Royce FundsSubmitted by Karstens Investments on October 29th, 2015
We have recommended the Royce Funds as one of the bedrock positions in most of our client portfolios for the past 20 years. They are dedicated to the small cap asset class and use a disciplined, value-oriented approach to select micro-cap and small-cap companies. The firm manages $38 billion in total assets and has a seasoned staff of 34 investment professionals. Those managers and employees have over $200 million personally invested in their funds.
Small-cap investing is their primary business. That distinguishes them from most other asset management firms with broad product offerings. They employ a business buyer’s approach that is rooted in an absolute value orientation and employs a long-term investment horizon with a focus on reducing volatility.
The roster of hall of fame quality managers is very impressive at Royce. Each of these managers could be running his or her own firm but have chosen to work together and have built the firm over the past 40 years. It started with Chuck Royce when he took over operations of the Pennsylvania Mutual Fund (PENNX) in 1972. He continues to personally manage that fund today. Mr. Royce has an amazingly long track record with investing in small cap stocks. He frequently refers to them as an “Evergreen” asset class; companies that grow from start-ups, divisions that are spun out of larger companies and buyouts, mergers, or divestitures that are creating new companies. The ability to analyze and invest in small caps is always creating opportunity.
Whitney George started with the firm in 1991 as a research analyst and now serves as lead portfolio manager on Royce Low Price Stock (RYLPX), Royce Premier Fund (RYPRX) and Royce Focus Trust (FUND). George’s investment style would be one that looks at small caps the same way that Warren Buffett would. George has had several companies bought by Berkshire Hathaway over his long investing career.
Buzz Zaino and Charlie Dreifus joined the firm in 1998. Zaino is the lead portfolio manager on Royce Opportunity Fund (RYPNX) and has 45 years of investing experience, with the last 15 years with Royce. Zaino looks at companies with an eye for growth more than value. He explains his strategy in this quote “The investment style we use… seeks to take advantage of what I like to call opportunistic situations, including turnarounds, emerging growth companies with interrupted earnings patterns, companies with unrecognized asset values, and undervalued growth companies.”
Charlie Dreifus approaches the investing process with the eyes of a forensic accountant. He is very detailed with examining a company’s financials and demands a nearly bulletproof balance sheet from companies that he invests in. He runs Royce Special Equity (RYSEX) and Royce Multi Cap (RSMCX). “A deep understanding of accounting principles gives me a chance to get at the veracity of a company’s finances by scrutinizing the financial reports… I spend a lot of time going over the numbers. Frankly, I benefit, because not everyone does.”
More recent manager additions include Jay Kaplan, Chip Skinner, Lauren Romeo, David Nadel and Steven McBoyle. As you can see their depth of manager talent and ability to cover the globe to find quality small cap businesses to invest in has become a major asset of the firm.
I recently attended their Manager Symposium in New York on May 6th and 7th and had an opportunity to talk with each manager about their current views of the market and how they feel about the future opportunities in their strategies and portfolios. It was very insightful to be able to spend one on one time with the Royce team, getting a better understanding of their current portfolio construction and also what they view as future opportunities and concerns for the global economy. •