This Foreign-Stock Fund Has All the Makings of a Good Core Holding
Silver-rated T. Rowe Price Overseas Stock boasts below-average costs and a personnel edge over its peers.
Fund Spy
Mentioned: T. Rowe Price Emerging Markets Stock (PRMSX)
, T. Rowe Price European Stock (PRESX)
, T. Rowe Price International Stock (PRITX)
, T. Rowe Price New Asia (PRASX)
, T. Rowe Price International Value Eq (TRIGX)
, T. Rowe Price Overseas Stock (TROSX)
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T. Rowe Price Overseas Stock's many strengths remain intact; it retains its Morningstar Analyst Rating of Silver.
This foreign large-blend fund has two inherent advantages over the majority of its rivals. First, like most international-equity offerings in its family, it has below-average costs and thus enjoys a performance head start over most of its peers year after year. Second, T. Rowe Price is an excellent parent, and it has had considerable success with its actively run international-equity funds. (Eight of the firm’s nine other active international-stock funds with Analyst Ratings are Morningstar Medalists.)
This fund also has a personnel edge over the most of its peers. In addition to running this fund since it opened 12 years ago, Ray Mills has managed a foreign large-blend separate account since it opened in early 2000 and delivered good long-term total and risk-adjusted returns there, so he is more seasoned and skilled than the majority of foreign large-cap skippers. Further, Mills has T. Rowe's well-respected squad of more than 160 sector and regionally focused equity analysts to draw upon for investment research ideas as well as the firm's other international-equity managers. This group of managers is quite experienced and talented overall.
Mills is relying on the same sensible and repeatable process here as he has employed successfully at his foreign large-blend separate account. Specifically, he is making full use of the style spectrum by buying a healthy mix of traditional bargain stocks, classic core holdings, and mainstream growth names. He is allowing his selection to lead to moderate country and sector over- and underweightings while avoiding oversized ones, and he is paying ample attention to issue diversification.
Finally, although Mills has posted unexceptional results with this process during the past year’s tumultuous climate, he has earned good results with his approach in various conditions in in the past. This fund, therefore, boasts earned superior three-, five-, and 10-year, and since-inception total and risk-adjusted returns.
Process Pillar: Positive | William Samuel Rocco 03/19/2019Ray Mills pursues companies with fundamental strengths and long-term prospects that are better than their stock prices indicate. He looks for such attributes as accelerating earnings and cash flows, healthy financials, barriers to entry, and managements with sound strategic and operational vision. When it comes to valuations, he examines a variety of earnings, cash flow, sales, and asset-based metrics; he emphasizes different metrics for different industries and stocks; and he evaluates them from historical, relative, and absolute perspectives. Mills executes this strategy in a patient manner. Annual turnover, in fact, has averaged just 15% over the past decade. He normally spreads the portfolio across 140-180 names. And he consistently makes full use of the style spectrum. Indeed, the portfolio always includes a number of deep-value stocks and a set of fast growers as well as a plethora of classic core equities. Mills allows his stock selection to drive the portfolio's sector, country, and regional weightings, but he tends to avoid extreme over- and underweightings and cannot deviate more than 10 percentage points from the weightings of this fund's MSCI EAFE Index benchmark. Although that index does not include any emerging-markets stocks, he has the freedom to invest in such names and regularly puts around 4%-8% of the portfolio in such issues. This approach is sensible and repeatable, so this fund earns a Positive rating for Process.
This foreign large-blend fund remains quite diversified by issue. It owned 159 stocks and devoted 18% of its assets to its top 10 holdings as of Dec. 31, 2018, versus 100 equities and 22% in the top 10 for its typical actively run rival and 919 stocks and 12% in the top 10 for its MSCI EAFE Index benchmark.
This fund has an assortment of moderate sector overweightings and underweightings. It owns 37 financial-services stocks, including top-25 holdings Munich Re MUV2, AXA CS, BNP Paribas BNP, DNB DNB, and Tokio Marine. It has a 24.0% weighting in that sector overall versus 18.9% for its average peer and 19.3% for the MSCI EAFE Index. It also has modestly more exposure to technology and healthcare stocks than both its typical rival and the benchmark. Conversely, manager Ray Mills hasn't found all that many attractive opportunities in the basic-materials, industrials, and consumer-defensive sectors, so this fund has somewhat less exposure to all three sectors than its average peer and the index.
This fund also has modest overweightings in the United Kingdom, Norway, and certain other markets as well as moderate underweightings in Spain, Hong Kong, and certain other markets. It has a 8.1% stake in emerging-markets stocks, whereas its average peer has a 10.2% position in such equities and the index has no exposure to such names.
Performance Pillar: Positive | William Samuel Rocco 03/19/2019This foreign large-blend fund has posted unexceptional results as most international markets gyrated their way to sizable losses over the past 12 months. Several consumer-defensive and other picks by manager Ray Mills performed well during the period, but a number of his technology and other holdings struggled. All told, this fund fell 7.2% for the year ended Feb. 28, 2019, while the typical foreign large-blend fund dropped 6.5% and the MSCI EAFE Index declined 6.0%.
Mills' stock selection has been on the mark in various investment climates in the past, which has helped this fund earn superior three-, five-, and 10-year and since-inception returns. For example, it delivered a 10.7% annualized return over the 10 years through Feb. 28, whereas its typical peer posted a 9.2% annualized return, and the MSCI EAFE Index produced a 9.6% annualized return during the period. It earned a 2.4% annualized return since opening at the end of 2006, whereas its typical peer produced a 1.9% annualized gain and the benchmark posted a 2.0% annualized gain during the period. It also delivered fairly average volatility along the way, so it has superior Morningstar Risk-Adjusted Returns over all four periods.
Because of its medium- and long-term success, this fund merits a Positive Performance rating.
People Pillar: Positive | William Samuel Rocco 03/19/2019Lead manager Ray Mills has managed this foreign large-blend fund since it opened at the end of 2006. Mills, who is based in Baltimore and has a doctorate in aeronautical and astronautical engineering from Stanford, joined T. Rowe Price in 1997 and started off as a generalist in equity analysis. He managed Neutral-rated T. Rowe Price International Value Equity (TRIGX) from December 2002 through June 2010 using a similar but more value-oriented strategy and produced good results there. He has 21 years of investment experience overall.
Unlike some T. Rowe Price skippers, Mills does not work with an associate portfolio manager. He collaborates with the firm's 14 other foreign-stock managers, who have 14-27 years of investment experience each, including the skippers of Bronze-rated T. Rowe Price International Stock (PRITX), Silver-rated T. Rowe Price European Stock (PRESX), Silver-rated T. Rowe Price Emerging Markets Stock (PRMSX), and Bronze-rated T. Rowe Price New Asia (PRASX). Mills also makes extensive use of T. Rowe's team of more than 160 sector and regional specialists spread across six offices around the world.
Because of Mills' considerable investment experience and skill, plus the size and strength of his support team, this fund earns a Positive People rating. (The Feb, 25, 2019, report on this fund mistakenly listed the people rating as Neutral.)
Parent Pillar: Positive | 10/01/2018T. Rowe Price remains best-in-class, earning a Positive Parent rating. The firm's success is rooted in its fundamental approach to active management and deep analyst bench. Investors benefit from managers' generally long tenures at the firm, well-planned manager transitions, reasonable costs, and attention to capacity. Many top executives, including CEO Bill Stromberg, rose from the analyst ranks, which helps keep a focus on investors at the forefront, even as the firm expands its distribution footprint outside the United States and bolsters its technology resources. The investment side has received resources, too. The multi-asset team has grown in size, reflecting its importance to the firm's future beyond the esteemed target-date lineup. Despite headwinds facing active managers, T. Rowe remains a powerhouse within U.S. and international equities. Fixed income is an area to watch. Several long-tenured managers have recently retired or will do so soon. Sound succession planning has smoothed the transitions, but the firm needs to ensure the bench remains deep. While high-yield and municipal bonds remain bright spots, the fixed-income team has not yet shown sustainable success in inching beyond its conservative bottom-up approach at some core strategies. Plus, the firm's foray into alternatives is unproven. Overall, though, T. Rowe Price retains the sensible and investor-focused culture that has long driven its success.
Price Pillar: Positive | William Samuel Rocco 03/19/2019
The fund earns a Positive Price rating because of its attractive cost structure. This no-load share class, which has roughly 60% of the assets, has an expense ratio of 0.83%, 17 basis points below the median for no-load foreign large-cap funds; ranks in the 31st percentile; and receives a Morningstar Fee Level of Below Average. The Institutional share class, which has roughly 38% of the assets, has an expense ratio of 0.67%, 20 basis points below the median for institutional foreign large-cap funds; ranks in the 22nd percentile; and gets a Below Average fee level. The tiny Advisor share class has an Above Average fee level. This fund's moderate annual turnover rate serves to limit trading costs.
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William Samuel Rocco does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.