article , video 08-11-2016

3 Investment Ideas from Chuck Royce

Chuck Royce tells Co-CIO Francis Gannon why he is bullish on industrial automation, alternative asset managers, and select investment banks.

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Industrial Automation

Francis Gannon: One of the areas that I think you've been focusing on has been automation within the industrial space. Why are you attracted to that particular area or have been over the past couple of years?

Chuck Royce: We like the industrial space. We think that has been where we get a good intersection of quality to value. We've been overweighted in industrials for some time. Now, industrials are not your old-fashioned steel mill necessarily.

These are much more up-to-date, more modern; they are seeking automation, they are seeking productivity gains, they are actively buying automation types equations and this is a very important part of their success, and we are investing in both industrials in a more pure sense and the people who are delivering automation to industrials.

Alternative Asset Managers

Francis: So another area of interest for you has been some of the alternative areas within financials, financial services specifically. Do you want to talk about your thoughts about that particular area of the market?

Chuck: We like the financial sector, we've historically underplayed banks, but we've liked many, many zones within the financial sector. A new, more evolving zone has been the alternatives space.

Most of the alternatives space, private equity, venture etc., are relatively recent public vehicles, certainly in the last half a dozen years, whereas their companies, the companies they've been affiliated with really go back decades and the market hasn't quite come to grips with the benefits in this alternative space. I think there are many benefits and it's a very exciting area that we are using.

Francis: It is a complex area, though, you have to admit, right, they're not easy businesses to understand.

Chuck: They are complex, confusing, and cyclical. The cyclicality and the complexity relates to how they pay out their benefits.

They have both fees, perhaps an investment portfolio, and they have performance fees usually based on a hurdle or a cycle where they are in their investment cycle, so it gets tricky. But as a total return vehicle, I think they're very interesting.

Independent Investment Banks

Francis: Within financial services, you have had a focus on capital markets businesses in general, but specifically on some of the independent investment banks, which is kind of a play relating back to your thoughts on alternatives as well. What are your thoughts about that industry?

Chuck: Sure, it's an evolving sort of a new wing of investment banking, the independents. It started somewhat before the financial crisis, but after the financial crisis it has certainly accelerated.

We've liked the industry, they are providing independent advice, they can do it in a more cost-effective way than the large banks, they can do it with providing more custom services, and we find it a very attractive area.

Important Disclosure Information

The thoughts and opinions expressed in the video are solely those of the persons speaking as of July 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. Investments in securities of small-cap companies may involve considerably more risk than investments in securities of larger-cap companies. (Please see "Primary Risks for Fund Investors" in the prospectus.) The 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 Russell 2000 Value and Growth indexes consist of the respective value and growth stocks within the Russell 2000 as determined by Russell Investments. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index.

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