3 Questions for Chuck Royce on His Oldest Fund
article , video 06-01-2016

3 Questions for Chuck Royce on Pennsylvania Mutual Fund

Portfolio Manager Chuck Royce and Senior Investment Strategist Steve Lipper discuss Pennsylvania Mutual Fund's 1Q16 performance and the disconnect between headlines and performance. 


What worked well this quarter for Pennsylvania Mutual Fund?

Steve Lipper: Pennsylvania Mutual Fund had a terrific quarter, both on an absolute and relative basis. What worked so well?

Chuck Royce: Well, it wasn't so much what we did. The market context changed. We switched from a momentum market, a high growth market, in the last three years to a value market and we were thrilled with that. That gave us a much better runway.

We have a wonderful team that works on Penn Mutual. Lauren Romeo and Jay Kaplan. Lauren helps me with the super quality end of the portfolio and Jay is a very strong player in the relative value world.

So everything clicked in a very nice way, but it was really nothing that we did. It was the change in context.

Where are you finding new opportunities?

Steve: So a nice rebound in the fund's performance. Where are you finding opportunities today?

Chuck: We look everywhere. Penn is a diversified fund. We have a wide vision of what we can look at so we're looking at all sorts of areas. A recent area that we started investing in, we have always liked the financial sector but we have begun to use more companies that are very active with M&A, companies that make that their business, that new set of specialized end of the financial sector world, and that intrigued us and we are using more of those.

The industrial area has always been an overweight for us. We don't think of them as industrials. We think of them as sort of very high quality, niche companies, often with global markets. We have used these kinds of companies.

They're one of our favorite sweet spots, but they may have some cyclical aspects. Now the headlines are – you know, always got to worry about something. In the fall, in particular, it started to worry about slowdowns here and there and certainly there's anxiety about things aren't taking off the way people want it but, in fact, what did happen is the stocks took off.

The stocks had underperformed in the last three years and this is a great catch-up phase for excellent companies that are somewhat cyclical, slightly cyclical but actually perform over time very well.

What is your outlook for the Fund?

Steve: What is your outlook as you look out towards the rest of the year for Pennsylvania Mutual Fund?

Chuck: Well, I think value will continue to be the theme. I'm very encouraged by how that's playing out and I think it will be bumpy. It will never be a straight line, but I think value will continue to be an important leadership area and I think it should persist for several years.

Our sweet spot has been a modest return market, and I would like to think that will be the market environment we're now in.

Important Disclosure Information

Average Annual Total Returns as of 3/31/16 (%)

  QTR YTD 1YR 3YR 5YR 10YR 20YR 40YR
Pennsylvania Mutual 6.22 6.22 -6.99 4.67 4.92 4.87 9.92 12.99
Russell 2000 -1.52 -1.52 -9.76 6.84 7.20 5.26 7.68 N/A
Annual Operating Expenses: 0.93%

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 within 180 days of purchase may be subject to a 1% redemption fee, payable to the Fund, which is not reflected in the performance shown above; if it were, performance would be lower. Current month-end performance may be higher or lower than performance quoted and may be obtained at www.roycefunds.com. 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, other expenses, and acquired fund fees and expenses. Acquired fund fees and expenses reflect the estimated amount of the fees and expenses incurred indirectly by the Fund through it's investment in mutual funds, hedge funds, private equity funds, and other investment companies.

The 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 that may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.)

The thoughts and opinions expressed in the video are solely those of the persons speaking as of April 12, 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. Smaller-cap stocks may involve considerably more risk than 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 Index is an index of domestic small-cap stocks that 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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