T Rowe Price has taken an unconventional route appointing the former boss of its European portfolio team to helm its first UK equity fund which faces steep competition in a crowded marketplace despite differentiating itself with a sustainable bent.
The $1.4trn (£1trn) asset manager revealed on Monday it was preparing to launch its first dedicated UK strategy, a move which it said has “strengthened its commitment” to the region.
Branded the Responsible UK Equity fund, it will apply a socially responsible screen “which aligns with the most common ESG concerns expressed by clients” and exclude companies “involved in an extreme ESG breach” that are not taking steps to address their underlying issues.
Former EMEA co-head Mitchell Todd (pictured) will manage the new fund. He has nearly two decades of investment experience under his belt including 13 years at T Rowe Price where until recently he led the European portfolio management and analyst team.
‘UK managers usually expand out to other markets and not the other way round’
Willis Owen head of personal investing Adrian Lowcock said the fact T Rowe Price has appointed a European equities manager to lead the charge on its first UK focused fund “is a bit different”.
“UK equity managers’ backgrounds are usually very UK focused with those managers usually expanding out to other markets and not the other way round,” Lowcock said.
“However, T Rowe Price has plenty of resources and a strong team which can provide the appropriate insight and support,” he added.
Todd will invest in between 40 and 60 companies across the cap spectrum, with 85% of holdings being classed as “durable compounders,” according to a press release. The remaining holdings will represent businesses “on a path to improving cash flows and returns”.
T Rowe Price will have its work cut out trying to stand out in crowded UK market
AJ Bell head of active portfolios Ryan Hughes notes the timing of T Rowe Price’s first foray into the UK market could signify that UK equities “may well have a chance of coming back into favour after a long period in the doldrums”.
“However, given that the market has a huge range of UK funds to choose from, T Rowe Price will have their work cut out to tempt investors away from well-established holdings,” he said.
Despite having a presence in the UK market for four decades, opening its first international office in London in 1979, T Rowe Price has been late to the party, only launching its Oeice range in 2016.
Lowcock said historically US fund groups that have set up shop across the pond have held off developing UK propositions, viewing the local market as only a fraction of their home market. But more recently US groups, including T Rowe Price, have been viewing the UK as an opportunity to expand their empires and have been adding resources accordingly, he added.
T Rowe’s London office now houses 592 associates and its UK business had $167.2bn in assets under management at the end of 2019.
Tapping into growing ESG trend
T Rowe’s decision to market its first UK fund as sustainable is also something that “makes sense”, according to Lowcock.
“Fund launches are decided with a long-term focus so the sustainable theme makes a lot of sense as most managers see this as fundamental shift and not a passing trend.”
Hughes agrees the fund’s ESG theme may be eye-catching to certain investors initially but it could be a while before the fund gains traction.
“The move to make the fund ESG focused may well encourage some to look in the early days particularly if the fees are low, but many have tried before to break into the market and not become established so it may well take time before this fund gets any kind of critical mass and following,” Hughes said.
T Rowe Price is the latest fund house to launch a sustainable Oeic. In the past month alone, Invesco, Aberdeen Standard Investments, JP Morgan Asset Management and Morgan Stanley have contributed to the deluge of ESG product launches.
Hours before T Rowe’s fund reveal on Monday, Rathbones announced plans to launch a sustainable multi-asset range for David Coombs with Will McIntosh-Whyte taking on the day-to-day management duties.
See also: Are swathes of ESG fund launches creating the next dotcom bubble?
