Why Was 2016 a Great Year for this Royce Fund?
article , video 02-07-2017

Why Was 2016 a Great Year for Opportunity Fund?

Portfolio Manager Bill Hench on Royce Opportunity Fund's 2016 performance and where he's currently looking for opportunities.


Why Was 2016 a Great Year for This Fund?

The Fund had a good year because of the investments that we had made in 2015, and in the latter part of 2014. Those were periods where small value stocks were really out of favor, so valuations were very good if you were an investor. 

If you were a buyer you didn't get returns right away, but what you were able to do is accumulate great positions at very good costs.  

And, usually, if the economy starts to turn and people get a little optimistic, those stocks tend to do very, very well. So, if you're starting out with a very, very low base, and you add a little bit of optimism for the economy, these stocks can give you the very good performance. 

Why Add to Opportunity Fund Now?

Well, the Fund is one that's constantly in a rotation, right, where we are buying things today that we hope will give us the performance a year, year and a half, two years out. 

We always think there are opportunities in the market and they're created every day. Events happen.

For instance, if you look at what happened recently in the election, the day after the election the infrastructure stocks in the U.S. all moved up very strongly, and some healthcare names moved in the opposite direction.

So, right there you had an event in a very short amount of time that created opportunities, perhaps, for you to buy and to sell some things as well. 

We hope that the performance will continue. It's going to depend on things that haven't happened yet, obviously, which is always the case. But this portfolio is one that's in a constant rotation where those things that have worked and have reached a valuation that we think is fair, are lightened, or sold, and we take that money and we hope to buy things that are going to do exactly what those things that we just sold did.  

So, we like to keep the portfolio rolling into the cycle. So, we think that if this cycle is like other cycles, we could have another year, year and a half of good performance. 

Where Are You Finding Opportunities Today?

Opportunities today are on a one-off basis. So, we're not getting sector bets, if you will, but more in line of finding things that are turning around, or specific opportunities where companies have had either a difficult time because of the economy, or because of certain things in their sector that have perfected their performance. 

So, we're doing what we usually do, which is really spending a lot of time going through a lot of trade journals, listening to a lot of conference calls, meeting with a lot of managements and trying to pick things off one by one as they present themselves.

Important Disclosure Information

Average Annual Total Returns (%) as of 12/31/16
Opportunity 11.24 29.86 3.76 14.46 7.03 12.07 12.28 11/19/96
Russell 2000 8.83 21.31 6.74 14.46 7.07 8.25 8.45 N/A
Annual Operating Expenses: 1.17%

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 30 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 and other expenses.

The thoughts and opinions expressed in the video are solely those of the persons speaking as of January 5, 2017 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.

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.

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.)



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