Equities

New Fund:

Global Consumer Stocks May Offer Stability and Growth Amid Volatility

December 6, 2016
This new fund currently is positioned cautiously, modestly favoring consumer staples.

Key Points

  • T. Rowe Price launched the Global Consumer Fund, the firm’s first fund dedicated entirely to investing in consumer stocks.
  • The fund is agnostic between the value and growth investing styles.
  • While the portfolio is global, the fund is currently overweight the United States.

This summer, T. Rowe Price launched the Global Consumer Fund, the firm’s first fund dedicated entirely to investing in consumer stocks. This portfolio includes a mix of high-quality consumer discretionary and staples stocks from around the world.

Investing across both consumer sectors enables the fund to potentially capitalize on opportunities in a variety of market conditions. The allocation to more stable consumer staples stocks may allow the fund to manage through negative market environments effectively, while consumer discretionary stocks may allow it to take advantage of more robust market environments.

The goal is to use the combination to deliver superior risk-adjusted returns over time. The fund’s global focus may allow it to benefit from some of the most dynamic consumer trends around the world, including rising urbanization, middle-class wage growth, and the growth of global and regional brands in new markets.

This broad consumer universe, unconstrained by market capitalization or geography, includes a wide diversity of high-quality stocks—a potentially fertile environment in which T. Rowe Price can leverage its global research capabilities.

Focus

The fund is agnostic between the value and growth investing styles. It opportunistically looks for stocks with idiosyncratic performance drivers that can provide both stability and growth to the portfolio—stocks that may perform independently of the direction of broader economies.

We are drawn to high-quality stocks with solid market positions, shareholder-friendly management teams, and a track record of above-average earnings growth. We also value pricing power through strong brands, differentiated business models, and dominant market positions.

The fund is currently fairly concentrated, with 50 to 60 holdings, allowing a high-conviction focus with reasonable diversification.

With the current economic expansion now into its seventh year, many consumer stocks are closer to a cyclical peak than a cyclical bottom. As a result, we are cognizant of the risk of a recession and are positioned accordingly, particularly in stocks with both offensive and defensive characteristics.

At the end of September 2016, approximately 56% of the fund’s equity holdings were in consumer staples and about 44% in consumer discretionary stocks. (We exclude automobile and components stocks because they tend to reflect the industrials sector more than the consumer sector.)

Within the consumer staples sector, holdings are concentrated in the food products, tobacco, and household products segments. Within consumer discretionary, our emphasis is on specialty retail, Internet, and leisure products (see Figure 1).

While the portfolio is global, the fund is currently overweight the United States, a bright spot compared with the rest of the world in terms of economic growth. Additionally, U.S.-domiciled companies typically have strong corporate governance and are fairly shareholder friendly. While the fund invests in emerging markets, we also find investing in Western multinationals to be effective in accessing those markets.

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The fund is subject to market risk, including possible loss of principal. Because it invests significantly in the consumer staples and consumer discretionary sectors, the fund may perform poorly during a downturn in consumer-related industries. International securities tend to be more volatile than investments in U.S. securities.