Global investment management T Rowe Price has established its first direct retail partnership in Singapore in its debut into the country’s retail fund market. Under the partnership, T Rowe Price and Standard Chartered Bank Singapore have launched three investment strategies meeting the needs of local investors in a low-growth, rising inflation and high-volatility market environment, says T Rowe Price Southeast Asia head of intermediary Gerald Koh.
He also says that the firm has so far been catering only to accredited investors, adding: “We are very deliberate in how we expand our presence and we feel that now is the right time for us to enter the next stage of our business growth into the retail fund market.”
The three investment strategies are T Rowe Price China Evolution Equity Strategy, T Rowe Price Global Focused Growth Strategy and T Rowe Price US Large Cap Growth Equity Strategy.
While investor sentiment may have been shaken by the volatility caused by the ongoing Russo-Ukrainian War, rising inflation and Covid-19, there is still a demand for equity products, says Standard Chartered Bank’s head of managed investments, investment advisory and strategy Gavin Chia.
He adds: “In a survey we released last year, we found that equity is still the most favoured asset class by Singaporean clients. Interestingly enough, equities actually do best in a period of rising inflation as it means asset prices are increasing. The real problem is the central bank’s reaction, should they raise interest rates too quickly.”
“Historically speaking, volatility happens within the first six months of interest rate hikes. On a 12-months basis, however, large stocks actually do pretty well, by and large. Therefore, we think it is actually an interesting opportunity from a market outlook standpoint. In fact, we at Standard Chartered actually still prefer equities over bonds.”
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Differentiated approach
As at March 31, Baltimore-headquartered T Rowe Price had US$1.55 trillion ($2.1 trillion) in assets under management. While it entered the local market in 1993, the firm received its Singapore retail distribution license in December of last year. As at April 14, T Rowe Price had a total of 19 funds that are recognised by the Monetary Authority of Singapore (MAS) for sale to the retail investors here.
Explaining the three newly launched strategies, T Rowe Price China Evolution Equity Strategy looks beyond China’s well-owned mega cap stocks to identify under-discovered opportunities and the rising stars that the firm believes will benefit from China’s economic growth and disruptive innovation.
Koh says the firm believes that it offers a very differentiated approach with a unique exposure to retail investors, as the strategy focuses on stocks that are outside of the top 100 names in the MSCI China Index.
“If you look at a lot of the China funds in the market, especially the bigger ones, most of them have at least 60% of their holdings in the large mega caps. Given that the China investable universe has over 5,000 stocks, most of these funds are only investing in 2% of it. We want to look at the remaining 98%, exploring mispriced opportunities and future drivers of the market,” says Koh. This is made possible by T Rowe Price’s large and experienced research team, who are able to go on the ground to meet with companies’ senior management to help with their bottom-up approach, he adds.
As at Feb 28, T Rowe Price China Evolution Equity fund’s top holdings are property management company Country Garden Services (6.3%), home furnishings firm Jason Furniture (Hangzhou) (4.6%), online recruitment platform Kanzhun (4.5%), shipbuilder Yangzijiang Shipbuilding (4.1%) and property management services provider China Resources Mixc Lifestyle (3.6%).
Koh explains that property developers tend to be very capital intensive, often dependent on leverage. In comparison, property management businesses are able to generate a lot of recurring cash flow with an asset-light model, which makes them less prone to financial risk hence presenting attractive opportunities. “For Country Garden Services in particular, they have even diversified their business over the past 12 to 24 months covering train stations, hospitals and other urban services.”
Unconstrained equity growth
The T Rowe Price Global Focused Growth Strategy is an unconstrained equity growth strategy that looks across the firm’s research platform, delivering a very concentrated portfolio of between 60 to 80 stocks.
“It is a strategy that we have been managing since 1996. The current portfolio manager has been managing it for the past 10 years, delivering strong returns over three-year, five-year and 10-year periods,” says Koh.
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Although the performance of the growth strategy has been a bit challenged this year, it may present investors with the chance to turn it into an opportunity, adds Koh. “Given the rally that we have seen in growth funds over the past years, the recent pullback may be a good opportunity for investors. No one can really call the bottom, but it is definitely looking a lot more attractive than a year ago.”
As at Feb 28, T Rowe Price Global Focused Growth Equity fund’s top holdings are e-commerce giant Amazon.com (6.5%), financial services company Charles Schwab (4.6%), industrial conglomerate General Electric (4.4%), managed healthcare and insurance company UnitedHealth Group (4.1%) and aerospace corporation Airbus (4.1%).
Koh notes that Charles Schwab’s merger with TD Ameritrade in the US gives it sizable economies of scale. This is especially in the current volatile market which has led to increasing trades and activities in the financial markets, allowing the company to enjoy a good runway for growth.
Finally, the T Rowe Price US Large Cap Growth Equity Strategy offers a diversified portfolio of disruptive and innovative US companies with double-digit “real” earnings per share growth. Acknowledging that US large cap growth is a common strategy offered in the market, Koh believes that T Rowe Price’s expertise in the small to mid cap space helps it to stand out.
“We manage a lot of money on the small to mid cap space in the US and we know a lot of these companies before they become large cap names. By the time they qualify for us to invest via the strategy, we already know them extremely well, giving us a clear advantage,” he claims.
Also as at Feb 28, T Rowe Price US Large Cap Growth Equity fund’s top five holdings are software giant Microsoft (9.8%), Google’s parent company Alphabet (9.3%), Amazon.com (9.1%), hardware and software provider Apple (6.7%) and cloud-based software provider Salesforce (3.8%).
Key concerns
Moving towards the second half of the year, Koh says the concerns regarding an impending recession in the US remains a key risk for the performance of its retail market strategies. Due to this, the firm is keeping a close eye on rising oil prices, interest rate hikes and yield curve inversion.
“Although the world has been less dependent on fossil fuels and everyone is playing their part to use it more efficiently, oil prices do matter greatly to firms and individuals, impacting our everyday lives. We are therefore monitoring it closely, conscious that the spike in oil prices has preceded five of the last six US recessions since 1976,” he adds.
In terms of rising interest rates, Chia says the market is pricing in quite an aggressive slew of rate hikes over the next 12 months. However, T Rowe Price’s portfolio is positioned to benefit from these hikes, especially in its holdings in the financial services sector, continues Chia.
“On our end, we are closely watching the Asia region and China is a big part of that. We are cognisant of its policy changes, especially with the lockdown in Shanghai which has led to very poor market sentiment — the MSCI China has taken quite a beating. That being said, China has the opportunity to use policies to stimulate the economy and we believe they are positioned in the right direction,” says Chia.
Agreeing, Koh says that many Chinese stocks are now considered very cheap compared to their Western peers, trading at one to two standard deviation differences. This provides good, long-term opportunities for active and fundamental investors in China such as T Rowe Price.
