Chuck Royce's Unique Approach to Financials
article , video 06-15-2017

Chuck Royce's Unique Approach to Financials

Portfolio Manager Chuck Royce discusses why financials continue to play an important role in his portfolios. 


What role do financials play in Royce Total Return Fund?

Financials have been overweight forever and I would imagine it will continue. Let's recall that Total Return must have dividend-paying stocks. That's its secret sauce.

Financials are obviously a very important sector in this country. We've never done it exactly the way the rest of the world does it, but we've always had a broad and deep involvement with financials.

Describe your approach to this sector.

Our approach has been a non-traditional approach. We have probably used less banks for a variety of reasons over time. That's somewhat modifying currently, but we have always used traditional asset managers, capital markets–there's lots of interesting smaller, traditional asset managers, traditional capital markets firms. These are healthy, interesting areas, areas we can understand and we continue to use them.

What's your outlook on asset managers and capital markets firms?

We are using somewhat less traditional asset managers because of some macro concerns. We're using more alternative managers, and we're feeling quite comfortable that this is an undervalued zone and we plan to continue to use them.

The outlook for the M&A-type independence is very good. There's been an evolving trend away from the mega firms, away from Meryl Lynch, away from UBS, et cetera, to smaller, smaller companies that are really small-cap securities, many of them. They provide an asset-light setting that is very appropriate for investing.

What's your current view on banks?

We think we're entering into a very favorable period for banks where because of normalization of rates, primarily you're getting the opportunity to make real spreads.

Loan growth is accelerating, people are less hesitant about loaning and borrowing, and we think we're entering into a favorable trend.

We like banks that have either a niche, a sort of geographic niche, we like banks with fee income, we like banks with lots of insider ownership, banks that we can have confidence that are either acquiring appropriately or potentially being acquired.

Important Disclosure Information

Average Annual Total Returns as of 3/31/17 (%) 

Total Return 2.23 2.23 22.33 6.37 11.04 6.76 9.82 10.91 12/15/93
Russell 2000 2.47 2.47 26.22 7.22 12.35 7.12 8.67 9.10 N/A
Annual Operating Expenses: 1.27%

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 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 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 its investments in mutual funds, hedge funds, private equity funds, and other investment companies.

The thoughts and opinions expressed in the video are solely those of the persons speaking as of April 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.

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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