article , video 03-09-2015

Special Equity Fund: Looking Back at 2014 and Ahead to 2015

Portfolio Manager Charlie Dreifus discusses the current state of Royce Special Equity Fund's portfolio and what he believes could be a potential tailwind for some of his holdings as the year develops.

TELL US
WHAT YOU
THINK

Dave Gruber: Let's talk about the specific portfolios, Royce Special Equity Fund, and your thoughts on performance in 2014 as well as your expectations into 2015.

Charlie Dreifus: Well, on the Special Equity small-cap fund, we had an OK absolute year by benefiting from the market advance off of the October low. Prior to that we hadn't done as well as we ended up doing.

My portfolios are somewhat unique in that a lot of them have net cash. So it's sort of a strange thing. They are so under-levered that they have too much equity in the form of cash. I think the environment is such that quality names should continue to be in favor.

The added impetus that we could see in the small-cap portfolio is a wave of takeovers: M&A activity. And there's a rationale why I say that. Companies have reduced their cost structure such that the only benefit they can get to further reducing costs is by buying a competitor, where you then—through synergistic operations, meaning that you shut down duplicative plants—spend once on R&D rather than each company spending separately on R&D.

So you have benefits to pick up that way, which would improve your earnings. So I think as the year develops we're hopefully going to see more M&A. So I think we're fairly well positoned.

Royce Special Equity Fund [RYSEX]
Average Annual Total Returns as of Quarter-End 12/31/14 (%)

  QTR* 1 YR 3 YR 5 YR 10 YR 15 YR SINCE INCEPT. DATE
Special Equity 8.60 1.09 14.69 12.55 8.22 12.19 9.77 5/1/1998
Russell 2000 9.73 4.89 19.21 15.55 7.77 7.38 7.01 N/A
Annual Operating Expenses: 1.13%

* Not Annualized

Important Performance and Expense Information

All performance information reflects past performance, is presented on a total return basis, reflects the reinvestment of distributions, and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate, so that shares may be worth more or less than their original cost when redeemed. Shares redeemed on or before 1/30/15 within 180 days of purchase, and after 1/30/15 within 30 days of purchase, may be subject to a 1% redemption fee. All redemption fees are payable to the Fund and are not reflected in the performance shown above; if such fees were reflected, performance would be lower. Current month-end performance may be higher or lower than performance quoted and may be obtained here. Operating expenses reflect the Fund's total annual operating expenses for the Investment Class as of the Fund's most current prospectus and include management fees and other expenses.

Important Disclosure Information

The thoughts and opinions expressed 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. Royce Special Equity Fund invests primarily in small-cap stocks which may involve considerably more risk than investing in larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.) As of 12/31/14, the Fund invested a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than a more broadly diversified portfolio because a decline in the value of any of these stocks would cause the Fund's overall value to decline to a greater degree.

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