article , video 05-28-2014

Our Favorite European Small-Caps

Europe is home to a number of world-class businesses, many of them export oriented. Portfolio Manager and Director of International Research David Nadel talks about some European companies that he currently likes.


"The chief reason I think people should look at Europe now is just because it's home to a lot of world-class businesses that are export oriented.

"One of our top holdings in the Royce European Smaller-Companies Fund is a French company called Stallergenes. Stallergenes focuses on respiratory allergies and they develop pharmaceuticals for respiratory allergies as opposed to sort of the palliative treatments like Claritin that are over the counter. It's a 60-year-old company with a really nice track record.

"The French also have a company called Virbac, which is the global number one in animal pharma. The animal pharma business is a great business. It is a business with a lot of pricing power. It's not cyclical. You think about when you go to the vet and you get eye drops for your hamster, the eye drops can cost three or four times as much as the hamster does. The vet is the one who's dispensing the medication as opposed to human pharma where it's a pharmacist—so totally different dynamics. And to get pure-play exposure to animal pharma you pretty much have to go to France.

"In Finland there's a company called Nokian Tyres, which we have an investment in the Royce European Smaller-Companies Fund. They focus purely on winter tires. The tire market in general is a tough business, but the winter tire market is a great business. Very high margins, very high returns on invested capital. A lot of their sales come from Russia, so we're getting exposure to Russia through Finland. There's better corporate governance in Finland. But again, a unique business."

Important Disclosure Information

David Nadel is Director of International Research and a portfolio manager of Royce & Associates, LLC, investment adviser to The Royce Funds. He is the portfolio manager of Royce International Smaller-Companies Fund (RIS), Royce European Smaller-Companies Fund (RES), and Royce International Premier Fund (RIP). He also assists on Royce Global Value Fund (RGV), Royce Global Dividend Value Fund (RGD), Royce International Micro-Cap Fund (RMI), Royce Global Value Trust (RGT), and Royce Value Trust (RVT). The thoughts and opinions expressed in the video are solely those of the person speaking as of January 9, 2014 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. Royce European Smaller-Companies Fund invests primarily in companies that are located in Europe. Securities of companies headquartered in foreign countries may be subject to different risks than investments in securities of U.S. companies, including adverse political, social, economic, or other developments that are unique to a particular country or region (Please see "Investing in Foreign Securities" in the prospectus). Therefore, the prices of the securities of foreign companies in particular countries or regions may, at times, move in a different direction than those of the securities of U.S. companies. (Please see "Primary Risks for Fund Investors" in the prospectus.) The Fund invests primarily in micro-cap, small-cap, and/or mid-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.) In addition, as of 3/31/14 the Fund held a limited number of stocks, which may involve considerably more risk than a less concentrated portfolio because a decline in the value of any one of these stocks would cause the Fund's overall value to decline to a greater degree.

Percentage of Fund Holdings as of 3/31/14 (%)

Stallergenes 1.28 2.10 2.40 1.84 0.00 0.00 1.54 0.11
Virbac 0.00 1.42 1.98 0.00 0.00 0.00 0.64 0.09
Nokian Renkaat 0.00 1.85 2.18 0.00 0.71 0.00 0.00 0.00

There can be no assurance that any of these securities mentioned in this interview will be included in these portfolios in the future. References to specific securities in this piece are not intended as recommendations and should not be relied upon as the basis for anyone to buy, sell, or hold any security.



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