2016 Outlook for this Royce Fund: Market Worry Creates Opportunities
article , video 02-29-2016

2016 Outlook for Royce Total Return Fund

Portfolio Manager Jay Kaplan offers his outlook for Royce Total Return Fund which focuses on quality dividend-paying businesses and has a long history of low volatility, and discusses opportunities in the Consumer and Industrial sectors. 


2016 Outlook for Royce Total Return Fund

It's been a tough market in early 2016. There are a lot of things happening. There are a lot of worries in the world. There are worries about what will the Fed do next. There are worries about how strong is the U.S. economy. There are worries about industrial America.

Worry is what makes markets go down. Worry also presents opportunities. Every day we're thinking about what opportunities the market offers.

But, you know, people shouldn't be panicked. Although the market is worried, when we've had six years of an almost uninterrupted up market in small-cap stocks, it's okay to have a pause. It's actually healthy.

We got to a point where there was some speculation and now we're going to start to wring some of that speculation out of the market. And once we finish that, the kinds of companies that we like in the Total Return Fund, real companies with real businesses with great track records, with earnings that can grow and compound and help to create wealth, those companies will be well positioned for the next cycle.

Where are you finding opportunities in the consumer sector today?

I really like the set up for Consumer Discretionary stocks that we have in the Total Return Fund now. It's been a pretty big position for quite some time. It wasn't so good in 2015.

We're really talking about mall-based retailing and apparel. December was really warm in much of the country. It was almost like summer here in the Northeast. One of the warmest Decembers ever. So that wasn't great for Christmas spending, particularly when a lot of gifting is coats and boots and sweaters.

Mall traffic actually was down across America. It was really befuddling to me, actually if you think about it. Gas prices at the pump were way, way down. I would have thought that money would have been spent in the mall.

But I think when we get normal weather and normalized mall traffic and normal spending, the expectations and the valuations in the consumer businesses that I own are very, very low and I think the odds are really stacked in our favor to have pretty good performance from those when we look out a year.

I'm always looking out a year or three years or five years. I'm not looking at tomorrow. I'm not looking at the next quarterly earnings. I don't really care about that.

It's businesses I want to own for the long term, and I think that this holiday season was just so awful. The setup and the comparisons when we get out to back to school and the end of 2016 are going to look really, really good.

Important Disclosure Information

The thoughts and opinions expressed in the video are solely those of the persons speaking as of January 26, 2016 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 Total Return 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.) The Fund’s broadly diversified portfolio does not ensure a profit or guarantee against loss. The Fund may invest up to 25% of its net assets in foreign securities (measured at the time of investment), which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing Foreign Securities" in the prospectus.)



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