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T. Rowe Emerging Markets Value Stock Fund will seek “forgotten” stocks in Africa

Anna Lyudvig
Sept. 25, 2015, midnight

Word count: 478

T. Rowe Price, a global asset manager with $773bn AUM, has launched the Emerging Markets Value Stock Fund with exposure to undervalued African stocks.

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T. Rowe Price, a global asset manager with $773bn AUM, has launched the Emerging Markets Value Stock Fund with exposure to undervalued African stocks.

S. Leigh Innes, a portfolio specialist in the Equity Division at T. Rowe Price, said that the launch AUM was $5m in the US mutual fund and $2m in the European SICAV: “That’s $7m in total is seed capital from T. Rowe Price.”

“Both vehicles are open-ended, so we don’t have a specific AUM target. We pay a lot of attention to capacity within our products and we will close when it’s necessary,” she said.

Innes said that T. Rowe Price is targeting investors from across the globe and across distribution channels for this product: “We have retail interest and traditional institutional interest.”

The fund is managed by Ernest Yeung, previously the portfolio manager for T. Rowe Price’s International Small-Cap Equity Strategy.

The strategy leverages T. Rowe Price’s strengths in fundamental research and long history of investing in emerging markets.

The fund will invest in undervalued companies in developing countries with prospects for improved performance and will have a relatively concentrated portfolio of 50-80 stocks.

“It will be an all-cap strategy using the MSCI Emerging Markets index as a primary benchmark. The fund will focus on stocks that have fallen out of favor or are no longer covered by the analyst community,” said Innes.

The strategy seeks stocks with downside valuation support in the form of a secure dividend yield or tangible assets.

Innes said that many cheap stocks have proven to be “value traps”, adding that to minimize the risk of buying “value traps,” the strategy identifies companies with “rerating catalysts”.

Examples of such catalysts include a management change, an improving economic environment, or any other development that could lead to a higher valuation.

The fund will have a broad geographic diversification across emerging markets in Europe, Latin America, Africa, the Middle East, and Asia, minus Japan.

Innes said that the fund doesn’t have any country or regional restrictions, adding that at the moment it has holdings in South Africa.

“The exposure will be driven by the bottom-up opportunity set. It really depends on where the fund manager is finding ideas in terms of undervalued companies and prospects of rerating,” she explained.

Sectors are also diversified, with current weightings favoring financial, telecommunications services, and consumer discretionary stocks.

“From a stock level, there are countries in Africa that are more exposed to commodities and energy, but actually in terms of the opportunity set of companies to invest in we can find a lot of businesses that are more domestic oriented names, which look interesting over the longer term,” said Innes.

T. Rowe Price has invested in emerging markets since 1985.

The asset manager has a broader coverage of the African continent with the T. Rowe Price Africa & Middle East Fund and the T. Rowe Price Frontier Markets Equity Fund, which has a large proportion allocated to Africa.

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