T. Rowe Price Africa & Middle East Fund (TRAMX)

What is the fund’s Objective?
T. Rowe Price Africa & Middle East Fund’s objective is long-term growth of capital.  As its name suggests, it invests primarily in the common stocks and “participation notes” of companies located or with primary operations in Africa and the Middle East.  While seeking long-term growth of capital is nothing exciting, as lots of funds have a similar objective, the Africa and Middle East focus is fairly unique. 

Under normal market conditions, the fund will have at least 80% of total assets in the region.  The list of countries on management’s radar include Bahrain, Egypt, Jordan, Kenya, Lebanon, Morocco, Nigeria, Oman, Qatar, Saudi Arabia, South Africa, and the United Arab Emirates.  From virtually any point of view, that is an interesting list, but the prospectus extends the options to also include Algeria, Botswana, Ghana, Mauritius, Namibia, Tunisia, and Zimbabwe.  Now, that’s a list!

Management seeks to own roughly 30 to 40 different stocks within this non-diversified portfolio.  Note that it has the latitude to own “substantial investments” in the telephone and/or banking sectors.  The prospectus defines this as “at times more than 25% of total assets”, but provides no real bounds.  Since the fund is considered non-diversified, this latitude isn’t surprising, but should be kept in mind.

How does the fund meet its Objective?
Management uses a growth style when examining individual stocks and participation notes.  T. Rowe Price boasts of a “global team of investment analysts.”  The end goal, is to find companies that management believes can achieve and sustain above-average, long-term earnings growth.

Although the bias is toward growth, value is also considered.  The preference is for securities that are reasonably priced compared to current or estimated future earnings, cash flow, or book value. 

Some of the more important criteria in the research process include market position, business niche, industry position, management quality, earnings and cash flow quality, and balance sheet quality.
How has the fund performed?
Since T. Rowe Price Africa & Middle East Fund’s September, 2007 inception through the end of February, 2010, it has lost an annualized 11%.  That said, the fund advanced over 60% over the trailing 12 months through February.  To go even deeper, calendar year 2008 produced a loss of 53% while 2009 saw a gain of 22%. 

The fund’s relatively short history doesn’t provide for the normal three years used to calculate either beta, a measure of performance relative to an index, or standard deviation, a measure of price volatility, but the theme here, if it wasn’t already obvious, is volatility.  This high level of volatility over the fund’s short lifespan has been a net negative. 

How much does it cost to own the fund?
The minimum initial investment for T. Rowe Price Africa & Middle East Fund is $2,500; that is a reasonable sum for a fund that invests in such a unique area of the world.  There is a 90-day redemption fee of 2% to stop frequent trading.  Although this may not please everyone, as it locks investors into a volatile region for about three months, it does help to separate long-term investors from short-term traders. 

The fund’s expense ratio is 1.62%, with just over 1% of that paid to the managers and the rest going toward general expenses, including such things as the creation and distribution of fund literature, and customer service.  The expense ratio seems reasonable given the specialty of investing in Africa and the Middle East.  However, to put this into dollars and cents, an investor with $10,000 in the fund would expect to pay about $165 for owning the fund. 

What type of investor should consider the fund?
For starters, T. Rowe Price Africa & Middle East Fund is truly only for the stout hearted based on its level of volatility.  Moreover, the non-diversified portfolio and regional mandate further limit the group to which it might appeal. 

But, for anyone seeking broad exposure to the specific areas in which the fund invests, this is a solid option.  The only thing that needs to be remembered at all times is that, to a large extent, the fund will broadly track the region’s ups and downs in terms of both performance and volatility.  This is a fact that can’t be repeated often enough.