Stock Exchange Group plc and its group undertakings, including FTSE International Limited (collectively, the “LSE Group”), European Public Real Estate Association (“EPRA”), and the National Association of Real Estate Investments Trusts (“Nareit”) (and together the “Licensor Parties”). © LSE Group 2019. FTSE Russell is a trading name of certain LSE Group companies. “FTSE®” is a trade mark of the relevant LSE Group companies and are used by any other LSE Group company under license. “Nareit®” is a trade mark of Nareit, “EPRA®” is a trade mark of EPRA and all are used by the LSE Group under license. All rights in the FTSE EPRA NAREIT Developed Markets Real Estate Index or data vest in the Licensor Parties. The Licensor Parties do not accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The Licensor Parties do not promote, sponsor or endorse the content of this communication.

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Important Information
Consider the investment objectives, risks, and charges and expenses carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, call 1-800-225-5132 or visit troweprice.com. Read it carefully. For all other funds, please contact the fund sponsor’s website.

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.
The views contained herein are those of the authors as of April 2019 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

Risk: All investments are subject to risk, including the possible loss of principal. International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. These risks are generally greater for investments in emerging markets.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All charts and tables are shown for illustrative purposes only.

T. Rowe Price Investment Services, Inc., Distributor, T. Rowe Price mutual funds.

© 2019 T. Rowe Price. All rights reserved. T. Rowe Price, INVEST WITH CONFIDENCE, and the Bighorn Sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.

201804‑601814

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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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