article , video 01-24-2014

Small-Cap Opportunities in a Bull Market

President, Director of Investments, and Portfolio Manager Chuck Royce looks at 2013's small-cap performance and how he's finding ideas in an expensive market, and sectors he believes are well positioned for strong performance.


"Small-caps did very well in 2013. Once the market got going—and we had a virtually straight-up market with almost no corrections—once it got going, small-caps did sort of take over the leadership, as they would normally in a strong momentum market.

"There were no corrections in 2013, and that's not typical. Typically, there are corrections every two or three months of a certainly 5-7% range

"We're being asked very consistently today, 'Is the Russell 2000 overvalued? Are valuations good enough to invest in?' And our answer is a very nuanced one—that the index itself would appear on the surface to be at a high valuation, but that isn't in itself a factor in our investment criteria. We are looking at individual stocks that we believe can have an absolute return; a substantial absolute return over the next three to five years. So, we worry less about how the index appears to be valued.

"In addition, there are another X number of stocks domestically, and five times that number abroad, and I am highly confident we'll continue to find interesting values.

"We're continuing to look in our favored areas, the quality sector, the micro-cap sector. Micro-cap remains a very interesting area.

"Micro-caps did very well last year. We continue to think that's one of the great inefficient sectors. In the quality world, I think Industrials will do a lot better in the years ahead, and Materials and Technology."

Important Disclosure Information

The thoughts and opinions in the video are solely those of the person speaking and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements. 

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus carefully before investing or sending money. Micro-cap and small-cap stocks may involve considerably more risk than investing in larger-cap stocks (please see "Primary Risks for Fund Investors" in the prospectus). Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group. The Russell 2000 is an unmanaged, capitalization-weighted index of domestic small-cap stocks. It measures the performance of the 2,000 smallest publicly traded U.S. companies in the Russell 3000 index. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index. 

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