Webinars and video updates

0:03

Hello and welcome to our quarterly fund updates. My name is Anton Dombrovskiy
and I'm a Fixed Income Portfolio Specialist at T. Rowe price in London. Today, I will give you an update
on the T. Rowe Price Euro Corporate Bond Fund for the first quarter of 2025.

0:22

Let’s start with a market recap. While this update is really for the first
quarter of 2025, I'm pretty sure our listeners and viewers will also appreciate
some color on the most recent couple of weeks since the tariffs announcement on
the 2nd April.

0:42

In Q1, the spreads for investment grade continue to tighten through the quarter
and reached a multi-year high of 4 basis points somewhere in mid-March before
bumping up a little bit towards the end of the quarter. The yield on the index
remained relatively stable and oscillated around roughly 3.25%. The reason for this is
because the tightening of spreads was offset during the quarter by rising bond
yields through to the end of March.

1:23

As a result, in the first quarter European investment grade delivered roughly
flat performance close to 0 outperforming European government bonds, but
underperforming high risk asset classes like high yield and equities. Of course, the situation
changed in early April when President Trump announced the tariffs and the
volatility that followed.

1:50

As you can see on the left top chart, the spreads widened quite significantly
all the way to 127 basis points, having touched in mid-March only the lower
point of around 84 basis points. Therefore, quite a significant move.  Most importantly, as shown in the bottom left
chart, the yield remains stable. This stability is due to bond yields
decreasing in response to expectations of lower growth and potentially more
accommodative monetary policy from the European Central Bank, which has offset
the widening of spreads. This is why, at the time of this recording, European
investment-grade bonds at the index level have delivered a positive return of
1% in April.

2:42

As you can see in the bottom right chart, high-risk assets have been lagging
behind high-quality assets, such as European government bonds and
investment-grade treasuries. The key points to highlight are that the primary market here in
April initially paused, but since then reopened market liquidity. Liquidity has
improved also after initial worsening. However, it's important to note that we
are not entirely out of the woods yet and a significant amount of uncertainty
remains.

3:19

Before considering investment strategies and decisions regarding this asset
class, it's crucial to acknowledge the need to adapt to higher volatility
moving forward. This is due to the uncertainties and risks associated with
tariffs, the countries they affect, the reactions of those countries, and
ultimately the bilateral and multilateral deals that will be in place.

3:53

The key point to note is that tariffs are likely to create a headwind for
growth in Europe, which could lead to more accommodative monetary policy by the
European Central Bank and potentially result in a lower terminal rate. More
importantly it will have an impact on the costs of various credit assets.

4:17

It's important to emphasize that, up until the end of March, there were
positive flows into the asset class, with nearly $10 billion of inflows into
European investment grade. In April, however, we observed some outflows as
investors began de-risking and withdrawing funds from the asset class. Notably,
most of these outflows were rotations into shorter-duration products. Since
then, we've seen some stabilization.

4:44

We're currently seeing some inflows as investors are looking to capitalize on
attractive spread levels within the asset class. This asset class offers an
appealing yield and a decent amount of duration, which can be beneficial during
periods of volatility and risk-off scenarios, when typically falling government
bond yields enhance performance.

5:15

Let's move into the fund update, starting with our usual compliance
disclaimers. I'll leave them on the screen for a moment to give you time to
read through them. I want to emphasize that the fund, launched back in 2003, boasts
a track record of over 20 years. The investment process that we deploy in managing
this strategy is predominantly 70%-80% bottom-up driven. Importantly, the fund has
been managed by a stable team, essentially the same team since its inception in
2003, deploying a time-tested and consistent investment process.

6:05

Now back to the performance of the fund during the first three months of 2025.
The index, as you can see, delivered pretty much flat performance. The fund has outperformed the
index by 20 basis points, and this performance is net of institutional fees.
The key point to stress here is the environment of spread tightening, which
generally indicates a favorable environment for risk.

6:36

In Q1, the fund's positioning proved effective, providing a carry advantage
relative to the index. Most importantly, we had certain positions that outperformed the
broader index, which I will discuss further when we talk about attribution.

6:53

As you can see, in the medium term, the fund has consistently met its objective
of performance against the benchmark, demonstrating success over long-term
periods of about 20 years and 15 years, as well as over shorter-term periods. As a result, the fund has
consistently been in top quartile or even top decile within it's Morningstar
universe.

7:14

Looking at calendar years, the fund has delivered positive performance not only
during relatively benign and risk-friendly years like 2023-2024, but also in a
very weak and challenging year, such as 2022, from the point of view of
absolute performance. And certainly, during the year when COVID started back in
2020, the fund achieved its performance objectives.

7:45

When considering the key drivers of performance, the first point to emphasize
is the impact over longer periods of time.
As shown in the full year 2024 and the first quarter
of 2025, and when examining 3-, 5-, and 10-year periods, the main driver has
been security selection, particularly credit selection. This illustrates the
efficacy of the bottom-up process, where the main source of added value in the
fund's portfolio management comes from individual bond picking, rather than
from top-down or broader sector allocation.

8:23

This approach has proven effective in the first quarter. A continuing theme is
the strong performance of banks, not only from core European banks such as
Commerzbank, but also from some Eastern European banking positions that we
hold, particularly in the more junior parts of the capital structure. An Icelandic Bank, Landsbankinn, has also contributed
positively. Another positive factor was the communication company SES, which
benefited from corporate-specific and industry-specific news. However, it experienced
significant volatility during the quarter. On a net basis the company did contribute positively.

9:14

On the negative side, there were no significant large contributors. I would
like to highlight the credit beta hedging position that we have maintained for
several quarters. As spreads continued to tighten, we felt it was important to
have an offsetting position to manage periods of volatility. This is
particularly relevant because we hold modest exposures to high beta segments of
the market, and including crossover and certain investment-grade areas, which
can negatively impact the portfolio during volatile periods, such as those
experienced in April.

9:55

These hedges are designed to offset volatility. They were a negative
contributor in Q1 and in a few other quarters last year during risk rallies.
However, during risk-off periods, like in April, they contributed positively to
the portfolio's relative performance by generating alpha and offsetting the
volatility from higher beta positions.

10:23

The overall fund positioning reflects our strategy of maintaining duration and
maturity very close to the index. This is intentional, as we aim to avoid
significant deviations and instead focus on the bottom-up process. The yield is
typically 20 to 30 basis points ahead of the index, providing us with a carry
advantage. Despite having a similar credit rating, we maintain only a small
slice of the benchmark within the portfolio. In terms of names, this represents
less than 10% of the issues and just over 20% of the issuers by count.

11:07

The focus is on the BBB segment of the market as you can see on the slide and
we do hold some exposure to the investment-grade and BB areas, with a
significant portion of these holdings in crossover names.

11:21

The fund can hold up to 20% in investment-grade, but throughout its history, we
have rarely deviated from a single-digit position. This reflects our very
modest exposure and to the highest part of the investment-grade universe.

11:39

Sector-wise, our themes continue to be overweight in financials and somewhat
weighted in industrials. Financials have been gradually closing the gap in
terms of spread, especially in Q1. From a valuation standpoint, we are close to
being paid equally in industrials and banking. Considering the fundamental strength of the banking system and
attractive individual opportunities from a value perspective, such as European
banks, we continue to maintain our exposure and overweight position in the
banking sector.

12:20

In transportation, our positioning remains focused on airports
and toll roads, and we also maintain positions in insurance subordinated debt.
With the European Central Bank cutting rates and inflation moderating, the real
estate sector is becoming more attractive, especially following the tariff
announcement. Consequently, we've built a couple of percentage points
overweight.

12:45

On the underweight side, consumer non-cyclicals are considered high-quality
names with defensive characteristics. However, they currently present
relatively poor value. In consumer cyclicals, our primary underweight is in the
auto sector—not in auto manufacturers or transportation, but specifically
within consumer cyclical segments. This is where we maintain our underweight
position.

13:13

Moving forward in terms of sector adjustments, it's important to highlight
that, particularly in April, we've increased our focus on high-end quality.
We've maintained exposure to the most liquid names and generated additional
liquidity in our portfolios. This strategy is designed to anticipate potential
outflows and to be prepared to capitalize on opportunities that typically
emerge during such periods of market volatility.

13:41

This approach has worked very well. Historically, we have not experienced
significant outflows, and we were well-prepared when the primary market opened
and secondary market liquidity improved. This readiness allowed us to pick very
judiciously and carefully individual opportunities in the market. We
participated in new issues where we felt confident, considering both tariff and
growth outlook perspectives.

14:12

Autos represent a sector
where our view is quite nuanced. On one hand, it's widely recognized that there
is strong competition from China. Prior to the tariffs announcement, there were
already challenges, and the introduction of tariffs has generally made
conditions tougher for the entire sector. However, when examining individual
manufacturers, the landscape is quite diverse regarding the sources of their
earnings. Some manufacturers have greater exposure to Canada, Mexico, and the
US, while others are more focused on the European market.

14:45

This differentiation is crucial in times like these, where issuers not heavily
exposed to tariffs may experience sell-offs similar to those more affected by
tariffs. This scenario creates and opens up numerous opportunities to
potentially acquire interesting names at attractive valuations. Similarly,
regarding competition from China, some manufacturers produce in certain
countries, and specific niches within the auto sector may be more exposed than
others. This is where we can apply our bottom-up selection to identify the most
compelling names.

15:30

Let me walk you through the case for the
investment-grade asset class. We remain convinced that, over the long term, it
presents an attractive opportunity. Although spreads have moved away from the
lowest points observed earlier in Q1, they still test the lower range for the
sector in terms of spreads.

15:53

However, it's important to remember that yield is what matters in
decision-making, as it represents the carry you receive in this asset class.
The current yields, represented by the blue dots, are still at the upper end of
the historical range, making them very attractive. Additionally, spreads have
moved to a more appealing level from previously being very tight.

16:26

The importance of carry is highlighted by this table, where the number in
green, 3.2%, represents the carry you will receive. It's a simplistic
representation, but it's important to understand that if there are no changes
in the market—neither bond yields nor spreads move—this is the expected return
for the next 12 months.

16:46

For you to start losing money in your investment-grade holdings, bond yields
would need to widen significantly, or spreads would need to widen. It's
important to note that when spreads widen, in primarily a risk-off environment,
government bond yields often tend to decrease, offsetting some of the impact.

17:07

Most likely, you'll find yourself more on the left-hand side of the playing
field when spreads are widening. You can be relatively comfortable investing in
this asset class even now, as the level of carry, combined with the duration
tailwind, can help mitigate potential volatility arising from the spread side.

17:33

To recap, the fund has three main objectives to
maintain the core tenets of its philosophy, achieving regular performance
relative to the benchmark by focusing on bottom-up selection with an emphasis
on downside risk management. The fund has successfully met these objectives for
most periods. While we do not employ tail hedging in the fund, we are very much
downside risk aware within the portfolio. This approach proved effective in
April when we experienced significant volatility.

18:08

The fund has weathered very well during the whole period, maintaining high
liquidity profile, which is crucial during times like April.  This ensures that investors can rest easy
knowing when they need their money, we can always service the outflows and
maintain high liquidity and sufficient liquidity in the portfolio, allowing us
to both manage outflows and deploy capital into new opportunities as they
arise.

18:35

Lastly, to recap the key numbers for the fund: it offers a very attractive
yield of approximately 3.25% for the Euro investment-grade asset class. Our
fund typically provides a yield advantage of 10-20 basis points over the index.
With over 50 dedicated investment professionals working daily to manage your
capital and invest in this strategy, we leverage T. Rowe Price's full fixed
income platform to scout for opportunities and effectively manage risk within
the portfolios.

19:14

The fund has consistently delivered on its objectives from a performance
standpoint. Over the past 10+ years, it has continuously ranked in the first
quartile within the Morningstar universe, with on its five-year rolling
performance numbers.

19:32

This completes our webinar.
Thank you very much for your attention. I hope the update on the Euro Corporate
Bond fund was helpful and useful.
If you have any questions or require any further
information on the fund or on the strategy, please reach out to your T. Rowe
Price sales representative.

19:57

We will be back as usual next quarter with an update on the second quarter of
2025. It is very interesting and challenging times; we're looking
forward to speaking with you again.
Thank you and goodbye.

0:04

Hello and welcome to the Q1 review of the T. Rowe Price Global Focused Growth
Equity Strategy, a quarter where a lot of information and detail and volatility
happened. Obviously, given what we saw over Q1, we’ll try to process that, talk
about how the performance fared in that tough quarter, but also talk about positioning
for the rest of the year. I'm Daniel Hurley, portfolio specialist at T. Rowe
Price.

0:32

So obviously an incredibly volatile quarter given the news and the information
that we saw come through in Q1, relatively benign in terms of the market moves.
If you look at the aggregate portfolio and index level, you can see just down
1.22% in the quarter, and it's been pretty flat over the past six months. But
still actually markets are up almost 8% over the trading year. But it was quarter
where there was a lot of information and volatility beneath the surface because
as you can see here, some big moves across region, but also styles in terms of
what was driving performance.

1:13

Three big points to kind of call out on this page here. First one has been the
outperformance of China over the quarter and that was where you saw,
particularly in Q1, the news of DeepSeek but also over the past 12 months where
you've seen China which was written off as being uninvestable, suddenly become
very attractive once again and very strong returns on the back of that. The
second big news over the quarter, and it can see this on this page here, was
the German election outcome, which prompted this big expectations around fiscal
expansion from Germany, which would be a huge shift in terms of the outlook for
not just Germany, but also Europe. And that's driving some strong returns from
European equities over the quarter. And then the third big news file item was
obviously President Trump's inauguration back in January, but then some of his
policies which came to light as the quarter progressed. In February, the focus
was really around the department of DOGE headed by Elon Musk, which is going to
really cut down fiscal spending. And then in March, we saw heightened fear and
noise around tariffs, which we finally saw announced in April, start of Q2. So
a lot of volatility over the quarter driven by three big news events. And you
can see that related to some of the numbers here that we see on the page. That
point around value really outperforming, you can see just in the quarter, you
can see that value outperformed growth by just short of 12% in the quarter
alone for the world. And so there's some big extreme movements between growth
and value over the quarter given what we've seen over the past year, but especially
over the first quarter of the year.

3:08

And beneath the surface, you can see the sector positioning, some of those
returns that you see over the quarter, but also the year, really the leading
performance over the quarter were those defensive but also value sectors. So
energy, state utilities and financials and staples were very strong over the
quarter. And the real pain point over Q1 was really those growth sectors;
discretionary, which you see down by 7½% at the bottom here, but especially
technology, which was down almost 12% over the quarter because of that
development that we saw with DeepSeek and some concerns around the valuation
that we saw for some of those Magnificent 7 companies. The one year number has
been much the same. Really you can see some of those defensive value sectors
leading away top of the page and then some of those more cyclical but also
growth sectors at the bottom. One to call out I think, it's very interesting
just to see a very strong outperformance of financials that we've seen over the
past 12 months now and given this higher rate environment that we're
experiencing. But also some very interesting developments in terms of that
fiscal space that we see in Europe, but also the US as well there.

4:27

I mentioned around that big development with DeepSeek and how that had the
impact on AI. The big laggards really, and important because of the weight of
these names in the index, has been the Magnificent 7. There's been this extreme
reversal over Q1 from the Magnificent 7, some that we largely expected given
where we saw just this big exuberance around the Mag 7 and U.S. equity growth
stocks in particular. But this has been really expedited by those developments
we saw with DeepSeek in the quarter. The laggard really, Tesla, very strong outperformance
in Q4 last year given the election outcome, also some strong results for
company, but a strong reversal there. And then the big one, obviously DeepSeek
and how that impacts not just NVIDIA in infrastructure space, but also those
hyperscalers which have spent phenomenal amounts of capex on GPU's from NVIDIA
as well. Maybe that might be futile given what we see in terms of what DeepSeek
have proven over the quarter.

5:40

In terms of returns that we saw over the region, two big points for you to call
out here. The first one, obviously China, which I mentioned, very strong
performance from China over the quarter, but also the year that we see over the
trading quarter in one year. But also Europe, very strong performance from
Europe and in particular France, Germany and Italy. And really the main drivers
of that in terms of those indices returns has been financials in that space
because of this potentially higher rate environment we're expecting to see from
European economies and the central bank, because of this fiscal spending pick
up we're expecting to see. So that is a very interesting development. And I
think for us, this change in terms of fiscal plan from Germany has been the
biggest and most significant development we've seen over the quarter, bigger so
even than DeepSeek and President Trump. And to a certain extent, I think that's
the big development for us that we've seen and changed our position within our
portfolio.

6:44

From a valuation perspective, not too much has really changed here. It has
narrowed just particularly given Europe moving up to being around it's 10 year
average, but US is still looking pretty expensive compared to its 10 year
average. China again has moved up to being on average after being very, very
cheap for some time now. Brazil really only the one that is a standout in terms
of being very cheap on current valuations compared to its 10 year history.

7:18

In terms of performance, we'll talk about that shortly. We'll talk about the
performance of the quarter and the attribution as we look to the previous
quarter, but also what's going to happen in the year ahead.

7:31

So it was a difficult quarter for us given that extreme rotation that we saw
between growth and value and value outperformed by 12% in the quarter alone. So
obviously where we have a growth bias in this strategy, that value rotation,
that extreme value rotation has been a big headwind for us. Looking forward,
the team is working incredibly hard to make up for that tough period of
performance over the past 12 months now. But where we see lots of volatility in
the markets, we're seeing great opportunities to add, pick up some alpha there
in terms of that, in terms of that space. In terms of what's happening, clearly
that growth underperformance when we saw this rotation because of, prompted by
DeepSeek has really seen that IT was the biggest pain point over the quarter. Some
big underperformance from some of those AI infrastructure parts of the market
given what we saw with DeepSeek over the quarter and some concerns that we
would see a decline in terms that terminal value from some of those AI
infrastructure names like NVIDIA obviously, but also Advanced Micro Devices,
TSMC [Taiwan Semiconductor Manufacturing], where we see potentially reduced capex
because we can build AI models and train them for much cheaper than we
previously thought, would see less capex to go into those AI infrastructure
names. And so that's why IT was the kind of biggest pain point over the
quarter. And so a sharp reversal there. And within financials, what has been
interesting there, and a bit of a headwind for our strategy, has been where
you've seen some concern around those U.S. banks because of DOGE's cuts in
terms of fiscal spending. And maybe you see that bit of a headwind for US GDP
growth. And that's meant that some of those US financials have been under pressure.
But also where those European banks have really been outperforming. And because
of this German fiscal expansion, some of those German and European financials
have been incredibly strong because of this big investment spend we’re expected
to see from Germany, but also across Europe. In terms of contributors, being
underweight Tesla was the biggest contributor to us, but also some strong stock
selection names in terms of Richemont, which we owned in that space, which was
a very strong performer over the quarter, in terms of European luxury.

10:08

From a regional perspective, being overweight Europe helped us over the
quarter. But obviously being overweight some of European growth names and being
underweight European value wasn’t enough to offset that. Similarly, within US,
being overweight US growth has been a headwind given that sharp reversal that
we've seen over the quarter.

10:33

In terms of positioning going forwards, two big points really that I think where
we've really changed our positioning with. One would be financials and then the
second one would be IT. Just in terms of that IT overweight that we had at the
end of the year, we've reduced that given what we've seen with DeepSeek. We
were already underweight NVIDIA coming to the year just on valuations and what
a strong run the company had over the past three years. We further reduced that
underweight to NVIDIA and went to neutral on IT given what we saw with DeepSeek.
Just where DeepSeek have proven that you can build, train and run AI models
much cheaper, much more efficiently than previously thought, we think we're
going to see less capex and investment in terms of the AI infrastructure names.
So we reduced our exposure to AI infrastructure companies on the back of what DeepSeek
are proving. We're still overweight AI software companies, software companies
that benefit from AI, because we think that that roll out of AI is going to
increase as we see more and more companies adopt and integrate AI models and
services because it's going to be cheaper to build out going forward. And so
the shift and exposure within AI for our portfolio has changed over the quarter
given what DeepSeek have proven. Similarly, we have increased our overweight to
financials over the quarter because of this change that we're seeing in terms
of interest rates being higher for longer. But also this German fiscal
expansion is very significant. And so there's going to be a number of European
banks that will benefit from greater investment and fiscal spending that we're
going to expect to see across Europe. We've also on that point increased our
overweight to Europe and further increased our underweight to North America
over the quarter.

12:33

In terms of Magnificent 7, we were slightly underweight coming into the year in
terms of Magnificent 7 and we've increased that over the quarter. So you can
see here, we're underweight Magnificent 7 names in the portfolio the end of Q1,
and we're only overweight two of those seven names now. Just overweight Meta
and Amazon, and we're underweight five of them. And a large underweight to
Apple where we're concerned about the growth and exposure to China, potential
tariff implications there. NVIDIA given valuation to a certain extent but also
just we maybe see a bit of reversal given DeepSeek and then Alphabet, which
could potentially be challenged by the likes of ChatGPT and how that could
really disrupt search base in terms of that.

13:22

Really just in terms of the performance going forward and where we're expecting
to see real opportunities, there's a lot of volatility at the moment. We think
we're going to continue to see some volatility over the coming quarters as we
start to digest and really understand what's going to happen with tariffs and the
implications there. So we still have exposure to what we call portfolio
insurance names. So some defensive companies like Unilever which will help us
be defensive as we see volatility. But really, we're using these periods of
volatility where we see the VIX spike to trim some of our portfolio insurance
names that helped us to protect some alpha in Q1, to trim some of those
portfolio insurance names and add to some real opportunities that we think
about on a three-five year basis. You can see some of those themes on the page
here. Consumer names that we see with the likes of Richemont and Carvana, which
is second hand cars on a platform in the US. We think that's going to be a growth
stock that's going to continue to take market share in that space. In energy,
we've seen a big pull back in terms of oil prices, but we do see a shift in
terms of consolidation across the energy space, in particular some of
geopolitical shifts that we're seeing across energy means that we think that
we're going to start to see some real pockets opportunity in energy. GLP-1s, we've
seen some very positive and encouraging developments in Q2 so far. Just results
from [Eli] Lilly in terms of the next generation of GLP-1 drugs in terms of
that oral space. And as I mentioned, AI continues to be a big theme. It has
shift in terms of where we've seen the real opportunities right now. We're less
exposed to AI infrastructure names like NVIDIA and TSMC though we still have
exposure to them. Really, where we've been adding to our exposure in our
portfolio, it's into some of those companies that benefit from AI and the
software build out there. So the likes of Meta, Amazon, SAP in Germany. We
think that's going to be some of the most interesting parts as this AI trade
develops and shifts from being really exposed to infrastructure, to a bit more
towards software at this point in the AI story.

15:55

That's it for a Q1 review. A lot to go through in just 15 minutes in terms of
what happened in the quarter. But we're seeing lots of opportunities obviously,
given the volatility we're seeing right now. Very excited by the portfolio and
looking forward to adding to some alpha as the rest of the year develops. And
with that, I’ll thank you for your time.

April
2025

Michele Ward, Portfolio Specialist

0:04

Hello and welcome to the first quarter update on US Smaller Companies Equity. It's
been an eventful quarter to say the least. And so much has happened even since
the end of the first quarter that we've got a lot to cover today. And thank you
very much for joining us.

0:20

Sentiment, which was going the right direction has certainly pulled back,
whether you're talking to consumers or to companies. And if you extended these
numbers for the period into April, you'd see down ticks on both sides. Consumer
expectations for unemployment have ratcheted up and for the expectations
regarding future inflation. That's causing consumers and companies to have a
lot of uncertainty, some cases that might be causing them to pull orders
forward. So it's going to be very difficult to assess the true trajectory of
the economy in the next couple of readings because sentiment's one thing, it's
what consumers, what companies are doing that really matters.

1:04

Inflation is the big ticket that we see here. And the question is, will tariffs
be a one time shift in inflationary expectations, a reality or is it something
that's going to be an enduring one? We don't know. Companies don't know. Consumers
don't know. A lot of this has to do with individual experiences, buying
experiences. How much substitution effect is there? Will consumers bear the
entire brunt of the tariffs or will there be some sort of shared burden? Lot of
questions, not a lot of answers as of yet. And so we're talking with companies
as we speak. The good news to some extent is that these small companies have
had some recent experiences with inflation. Remember back to the COVID period when
the inflation was prompted by supply chain disruptions. So generally speaking,
we know which companies drew do truly have pricing power and companies know how
their pricing power was received in the past. That gives them a little bit more
of a sharpened muscle to address this issue head on as opposed to being
reactive. And so we'll probably see once we get some clarity on where things
are going with tariffs, companies move more aggressively than they would have
perhaps in the past to address this.

2:25

Labor market’s a big question mark. Clearly there is an expectation among
consumers that there will be a softer economy ahead and with that rising
unemployment. Yet we're also seeing down ticks in immigration. So how those two
offset will probably vary from industry to industry. Some industries far more
dependent on immigrants for their labour force, things like construction,
trucking, nursing, being perhaps more affected by one side of that equation
than the other.

2:56

The headlines have been filled with all kinds of things coming out of
Washington. I would say tariffs are dominant in the last couple of weeks. But
all of these have created certain aspects of uncertainty. And that's not, it's [not]
a good thing in terms of the economy. That uncertainty is causing companies to
take a pause, for example, in making capex decisions. Who can make a big
commitment of capital when there are so many question marks out there? And so
that's one of the biggest factors that causes individual companies, individual
analysts, individual portfolio managers here at T. Rowe Price to generally tick
up their expectations for recession. There's no house view at T. Rowe, so no
single number comes into play here. But generally speaking, when we were
thinking about the upside and the downside opportunities for individual
companies, it's with a view that there is a slowdown in the economy that's
likely to happen in the balance of 2025.

4:00

The tariff impact is really hard to imagine when you think about the last few
decades, ones characterized by increased globalization. This takes us back to
1930s and while there has been some pull back in the tariff picture since the
end of the 2nd of April – Liberation Day as it as it was called – the effective
tax tariff rate would then go from about 22½% down to about 17%, implying the
changes in the conversations with China as well as the 90 day pause. But 90 day
pause means things could go back up as well. And so when you think about where
this tariff impact, it comes most heavily on consumer goods, that impact is
more like 27% where raw materials at the other end of the spectrum, only about
9%. So a lot of impact, it's a lot higher than what we had seen before. And
again, the question of who's going to bear it, how it's going to shake out,
still a lot to come.

5:10

With all of this uncertainty, I think a lot of investors are tempted to run for
the hills whatever the safest asset they can find looks really attractive in an
environment of uncertainty. The challenge is, it's, well, that's the
temptation. It's the absolute worst thing to do. Warren Buffett famously said
be fearful when others are greedy and greedy when others are fearful. And this
is a time when a lot of people are fearful and it's the ideal time to take a
pause and look at how you can like Dave Giroux, our CIO at T. Rowe Price
Investment Management, like Matt Mahon, the portfolio manager for the strategy,
find opportunities for the long term, add to your risk profile in times like
this. That's usually what will benefit long term investors best. And when we
redo this kit for the June quarter, we're going to have a new top ten day best
day in the form of April 9th when this index was up 9.3%. So that's not yet in
a recession but when you look at the numbers that are at the bottom of this
page, remember that nine out of those best 10 days happened during recession. So
recession fears can cause people to pull back, it usually means that they will
miss out of some of the best days in the market.

6:33

On a relative basis, smaller companies are somewhat more insulated from the
tariff impact than their larger counterparts. Larger companies are more
globalized in their networks. And remember, this portfolio does focus more on
the US economy even than the Russell 2500 index, with at least 80% of the
revenues coming from the United States. The S&P 500 has benefited over the
last decades of globalization in terms of having better margins. They've had
lower wage rates, moving manufacturing offshore, more tax advantages for moving
IP [intellectual property] offshore. If tariffs cause that advantage to go
away, that will again hit the larger companies more than it will the smaller
ones.

7:21

The valuation set up hasn't changed. Even though the valuations for some of
those Magnificent 7 companies have indeed pulled back, they are still quite
expensive relative to their smaller counterparts. And so the valuation argument
remains the same. And if you look back to these individual periods of time when
small caps outperformed by significant amounts, remember that there were two
recessions during that decade after December 1973 and another big recession,
the great financial crisis, in the decade following January of 2000. And so
small cap stocks, while they are often seen as of concern during a period of
recession, they can do quite well if you take the long road.

8:09

As we think about this strategy for the first quarter of 2025, you'll see that
the portfolio is very similarly positioned as it has been in the past. We did
see an uptake in our weight to information technology stocks. Matt's been
buying names in the electronic equipment space as well as software space,
adding to those names as they have pulled back. You'll see the turnover in the
portfolio has ticked back up. Volatility has created a lot of opportunities and
there are plenty of situations in which companies, good and bad have come down
together in sync. And so we've been trying to find the relative winners for the
next three to five years and add to those names as the market has been quite
volatile.

9:04

Performance for the quarter, a little bit ahead of the benchmark. That is
helping a little bit to our one year number. Five years has gone to a negative.
I'll note that we have rolled off our single best quarter in history. That
first quarter of 2020. That downdraft in the COVID experience was our best
quarter in the strategy’s history and that's now come out of our five year
number and it's a big impactful number since that quarter we were up almost 900
basis points relative to the benchmark.

9:37

When we think about where we're getting our winners and losers out there are some
diverse reasons for a positive performance. Our single biggest performer has
been a company called Royal Gold that is a gold streaming company. So what they
do is provide financing for gold miners. They don't take the risk of the mines
themselves, but they just benefit from the revenue stream that comes as those
miners mine the gold. Gold and gold prices have gone up so Royal Gold benefits.
Doximity continues to have a rebound in its post COVID experience. They provide
essentially LinkedIn for doctors and are useful for pharmaceutical marketing. EQT
levered to natural gas continues to do well. OGE Energy is a utility. Utilities
benefit when the market gets nervous about things, but OGE also lives in or
exists in a part of the country which has a very attractive growth in its rate
base. So it's a better than average utility. And Beacon Roofing Supply was
taken out by a competitor and so their acquiring company is looking to provide
a nationwide distribution system for building products. And Beacon Roofing is
their first acquisition and it's a great platform for them to build upon. So
nice, nice take out. On the downside, you'll see a fair familiar name if you've
listened to these videos before. Bruker has been a detractor for a while. We
remain very convinced that this is a company that is providing essential tools
in drug discovery at exactly the nexus of a lot of the most cutting edge
research, proteomics. Their CEO’s in there buying stock as the stock has been
weak. And so we feel really good about the management team, the intellectual
property, the balance sheet of this company. And so it's frustrating that they
have yet to show the full benefit of that but with a three to five year
outlook, we're pretty confident. Steve Madden’s gotten caught up in a lot of
the tariff issues. They source over 50% of their goods, shoes from China and so
they will certainly be impacted with whatever trade war ensues with the US and
China.

11:56

When we think about some of the things we're doing in the portfolio, as I
mentioned, we have been adding two names in the technology space. Workiva is
one of our larger new acquisitions. They make software for compliance reporting
and ESG reporting. When the EU decided to pull back some of its requirements
for ESG reporting for smallest, the smallest companies out there, Workiva stock
took a hit. But it really doesn't change their total addressable market quite
as much as the stock market reflection of that event did. So we decided to
build a position quite quickly. Cognex, a name that has been in the portfolio
in the past, it's one that provides machine vision systems that help in
logistics and manufacturing. They'll benefit if we see the continuance of the reshoring
trend that's been in place since 2021. We have seen Acuity come into the
portfolio. They're actually one that's going to benefit on a relative basis
from tariffs because their two main competitors in the lighting business do far
more manufacturing overseas. They're much more US focused. And so they have a
very favourable backdrop, a company that is setting up for a structurally
improved gross margin over the course of the coming couple of years. Most of
the sales we have made in the quarter have been ones where we're taking
profits. We found all these great new opportunities for names to come into the
portfolio. You got to source the cash somewhere. And so what we have done is
take profits out of names that have done relatively well over the past several
years, names like Assurant, Doximity, West [Pharmaceutical Services] and Graco.
FTI Consulting is a bit of a different story. They're a company that provides
consulting services and saw one of their key consulting teams lifted out by a
competitor. It really changes the dynamics for the company and the forward
trajectory doesn't look nearly as attractive as it used to.

13:54

So when we think about the coming quarter and as I mentioned earlier, and as we
all know, a lot has changed since the end of March, there is the importance of
at this point of staying close to the companies and that's what our analysts
have been doing. Companies may not know much more than we do at this point
about what the impacts of tariffs will be because there are so many changes
coming out of Washington so quickly that they are still assessing this as well.
But identifying what the best case, worst case possible outcomes would be,
assuming perhaps a slower economy in the year to come, we're still looking and
seeing plenty of great opportunities as we look out three to five years. Some
cases that three to five year outlook is a lot more certain than what we're
expecting to see in the next three to five months. In this broadly uncertain
landscape, the analyst team has been spending a lot of time with Matt, Matt's
been spending a lot of time out on the road talking to companies and adding to
risk in this kind of environment is key. Our beta has come up to about 0.9. That's
a little higher than it's been recently, but it should allow us to participate
more as the market recovers. And typically, when you look at what small cap
stocks will do in terms of a decline in the first part of a recession, we've
already seen more downside in the small cap part of the market than is typical
in a recession, the first half of a recession anyway. And so when small cap
stocks usually start to outperform, it's midway through that recession, so we
want to make sure we are positioned to participate in that upside when it does
indeed happen. Not that we're expecting any quick V-shaped recovery. There's a
lot of uncertainty out there. But this portfolio is positioned with companies
that have strong balance sheets, pricing power, that are going to be able to
take advantage of the uncertainty in the market that we expect to see as we go
through 2025.

15:56

Please reach out to your relationship manager if you'd like to add time to talk
with any other questions that you might have. We're looking forward to seeing
you and your colleagues in the months to come.