QUARTERLY SUMMARY As of March 31, 2018 U.S. Large-Cap Equity Income SMA

Transcription

1 QUARTERLY SUMMARY As of March 3, 8 U.S. Large-Cap Equity Income SMA PORTFOLIO MANAGER: John D. Linehan JOINED FIRM: 998 INVESTMENT APPROACH Employ a conservative, value-oriented investment approach and typically invest in high quality, dividend-paying companies with strong brands, franchises, or assets we think are undervalued. To identify these companies, we let valuation be our guide and utilize a variety of different metrics and proprietary screens to assess valuation appeal. Leverage our global research platform to assist in uncovering companies with strong reward-to-risk characteristics. Maintain a long-term orientation to allow for full exploitation of valuation anomalies. Construct a diversified portfolio to help manager our risk profile. PORTFOLIO CONSTRUCTION Bottom-up fundamental approach Typically 3-4 stock portfolio Individual positions will typically range from.% to 5.% Reserves will typically range from % to 5% STRATEGY HIGHLIGHTS The composite generated negative absolute returns but outperformed the Russell Value Index during the three-month period ended March 3, 8. Relative performance drivers: The industrials and business services sector was the leading contributor to relative performance due to stock selection. Stock choices in the energy sector also aided relative results. The materials sector was the greatest detractor from relative performance due to stock selection and an overweight position. Additional highlights: U.S. stocks advanced in January but ended the first quarter lower amid spikes in volatility unseen in recent periods. Investors worried that rising interest rates, the potential for higher inflation, and heightened global trade tensions could undermine the continued strength in global economies. From a positioning standpoint, the portfolio is overweight the industrials and business services sector relative to the benchmark. We invest in sector names that reach many different end markets and have solid business models and/or an ability to generate strong, recurring cash flows. Our largest sector position is defense company Harris. Conversely, we are underweight real estate. While real estate investment trusts (REITs) generally offer attractive dividend yields, in our opinion, further interest rate hikes could continue to drive investors out of the sector. We believe investors remain too complacent, and, as a result, we are being more thoughtful about balancing cyclical and defensive exposures. Annualized Three Months Year-to- Date Since Inception /3/7 U.S. Large-Cap Equity Income SMA Composite ( Pure Gross) -.4% -.4% -.4% U.S. Large-Cap Equity Income SMA Composite (Net - Wrap Fee) Russell Value Index Value Added ( Pure Gross) Value Added (Net - Wrap Fee) PERFORMANCE ¹ Net annual returns reflect the deduction of a 3.% annual wrap fee which is the maximum anticipated wrap fee deducted from the pure gross composite returns. Actual fees may vary. Pure gross returns are presented before the deduction of expenses and all other fees, but may include transaction costs. Returns include reinvestment of dividends and capital gains. Supplemental information.

2 U.S. Large-Cap Equity Income SMA Composite As of March 3, 8 CALENDAR YEAR PERFORMANCE YTD 8 U.S. Large-Cap Equity Income SMA Composite ( Pure Gross) -.4% U.S. Large-Cap Equity Income SMA Composite (Net - Wrap Fee) -.6 Russell Value Index -.83 Value Added ( Pure Gross) -.4 Value Added (Net - Wrap Fee).67 ¹ Net annual returns reflect the deduction of a 3.% annual wrap fee which is the maximum anticipated wrap fee deducted from the pure gross composite returns. Actual fees may vary. Pure gross returns are presented before the deduction of expenses and all other fees, but may include transaction costs. Returns include reinvestment of dividends and capital gains. Supplemental information. RISK RETURN CHARACTERISTICS This exhibit will be available after three years of performance history. TOP HOLDINGS Issuer Industry %of Rep. Portfolio Total Oil, Gas & Consumable Fuels 5.% Twenty-First Century Fox Media 4.6 J.P. Morgan Chase & Co. Banks 4.6 Morgan Stanley Capital Markets 4.5 DowDuPont Chemicals 4. Anthem Health Care Providers & Services 3.9 Harris Aerospace & Defense 3.8 Becton, Dickinson & Health Care Equipment & Company Supplies 3.5 Microsoft Software 3.4 Loews Insurance 3.4 SECTOR DIVERSIFICATION Representative Portfolio Russell Value Index Over/Underweight 3 - PORTFOLIO CHARACTERISTICS Representative Portfolio Russell Value Index Number of Holdings Investment Weighted Average Market Cap (mm)(usd) $3,856 $,78 Investment Weighted Median Market Cap (mm)(usd) $67,74 $65,845 Price to Earnings ( Months Forward), 5.4X 5.4X Price to Book.X.X Projected Earnings Growth Rate (IBES), 9.6% 9.4% Return on Equity (Last Months excl. charges).9%.8% Average Company Yield (Inv Wtd Avg).5%.5% Top Holdings as Percent of Total 69.8% 34.7% Percent of Portfolio in Cash.6% Total Assets $,964,798 Investment Weighted Median. Based on the Representative Portfolio s underlying holdings and is not a projection of future portfolio performance. Actual results may vary.

3 U.S. Large-Cap Equity Income SMA Composite As of March 3, 8 QUARTERLY SECTOR ATTRIBUTION: U.S. LARGE-CAP EQUITY INCOME SMA REPRESENTATIVE PORTOLIO VS. RUSSELL VALUE INDEX (Three months ended March 3, 8) Over/Underweight Total Value Added Value Added from Group Weight Percent of Value Added Percent of Over/Underweight 6 3 Value Added from Stock Selection Cons Health Indust & Real Telecomm Total Cons Disc Stples Energy Financials Care Bus Svcs InfoTech Materials Estate Services Utilities Over/Underweight --.35% -.49% -.9% -.97% -.6% 4.3%.3% 3.% -3.7% -.8%.6% Portfolio Performance Benchmark Performance Value Add - Stock Selection Value Add - Group Weight Total Contribution Numbers may not add to % due to rounding; all numbers are percentages. Note: Analysis represents the equity-only performance of the portfolio as calculated by the Wilshire Atlas attribution model and is exclusive of cash, trusts, mutual funds, delisted securities, and other non-equity holdings. Returns will not match official T. Rowe Price performance because Wilshire uses different pricing and exchange rate sources and does not capture intraday trading or fair-value pricing. Performance for each security is obtained in the local currency and, if necessary, is converted to U.S. dollars using an exchange rate determined by an independent third party. Source: Wilshire Atlas, MSCI/S&P Global Industry Classification Standard (GICS) ; Analysis by T. Rowe Price Associates, Inc. T. Rowe Price uses the MSCI/S&P (GICS) for sector and industry reporting. Each year, MSCI and S&P review the GICS structure. The last change occurred on August 3, 6. T. Rowe Price will adhere to all future updates to GICS for prospective reporting. Figures are shown before management and all other fees, where applicable, but after trading expenses. Returns would be lower as a result of the deduction of such fees. Supplemental Information. 3

4 U.S. Large-Cap Equity Income SMA Composite As of March 3, 8 US Large Cap Equity Income SMA Composite Period Ended March 3,8 Figures Shown in U.S. dollar Net Annual Returns (%) "Pure" Gross Annual Returns(%) Russell Value Index (%) Composite 3 Yr St. Dev. YTD Russell Value Index 3 Yr St. Dev..4 Composite Dispersion Comp. Assets (Millions) 3. # of Accts. in Comp. Total Firm Assets (Billions) SMA Portfolio (%) % GIPS Disclosure Net annual returns reflect the deduction of the highest applicable wrap fee from the pure gross returns. Pure gross returns are presented before the deduction of expenses and all other fees, but may include transaction costs. Supplemental information. Monthly composite performance is available uponrequest. Three year annualized ex post standard deviation is not presented because 36 monthly returns are notavailable. 3 % of composite assets are composed of non fee paying portfolios. T. Rowe Price (TRP) has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS ). TRP has been independently verified for the year period ended June 3, 7 by KPMG LLP. The verification report is available upon request. Verification assesses whether () the firm has complied with all the composite construction requirements of the GIPS standards on a firm wide basis and () 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. The minimum asset level for equity portfolios to be included in composites is $5 million and prior to January the minimum was $ million. The minimum asset level for fixed income and asset allocation portfolios to be included in composites is $ million; prior to October 4 the minimum was $5 million; and prior to January the minimum was $ million. Valuations are computedand performance reported in U.S. dollars. Gross performance returns are presented before management and all other fees, where applicable, but after trading expenses. Net of fees performance reflects the deduction of the highest applicable management fee that would be charged based on the fee schedule appropriate to you for this mandate, without the benefit of breakpoints. Gross and net performance returns are net of nonreclaimable withholding taxes on dividends, interest income, and capital gains. Effective June 3, 3, portfolio valuation and assets under management are calculated based on the closing price of the security in its respective market. Previously portfolios holding international securities may have been adjusted for after market events. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. Dispersion is measured by the standard deviation across asset weighted portfolio returns represented within a composite for the full year. Dispersion is not calculated for the composites in which there are five or fewer portfolios. Some portfolios may trade futures, options, and other potentially high risk derivatives which generally represent less than % of aportfolio. Benchmarks are taken from published sources and may have different calculation methodologies, pricing times, and foreign exchange sources from thecomposite. Composite policy requires the temporary removal of any portfolio incurring a client initiated significant cash inflow or outflow greater than or equal to % of portfolio assets. The temporary removal of such an account occurs at the beginning of the measurement period in which the significant cash flow occurs and the account re enters the composite on the last day of the current month after the cash flow. Additional information regarding the treatment of significant cash flows is available upon request. The firm's list of composite descriptions and/or a presentation that adheres to the GIPS standards are available uponrequest. US Large Cap Equity Income SMA Composite. The US Large Cap Equity Income SMA Composite seeks substantial dividend income, primarily through investment in dividend paying common stocks of established companies. The strategy emphasizes companies that appear to be temporarily undervalued by various measures. Capital appreciation is a secondary objective for this strategy. This composite is comprised of a subset of the US Large Cap Equity Income Composite holdings. (Created January 8) FeeSchedule 3% on totalassets 4

5 U.S. Large-Cap Equity Income SMA Composite As of March 3, 8 ADDITIONAL DISCLOSURES Portfolio Construction: There is no guarantee that the investment will remain within the anticipated ranges of exposure. The specific securities identified and described do not represent all of the securities purchased or sold for this Portfolio. This information is not intended to be a recommendation to take any particular investment action and is subject to change. No assumption should be made that the securities identified and discussed were or will be profitable. Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark of Russell Investment Group. The information shown does not reflect any ETFs that may be held in the portfolio. Source for Sector Diversification: T. Rowe Price uses the MSCI/S&P Global Industry Classification Standard (GICS) for sector and industry reporting. Each year, MSCI and S&P review the GICS structure. The last change occurred on August 3, 6. T. Rowe Price will adhere to all future updates to GICS for prospective reporting. Diversification exhibits may not add to % due to exclusion or inclusion of cash. Certain numbers in this report may not equal stated totals due to rounding. Unless otherwise stated, data is as of the report date. Unless indicated otherwise the source of all data is T. Rowe Price. IMPORTANT INFORMATION Risks: All investments are subject to risks, including possible loss of principal. There is no assurance that the investment process will capture quality companies with attractive and sustainable dividend yields. Dividend-paying stocks may lag shares of smaller, faster-growing companies. Dividends are not guaranteed and are subject to change. This material being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. 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. The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction. Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price. The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request. It is not intended for distribution to retail investors in any jurisdiction. USA - Issued in the USA by T. Rowe Price Associates, Inc., East Pratt Street, Baltimore, MD,, which is regulated by the U.S. Securities and Exchange Commission. T. ROWE PRICE, INVEST WITH CONFIDENCE and the bighorn sheep design are collectively and/or apart, trademarks of T. Rowe Price Group, Inc. 8 T. Rowe Price. All rights reserved