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GLOBAL EQUITY INSIGHTSDelivering More Than Factor Exposure

UNEARTHING EXCESS RETURNIN A LOW-GROWTH WORLDKurt Umbarger, CFAPortfolio Specialist, Global Equities

FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

Global Environment—Yes, We Are Decelerating

MAJOR MARKET THEMES

KEY MARKET RISKS

Rising Political Tensions

Fed Policy Uncertainty

Global Liquidity Receding

Broad Equity and Credit Market

Weakness

Earnings Outlook Weakening

Historically Long Economic Cycle

Global Economy Slowing

Inflation Remains Modest Despite

Tight Labor Markets

Trade Wars

Impacts of Fading Liquidity

Earnings Disappointments

Sharper than Expected

Slowdown in China

Monetary Policy Missteps / Fed

Overshoot

Impacts of USD Strength / Potential

CNY Weakness

Increase in Regulation of Technology Companies

Increase in Political Uncertainty

As of December 31, 2018

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COMPOSITE PMIGlobal PMI (RHS)USEuro AreaChina

Economies Are Slowing

Source: Left chart IHS Markit. Right chart International Monetary Fund October 2018 World Economic Outlook database, IMF/Haver Analytics, and T. Rowe Price.

0.0

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8.0

World DM U.S. Euro Area Japan EM ChinaP

erce

nt

Ch

ang

e

REAL GDPAs of September 30, 2018

20172018E2019E

Jan

‘14

Apr

‘14

Jul ‘

14

Oct

‘14

Jan

‘15

Apr

‘15

Jul ‘

15

Oct

‘15

Jan

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Jul ‘

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Jul ‘

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Oct

‘18

3

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

2.4%

2.6%

2.8%

Jan-

18

Apr

-18

Jul-1

8

Oct

-18

Jan-

19

Apr

-19

Jul-1

9

Oct

-19

Jan-

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Apr

-20

Jul-2

0

Fed

Ta

rget

Rat

e

Fed Funds Target RateFed Fund Futures as of 9/28/18Fed Fund Futures as of 11/30/18Fed Fund Futures as of 1/3/19

*Median of participants forecast in the September 27, 2018 Federal Open Market Committee Summary of Economic Projections.Sources (left chart): [Federal Reserve Board]/Haver, T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved.Sources (right chart): T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved., [U.S. Federal Reserve Board, Statistical Office of the European Communities, Cabinet Office of Japan, U.S. Congressional Budget Office]/Haver.

FUTURES MARKET VS. FOMC PROJECTION OF FED FUNDSAs of January 3, 2019

LIQUIDITY FADINGYear Over Year % Change in M1January 2008 to October 2018

-5%

0%

5%

10%

15%

20%

25%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Y/Y

Ch

ang

e in

M1

USAJapanEuro Area

Liquidity Is Fading

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Begs the Question, How Long Can This Last?

Past performance is not a reliable indicator of future performance.Sources: T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved., [Bureau of Economic Analysis]/Haver, S&P. See slide 25 for additional disclosures.

U.S. ECONOMIC EXPANSIONSQ4 1949 to Q3 2018

S&P 500 BULL MARKETSJanuary 1958 to December 2018

Current Expansion: 111 months,

23.33% growth0%

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60%

0 50 100 150

Rea

l GD

P G

row

th

Months

Current Bull Market:

118 months, 241% price appreciation

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400%

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Pri

ce

Re

turn

Months

How Much Farther Can The Bull Run?

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Prudence Suggests Tempering Expectations

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-50% 0% 50% 100% 150% 200% 250%

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ille

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Subsequent 5-year cumulative price return

Past performance is not a reliable indicator of future performance.*Periods more recent than 5 years cannot be included.**Periods more recent than 10 years cannot be included.Sources: T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved. Standard & Poor's, and Robert Shiller. See slide 25 for additional disclosures.

SHILLER CYCLICALLY ADJUSTED PE VS. SUBSEQUENT 5-YEAR S&P 500 PRICE RETURNJanuary 1950 to September 2018*

SHILLER CYCLICALLY ADJUSTED PE VS. SUBSEQUENT 10-YEAR S&P 500 PRICE RETURNJanuary 1950 to September 2018**

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Subsequent 10-year cumulative price return

Correlation: -0.65

September 30, 2018: 32.9September 30, 2018: 32.9

Correlation: -0.44

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1 Year 3 Year 5 Year 10 Year 15 Year 20 Year

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%)

MORNINGSTAR CATEGORY1 QUARTILE RETURNS

Top 25% 2nd Quart 3rd Quart Bottom 25% MSCI ACWI

We Understand Your Problem…

As of December 31, 2018

Past performance is not a reliable indicator of future performance.Source: Morningstar & MSCI. Please see page 20 for information about this MSCI information. 1US Funds World Large Stock Category. See slide 25 for additional disclosures.

Net of fees, the average manager has struggled to outperform the index over the long term

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Factor Fever!

As of December 31, 2018

For illustrative purposes only.Source: Morningstar.

NUMBER OF “FACTOR” ETFS

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2012 2013 2014 2015 2016 2017 2018

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of F

acto

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Same Portfolio, Many Different Measures of ‘Alpha’

For illustrative purposes only.Source: T. Rowe Price.

WHICH MEASURE OF IDIOSYNCRATIC RISK AND ALPHA ARE RIGHT?

‘Alpha’

Market

‘Alpha’

Fama-French Factors

Market BetaS

ou

rces

of

Tota

l Ret

urn

an

d R

isk ‘Alpha’

Fama-French plus other factors

Market BetaS

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of

Tota

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an

d R

isk

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f To

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etu

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k

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If Portfolio Factors are Dynamic, Shouldn’t it be Alpha?

For illustrative purposes only.See slide 24 for factor definitions. Analysis of sample global equity portfolio by T. Rowe Price using MSCI data. Please see page 25 for information about this MSCI information.

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Err

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Value Growth Momentum Quality Size Beta Unexplained Tracking Error, Annualized (RHS)

FACTOR DECOMPOSITION OF ACTIVE RISK (Rolling 3 Years)—An Example: Sample Global Equity Portfolio vs. MSCI ACWITrailing 3-Year Periods, Sept. 30, 2009 – Dec. 31, 2018Figures shown in USD

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Factors Idiosyncratic

Factor and Idiosyncratic Risk Can be Poor Indicators of How Active a Portfolio is

For illustrative purposes only.Sources: Analysis by T. Rowe Price, MSCI, Thomson Reuters, I/B/E/S, Compustat, and IDC.The specific security identified and described above do not necessarily represent the security purchased or sold by T. Rowe Price. This information is not intended to be a recommendation to take any particular investment action and is subject to change. No assumptions should be made that the securities identified and discussed above were or will be profitable. J.P. Morgan Chase & Co. is shown for illustrative purposes. The analysis is backward looking and should be supplemented with a forecast risk framework.

FACTOR RISK & IDIOSYNCRATIC RISK AS % OF TRACKING ERROR: JPM (SECURITY)From June 30, 2005–September 30, 2018Figures shown in USD

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Factor Exposure, Exposed

Factor investing is all the rage

But it may be more complicated and less predictable than you think

Even a single stock is a factor bet, and it changes profile over time

Most active managers don’t deliver, but should factors be your first alternative?

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Investors Need Alpha More Than Ever

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Delivering Alpha Isn’t Easy…

Source: T. Rowe Price.

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…But It Can Be Achieved With Resources And Discipline

1SEARCH FORAN INSIGHT

2FORECAST ECONOMIC

RETURNS

3ASSESS RISK AND REWARD

Qualitative researchto identify high quality

companies with

improving business fundamentals

Financial analysisto identify companies with

improving Return on Capital

Upside vs downside risk/return analysis

to identify the greatest

potential for a higher stock price

Active managers should employ a consistent framework

Framework Decisions Alpha

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TOO MUCH OIL

TOO MUCH DEBT

TOO MUCH AUTOMATION

We Live In A Low Growth World

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Sources: Nvidia Corporation, Macquarie Research, and T. Rowe Price.

We Live in an Era of Exceptional Innovation

INTERNET AND CLOUD

HEALTH CARE MEDIA SECURITY AND DEFENSE

AUTOMATION

Image classification

Language processing

E-commerce tagging

Digital personal assistants (e.g., Amazon Echo, Siri)

Product recommendations

Cancer cell detection

Diabetic grading

Drug discoveries

Wearable health data recognition

Video search

Captioning

Programming recommendations (e.g., Netflix and Comcast)

Virtual and augmented reality

Face detection

Video surveillance

Geolocation

Real-time objects and threat detection (e.g., detect explosives and match faces to criminal databases in real time)

Factory automation

Self-driving automobiles

Drones

Store automation (e.g., Amazon’s grab-and-go supermarket)

Investment and insurance automation

Wrapped In An Era Of Exceptional Innovation

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Range could be as low as 20% to as high as 35%

Two years ago, this number was about 20%

Over the next 2–3 years 4–5 groups that account for 10–15% of the S&P 500 Index at risk

Areas most insulated are Utilities, Industrials/Defense, Business/Information Services, and “Tech Titans”

This is materially higher than in the late 1990’s or early 2000’s—secular risk was rarely discussed.

Source: T. Rowe Price.

Which Is Disrupting Industries

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APPLE RELATIVE PERFORMANCE VS. EBIT GROWTH

EBIT Growth (%) Performance Relative to MSCI AC World Index (LHS, Indexed to 100 at 01/31/2006)

Apple—Beware Of Yesterday’s Factor Growth

As of January 3, 2019

Past performance is not a reliable indicator of future performance. Source: Financial data and analytics provider FactSet. Copyright 2019 FactSet. T. Rowe Price calculations using data from FactSet Research Systems Inc. All Rights Reserved. Please see page 25 for information about this MSCI information. All rights reserved. This is provided as an example to illustrate our investment thinking and is for informational purpose only. The specific securities identified and described do not represent all of the securities purchased, sold, or recommended for the portfolio, and no assumption should be made that the securities identified and discussed were or will be profitable. Image from Wikimedia Commons, see slide 25 for further information.

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ESSITYB RELATIVE PERFORMANCE VS. CHANGE EBIT MARGIN

Essity – Search For Future Growth In Tissues…

As of March 22, 2019

Past performance is not a reliable indicator of future performance. Source: Financial data and analytics provider FactSet. Copyright 2019 FactSet. T. Rowe Price calculations using data from FactSet Research Systems Inc. All Rights Reserved. Images courtesy of Essity. Please see page 25 for information about this MSCI information. This is provided as an example to illustrate our investment thinking and is for informational purpose only. The specific securities identified and described do not represent all of the securities purchased, sold, or recommended for the portfolio, and no assumption should be made that the securities identified and discussed were or will be profitable.

-3%

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EBIT Margin ∆ Performance Relative to MSCI AC World Index (%)

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Exact Sciences – Growth In Cancer Screening…

As of March 22, 2019

Past performance is not a reliable indicator of future performance. Source: Financial data and analytics provider FactSet. Copyright 2019 FactSet. T. Rowe Price calculations using data from FactSet Research Systems Inc. All Rights Reserved .All rights reserved. Please see page 25 for information about this MSCI information. American Cancer Society, Cancer Facts & Figures 2018. This is provided as an example to illustrate our investment thinking and is for informational purpose only. The specific securities identified and described do not represent all of the securities purchased, sold, or recommended for the portfolio, and no assumption should be made that the securities identified and discussed were or will be profitable.

-

20,000

40,000

60,000

80,000

Lung Colorectal Pancreatic Breast Liver Prostate

ANNUAL DEATHS 2018 (EST)

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RELATIVE PERFORMANCE VS. COLOGUARD SEQUENTIAL GROWTH IN TESTS (UNITS)

Colo Q/Q Growth Relative Price

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-5%

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AIR RELATIVE PERFORMANCE VS. FTM EBIT MARGIN

FTM EBIT Margin Relative Price

Airbus – Profitability and Free Cash Flow Inflecting

As of March 22, 2019

Past performance is not a reliable indicator of future performance. Source: Financial data and analytics provider FactSet. Copyright 2019 FactSet. T. Rowe Price calculations using data from FactSet Research Systems Inc. All Rights Reserved. Please see page 25 for information about this MSCI information. The specific securities identified and described do not represent all of the securities purchased, sold, or recommended for the portfolio, and no assumption should be made that the securities identified and discussed were or will be profitable. Image from Wikimedia Commons, see slide 25 for further information.

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Summary

Factor-based investing is cheap and readily available, but still results in an uncertain outcome for investors

We live in a low growth world. This has significant implications for asset prices and how we should invest

Alpha will become an increasingly important source of total return

We believe active management based on sophisticated insights can best capture true alpha potential

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Factor Analysis Definitions

Value1: The return differential of undervalued stocks versus overvalued stocks in MSCI ACWI Index.

Growth2: The return differential of high growth stocks versus low growth stocks in MSCI ACWI Index.

Size: The return differential of small market capitalization stocks versus large market capitalization stocks in MSCI ACWI Index.

Quality3: The return differential of high-quality stocks versus low-quality stocks in MSCI ACWI Index.

Momentum: The return differential of high-momentum stocks versus low-momentum stocks in MSCI ACWI Index.

Beta: Global equity market factor using MSCI ACWI Index excess return over cash.

1Valuation composite is an equal-weighted average of the market-cap weighted factor performance of EV/EBITDA, EV/Sales, FCF Yield, Price/Book, and Price/Forward 12 Month EPS. 2Growth composite is an equal-weighted average of the market-cap weighted factor performance of Forward 2 year EPS Growth, Forward 2 year Sales Growth, Trailing 12 Month EPS Growth, and Trailing 12 Month Sales Growth. 3Quality is a composite measure that includes return stability, payout policy, leverage, EPS stability, ROE and CFO/Sales and earnings quality.

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Additional Disclosures

© 2019 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

MSCI. MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2019, J.P. Morgan Chase & Co. All rights reserved.

Thomson Reuters and I/B/E/S –© 2019 Thomson Reuters. All rights reserved.

IDC -Source ICE Data Indices, LLC (“ICE DATA”), is used with permission. ICE DATA, ITS AFFILIATES AND THEIR RESPECTIVE THIRD PARTY SUPPLIERS DISCLAIM ANY AND ALL WARRANTIES AND REPRESENTATIONS, EXPRESS AND/OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, INCLUDING THE INDICES, INDEX DATA AND ANY DATA INCLUDED IN, RELATED TO, OR DERIVED THEREFROM. NEITHER ICE DATA, ITS AFFILIATES NOR THEIR RESPECTIVE THIRD PARTY SUPPLIERS SHALL BE SUBJECT TO ANY DAMAGES OR LIABILITY WITH RESPECT TO THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE INDICES OR THE INDEX DATA OR ANY COMPONENT THEREOF, AND THE INDICES AND INDEX DATA AND ALL COMPONENTS THEREOF ARE PROVIDED ON AN “AS IS” BASIS AND YOUR USE ISATYOUR OWN RISK. ICE DATA, ITS AFFILIATES AND THEIR RESPECTIVE THIRD PARTY SUPPLIERS DO NOT SPONSOR, ENDORSE, OR RECOMMEND T. ROWE PRICE OR ANY OF ITS PRODUCTS OR SERVICES.

Compustat – Source: S&P. Copyright © 2019, Standard & Poor’s. This report contains proprietary S&P data and is for internal use only. None of S&P, its affiliates or their suppliers guarantee the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions, regardless of the cause or for the results obtained from the use of such information. In no event shall S&P, its affiliates or any of their suppliers be liable for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of S&P information.

Slide 19 Apple: By Zach Vega - Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=21298355Slide 22: Airbus. Images from Wikimedia Commonshttps://upload.wikimedia.org/wikipedia/commons/c/c1/Airbus_A320-214%2C_Airbus_Industrie_JP7617615.jpg

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Important Information

This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial, and tax advice before making any investment decision. T. Rowe Price group of companies, including T. Rowe Price Associates, Inc., and/or its affiliates, receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation, or a solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price. The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material, and in certain countries the material is provided upon specific request. It is not intended for distribution to retail investors in any jurisdiction.

USA—Issued in the USA by T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, MD 21202, which is regulated by the U.S. Securities and Exchange Commission. For Institutional Investors only.

© 2019 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the Bighorn Sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.

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THANK YOU

C1C1BF6RY201903-794235

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