T. Rowe Price Global Equity Fund Currently Recommended 10 May 2013 Fund Facts and Features Fund Details APIR Code ETL0071AU Asset Class Global Equities Style Fundamental Active Growth Fund Size $510m Fee structure 1.2% Inception Date September 2006 Manager Details Fund Manager T Rowe Price Total Funds Under Management Ownership Responsible Entity Years Managing Asset Class International Ltd $US3.3bn in this strategy / $US590bn in firm assets T.Rowe Price Group Equity Trustees Limited 7 years Total Team Size 2 (investing in ideas from 130 analysts) Analyst numbers 130 Team Turnover Fund Characteristics Targeted return above benchmark Benchmark None at portfolio manager level 3% MSCI All Country World ex Australia Index Tracking error target 5 10% Typical number of stocks Close to 130 Current stock numbers 139 Stock limits 5% Sector Limits +/-15% Country Limits +/- 10% US +/-20% Regional Bias o/w Emerging markets, u/w US u/w mega caps, o/w Market Cap Bias $10-30bn market cap range. Standard Deviation relative to peers Above Average Underlying dividend yield 1.5% Distribution Frequency Annual Research Rating Research rates this Fund Currently Recommended which indicates that Research is recommending this investment for new or additional funds. Key Differentiators The rating of this Fund is based on the following key factors: 1) Scott Berg is a knowledgeable and capable portfolio manager. 2) The manager is well resourced with over 100 analysts, allowing for deep stock specific research, and for a more extensive company visitation program across multiple countries. 3) The investment philosophy is growth orientated with significant direct emerging markets exposure, and blends well with quality biased value managers on our APL. Likely to outperform MSCI World Index when: - Large cap growth stocks outperform. - Emerging markets outperform. Likely to underperform when: - Markets fall. - Emerging markets underperform.
Overview The T. Rowe Price Global Equity Fund is a long-only, growth oriented international equities strategy with significant direct emerging markets exposure (recently 28% of the Fund). The portfolio is managed by Scott Berg, who we view as a knowledgeable and capable portfolio manager. Mr Berg took over from Rob Gensler in mid-2012, and manages the portfolio in a more diversified manner. The portfolio tends to hold more stocks with smaller position sizes, and it has a best of sector flavour (sector tilts tend to be more moderate than when Mr Gensler managed the portfolio). Mr Berg is based in Baltimore, and travels extensively to meet various companies contained in the portfolio. He populates the portfolio predominately with stocks that are well rated by the large T. Rowe Price investment team of 130 analysts based in various geographic locations. As such, this strategy is better resourced than most peers to conduct deep stock specific research. We have met a number of T. Rowe Price investment professionals, and the analysts we have met have mostly been well above average in terms of their industry and stock specific knowledge. The Fund has a growth investment philosophy, seeking companies with strong growth prospects that also possess a compelling business model, attractive industry structures and a strong management team. The Fund has traditionally had a high exposure to emerging markets due to their strong longer term growth outlooks, and exposure has been increased recently. The Fund is usually overweight companies with a market cap of $US10-30bn relative to the benchmark, which currently represent approximately 40% of the portfolio. The Fund is structurally underweight mega caps, as they typically have less ability to grow. At a sub-sector level, the Fund is currently overweight commercial banks (with significant emerging markets exposure) and health care providers, and is underweight insurance and pharmaceuticals, although as noted these sector tilts are small. The portfolio typically trades on a price earnings premium to the market and a lower dividend yield, but with a stronger expected earnings growth rate. In our opinion the emerging markets bias and size biases are likely to result in returns that differ from the benchmark to a greater extent than the average benchmark aware international equities strategy in the peer group, despite the small sector tilts and diversified portfolio. The beta of the Fund is likely to be lower than when Mr Gensler managed the portfolio, although we believe the Fund is likely to be better placed to outperform in a rising market than a falling market. As a result of this we believe it blends well with a number of the quality biased, value offerings on our APL, particularly the Magellan Global Equities fund. Performance (net of fees) The performance of the T. Rowe Price Global Equity Fund has been disappointing, although Mr Gensler was responsible for most of the track record in the table below (note that Mr Berg took over this Fund in mid-2012). Mr Berg has established a much stronger track record in his Global Large Cap Strategy (inception 2008), where he has generated significant cumulative outperformance of the benchmark. As at 31 March 2013 3 mths % 1 yr % 3 yr % pa Global Equity Fund 5.7 6.2 1.7 MSCI AC World 6.1 10.1 3.8 MSCI World Ex-Australia Index* 7.2 10.8 3.9
*Note that this is our benchmark, not the Fund s benchmark. Our benchmark has outperformed the Fund s benchmark recently due to the US outperforming and Emerging Markets underperforming. Top 10 positions as at 31 March 2013: Apple 2.0% Google 1.7% Nestle 1.6% Amazon 1.5% Bank Central Asia 1.4% Unilever 1.4% Siam Commercial Bank 1.3% BBVA 1.3% Honda 1.3% AES 1.2%
Investment Team Mr Berg began managing a large cap global equities strategy in 2008, whilst he was Mr Gensler s associate portfolio manager on this Fund. His track record as a portfolio manager has been strong up until recently (much stronger than Mr Gensler s, the portfolio manager of this Fund up to mid-2012). Mr Berg outperformed in 2009, 2010 and 2012, and has generated significant excess returns since 2008. Mr Berg joined T.Rowe Price in 2002, and was promoted to associate portfolio manager in 2005. He is based in Baltimore although will spend three months in Sydney shortly. Mr Berg is supported by Jay Nogueira, who we view as a knowledgeable associate portfolio manager. His role is to broaden Mr Berg s contact with the research platform and generate ideas. The portfolio is populated with buy ideas from 130 T. Rowe Price research analysts / industry specialists located in Baltimore (Head office), London, Tokyo, Hong Kong, Singapore, Buenos Aires and Sydney. We have met with a number of T.Rowe Price analysts and most have displayed considerable stock specific knowledge and industry expertise. Investment Process The portfolio is populated mainly with mid and large cap stocks listed in emerging and developed markets that are well rated by the large T.Rowe Price investment team. This reduces the investment universe to approximately 350-400 large cap global stocks. Mr Berg works with analysts to identify compelling ideas. He pays careful consideration to stocks held in T Rowe Price s regional and sector based portfolios. The Fund typically contains close to 130 stocks. Large positions tend to represent 1-2% of the portfolio Mr Gensler previously had much larger positions in the Fund. Emerging market positions tend to have smaller weights in the Fund. The Fund is usually overweight companies with a market cap of $US10-30bn relative to the benchmark, which currently represent approximately 40% of the portfolio. The Fund is structurally underweight mega caps, as they typically have less ability to grow. We believe the size of the investment team is a clear advantage, as it enables stocks to be covered in significant depth. Over 3,000 on-site company visits are undertaken each year. Stock selection is focused on identifying attractively valued companies with stable or improving fundamentals, and attractive industry structures. Significant consideration is also given to the outlook for the country or region in which a company is based. Analysts pay particular attention to four key areas in their stock analysis industry dynamics, company specific dynamics, management (they seek management teams that can be trusted to prudently redeploy capital), and valuations. Industry analysis is focused on an industry s growth prospects, differentiating between cyclical and structural factors. Competitive structure, pricing power and return on capital are important considerations. Companies are compared to their peers in each industry, and their relative positioning is evaluated.
Firm Overview T. Rowe Price Group is a large US listed Fund manager with close to $600bn of assets under management. Mr Berg manages $3.5bn in his global equities strategy, and $500m in the Australian unit trust. In our opinion his ability to be nimble and flexible in trading is moderate despite having less funds under management than a number of peers. This is due to significant overlap in stock positions with T Rowe Price s other global, sector and regional portfolios, which also invest in stocks that are well rated by T Rowe Price analysts. The base management fee is 1.2%, which is quite high for a diversified, long-only international equities strategy. Positively, there is no performance fee. Analyst: Chris Bigg Disclaimer This report was prepared by Bridges Financial Services Pty Ltd (Bridges). In accordance with ASIC Regulatory Guide 175 any client who receives this report from an AFSL entity listed below can obtain a copy of the Financial Services Guide (FSG) for Bridges from the website ww.bridges.com.au/fsg. The information contained in this report is for the sole use of those participating AFSL entities and their clients listed below who access services through the IOOF Advice Division. This is general advice only. It is not possible, when preparing reports of this type, to take into account your particular objectives, financial situation and needs. Before acting on any information or advice contained, expressly or implicitly, in this report you should consult your financial planner. If any information or advice relates to the acquisition, or possible acquisition of a particular financial product you should obtain a copy of the product disclosure statement (PDS) for that financial product, from your financial planner, and consider the contents of the PDS prior to making any decision. Australian Executor Trustees Limited. ABN 84 007 869 794. AFSL No. 240023. Baldry Financial Services Pty Ltd (trading as BFG Financial Services). ABN 20 080 173 655. AFSL No. 237235. Bridges Financial Services Pty Ltd. ASX Participant. ABN 60 003 474 977. AFSL No. 240837. CUA Financial Planning Pty Ltd. ABN 60 010 003 853. AFSL No. 221896. Executive Wealth Management Financial Services Pty Ltd. ABN 38 078 629 973. AFSL No. 245451. My Adviser Pty Ltd ABN 80 065 370 354 AFSL No. 238307. Plan B Wealth Management Ltd ABN 42 052 834 634 AFSL No. 220382 Police & Nurses Financial Planning Pty Ltd. ABN 21 009 245 194. AFSL No. 237507. Questor Financial Services Limited. ABN 33 078 662 718. AFSL No. 240829. SMF Wealth Management Pty Ltd. ABN 72 081 257 221. AFSL No. 244350. Wealth Managers Pty Ltd. ABN 27 086 558 134. AFSL No. 232701. The contents of this report should not be disclosed, in whole or in part, to any other party without the prior consent of Bridges in each case. To the extent permitted by the law, the entities listed above, their employees, consultants, advisers, officers and authorised representatives are not liable for any loss or damage arising as a result of any reliance placed on the contents of this report. Bridges is part of the IOOF Group of companies