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Flexible International Concentrated Equity Fund Yields Targeted Results

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Jason White, portfolio specialist at T. Rowe Price, believes that the best way to maximize the opportunities that international markets offer is to take a targeted and focused approach to them.

The thesis for investing in international markets is stronger than ever, according to White, particularly for the long-term. Across the globe, industry structures are improving, and many emerging market companies have been improving corporate governance, while companies in developed markets are increasingly benefiting from revenues in emerging markets, which makes them even more interesting candidates for investment.

However, being able to pick and choose stocks in a flexible manner and narrowing investment choices down to but a few names is, in White’s opinion, the best way to avail of these opportunities.

He also believes that developed markets have, to a large extent, been overlooked. To that end, T. Rowe Price recently launched the International Concentrated Equity Fund, a retail vehicle that piggybacks off an existing and largely developed market international strategy that the firm debuted in 2010.

“We launched the strategy at that time based on the feedback from our institutional clients, who said they wanted a predominantly developed market portfolio that was concentrated and also less constrained in its ability to invest across various styles and market caps,” said White.  

The success of the strategy, he said, then made it clear to T. Rowe Price that “there was appetite in the retail market for a similar product, and we believe that that demand will be present going forward.”

The fund holds 60-or-less of what White terms “our highest conviction stocks.” Those names are chosen from across the globe (although the portfolio’s exposure to emerging markets is capped at 15% and has, in the early days of the strategy, been as low as 2%) and assessed based on their current valuation and where the investment team believes they should be trading.

“We’re looking for opportunities where there is a large disconnect between the current share price and what we think the company should be worth,” White said.

“Our approach is not based on the idea that ‘company X is the cheapest stock in its sector,’ but rather ‘we think it should be worth X and it’s trading at Y,’ so we’ll buy it because our analyst believes there’s a catalyst that can close that gap.”

The International Concentrated Equity Fund is also style agnostic, “which means we don’t invest with a label,” White said. The fund can own growth stocks and value stocks, among others, and it can go anywhere, he said, which makes it much more flexible in its ability to take advantage of different opportunities.

 “This is a strong conviction, go-anywhere developed markets portfolio,” White said. “Of course, we do have a strong valuation bias, and this, we believe, results in strong downside protection, which means this is a good product for the long-term, and we’ve had interest across the board for it, from retail and institutional clients to high net worth individuals.”

As an example of the kind of company T. Rowe Price chooses for the International Concentrated Equity Fund, White cited the example of Svenska Cellulosa, a Swedish company that’s “the Kimberly Clark of Europe.”

“This is an exciting business with a strong management team that are very good capital allocators and do a great job of reinvesting and generating good returns from an otherwise mundane business,” White said. “The company recently bought a similar business in China at a good price, so they’re expanding in the right way into the emerging markets. Svenska Cellulosa has had a good run on returns and is one of our top five holdings.”


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