An exclusive interview with small-company stock pioneer Charles “Chuck” Royce. The Royce Fund’s Great Investor shares his forty years of lessons learned in the markets, what’s changed and what still works for long-term investment success.
WebEXTRA: Royce – What Still Works
WEALTHTRACK Episode #944; Originally Broadcast on April 26, 2013
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President, Royce & Associates
Portfolio Manager, The Royce Funds
[wptabcontent]One of my favorite financial quotations is: “the market can stay irrational longer than you can stay solvent.” It is attributed to British economist John Maynard Keynes, who in his mid-thirties almost went bankrupt speculating in currencies on margin. According to his biographers, Keynes was a lifelong speculator who made and lost several fortunes.
There are many investors wondering how irrational or rational the recent sell off in gold and other commodities is. Is it the end of the so-called commodity supercycle that’s been in place since 1998, or is it a more short lived cyclical downturn? The answer to that question has significant meaning for investors and was the topic of a blog by Nick Sargen, the Chief Investment Officer of Fort Washington Investment Advisors. His “Implications for Falling Gold and Commodity Prices” will be available on our website this weekend as is a podcast interview I just did with Nick on the topic. A former Fed and Treasury Department official, as well as an international economist and global money manager, Sargen’s perspective is worth considering. Also fascinating is his analysis of why the Fed’s unprecedented QE policies are not inflationary!
The Great Investors we interview on WEALTHTRACK are not speculators. They consider themselves to be disciplined long-term investors whose first priority is not to lose money. They would never put themselves or their shareholders in serious financial jeopardy. Their second priority is to take advantage of market inefficiencies. The stock investors among them buy quality companies at substantial discounts to their intrinsic value.
Of course Great Investors are also subject to the irrational behavior of the market and their performance can suffer as a result, especially relative to the market or their particular benchmark. The vast majority of our Great Investor guests substantially underperformed the indices during the tech bubble. If they were not heavily invested in financial stocks, they also lagged during the credit bubble, and recently they needed to be in high yield and more risky investments to keep up.
This week’s Great Investor guest is a classic example. He is Charles “Chuck” Royce, a pioneering small-cap fund manager, founder, and now co-chief investment officer of the Royce Funds, where he runs multiple portfolios. Late last year, Chuck celebrated the 40th anniversary of running his flagship Royce Pennsylvania Mutual Fund. Penn Mutual has outperformed the small-cap Russell 2000 for the last 5, 10, 15, 20, 25 and 30 year periods, delivering nearly 13% average annualized returns over the last three decades versus the Russell’s 10% returns. However the fund has underperformed the Russell over the past 3 years, causing some investors to bail out. Historically that has proven to be a mistake. Royce talks candidly about his recent underperformance versus his benchmark and why this has been the most frustrating period in his long and legendary career. I’ll begin the interview by asking him to share the most important lessons learned in his more than four decades of portfolio management.
Have a great weekend. And make the week ahead a profitable and a productive one!
PS Don’t forget to go to visit WEALTHTRACK Extra this weekend to hear and/or read Nick Sargen’s comments on the potential game changer end of the commodity supercycle.
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[wptabcontent]AllianceBernstein Holding L.P. (AB)
Price: $23.69 on 4/26/13
52 week range: $11.44 – $23.79
“It has a superior diversified portfolio of products. It pays a high yield. And it’s structured as a yield product. And they have excellent management.” – Chuck Royce [/wptabcontent]
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February 10, 2012
Royce pioneered investing in small company stocks with his Royce Pennsylvania Mutual Fund forty years ago this year. He’ll explain why high quality small cap stocks are undervalued compared to large cap stocks right now and the advantages they offer to investors from the vantage points of portfolio diversity, international exposure and income, three characteristics normally not associated with the small cap universe.
February 04, 2011
The small company stock guru explains how he has beaten the market with less risk over the last 35 years and why small is still beautiful.