Value Rotation Catapults T. Rowe Price Fund to Top From Bottom


Like many value-style investors globally, Ernest Yeung has had a couple stellar days recently and is finally feeling relieved after what he calls a “really really painful period.”

A seismic rotation into beaten-down shares has pushed his T Rowe Price Emerging Markets Discovery Stock Fund from the bottom to the top in performance rankings. Yeung, whose fund returned 13% and outdid 98% of peers over the past month, said sensible containment measures and further developments in coronavirus vaccine, treatment or testing methods will continue to boost laggards. In some cases, the absolute returns could easily reach up to 30% to 40%, he said.

Value Rotation Catapults T. Rowe Price Fund to Top From Bottom

“My feeling is not tied to the performance -- it’s just been two weeks so I won’t be carried away -- but I’m definitely feeling relieved because we have turned a theory into reality,” Hong Kong-based Yeung said, referring the latest breakthrough in vaccine developments. “We are not going down in the dark anymore.”

The pandemic has put a spotlight on stay-at-home beneficiaries, which are often growth stocks that have already been riding on low interest rates and a growing penchant among investors for disruptive technologies. Even with the recent speculator comeback in the cheaper cohort, growth shares have outperformed value by the most in history this year globally.

MSCI EM Value Index rose 0.5% on Wednesday in a third straight day of gain.

Further Upside

Now, with both Pfizer Inc. and Moderna Inc. announcing promising clinical trial results for their vaccines, Yeung’s bets have finally paid off. He sees further upside in cyclical industries such as banking, travel and cosmetics in emerging markets, as many of them traded at decade-low valuations. Some tourism-linked internet companies are also attractive, he said.

And it doesn’t need an elimination of virus for those stocks to perform, as experiences in regions like Hong Kong have already proved that keeping a certain degree of social distancing and some sensible containment measures is enough for economic activities to pick up, said Yeung.

Tough Year

The widening divergence between growth and value shares until recently had given Yeung a tough time as his fund started to accumulate stocks benefiting from a fading coronavirus pandemic soon after the March swoon. But the market since then has largely been dominated by a small number of growth stocks, he said in an interview on Monday.

His $954 million fund, formerly known as Emerging Markets Value Stock Fund, went through a name change in 2019 to remove the reference to value. The reason was to better align the fund’s name with its investment objective, the company said.

According to data compiled by Bloomberg, equity-focused funds with “value” in their description have underperformed those branded with the word of “growth” by about 17 percentage points this year.

Real Comeback

While Yeung remains focused on stocks benefiting from a pickup in economic activity, he said it needs more than a vaccine for value stocks overall to have a meaningful return.

He is watching closely whether governments the world over will continue to pump money into the people’s pockets or businesses directly, which may lead to reflation and become a game changer for cheap stocks.

©2020 Bloomberg L.P.

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