An Introduction To Royce’s Premier Quality Strategy
article , video 03-15-2018

An Introduction To Royce's Premier Quality Strategy

Portfolio Manager Steven McBoyle on the attributes that differentiate Royce’s high-quality “premier” small-cap strategy.

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What is Royce’s Premier Quality strategy?

The Premier strategy is a high-quality core approach that focuses on premier companies. Premier companies are those that have a moat-like franchise, sustainability high rates of return on capital, have exhibited over long periods of time prudent capital allocation, and critically have the ability to reinvest back at structurally high rates of return. Premier strategy really is about identifying those elite few companies in small cap that have the ability to serially compound.

There is a rather significant misconception as it relates to the small-cap asset class. And that is one that it is A) risky, B) fragile, and C) has a survivability concern. And really our experience is just exactly the otherwise. If you go back to 1991 when Chuck founded Premier, it really was to address that misconception, and he embarked on effectively collecting the best small-cap business models that exhibited all those attributes that would allow these businesses to compound over time.

What sets Royce’s Premier Quality strategy apart?

One of the greatest differentiating factors of our approach is that we view ourselves as risk managers first and foremost. And that’s very critical, because that has important implications in terms of portfolio construction as well as performance attributes. We attempt to minimize business models that are beholden to the capital markets. We minimize business models that are susceptible to price competition. So that’s a very critical differentiating factor to the house of Royce. We have the advantage of pattern, pattern recognition. Again, a lot of deep institutional knowledge at Royce that allows us, I believe, to better interpret how managements react to changes in their marketplace. How they embark on capital allocation decisions. We have the advantage of time. Again, we are truly long-term in investment horizon. Which means we can take advantage, quite tactically, of short-term dislocations in the market.

Value of $10,000

Invested on 12/31/91 as of 12/31/17 ($)

03-rpr-growth-chart

Why consider an investment this strategy?

The Premier strategy is rooted in being a quality orientated core fund. And we know over long periods of time, high returns on invested capital and persistence has outperformed the market and has done so with less volatility. The Premier strategy historically has done quite well in value-led cycles. We’ve had a multiple year period where growth has outperformed value by an order of magnitude, a duration that is statistically significant. So there is a positive reversion to the mean set up.

Important Disclosure Information

Royce Premier Fund - Average Annual Total Returns as of 12/31/17 (%) 

QTR1 YTD1 1YR 3YR 5YR 10YR 15YR 20YR SINCE INCEPT. DATE
Premier 6.24 23.77 23.77 11.11 11.68 8.78 12.27 10.96 11.94 12/31/1991
Russell 2000 3.34 14.65 14.65 9.96 14.12 8.71 11.17 7.89 9.87 N/A

Annual Operating Expenses: 1.16% 

1 Not annualized.

 

Important Performance and Expense Information

The Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. The Fund also generally invests a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than a more broadly diversified portfolio because a decline in the value of any one of these stocks would cause the Fund's overall value to decline to a greater degree. (Please see "Primary Risks for Fund Investors" in the prospectus.) The Fund may invest up to 25% of its net assets (measured at the time of investment) in securities of companies headquartered in foreign countries, which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.)

The performance data and trends outlined in this presentation are presented for illustrative purposes only. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements.

Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and / or Russell ratings or underlying data and no party may rely on any Russell Indexes and / or Russell ratings and / or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication. The Russell 2000 Index is an unmanaged, capitalization-weighted index of domestic small-cap stocks. It 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. The Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. The Fund also generally invests a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than a more broadly diversified portfolio because a decline in the value of any one of these stocks would cause the Fund's overall value to decline to a greater degree. (Please see "Primary Risks for Fund Investors" in the prospectus.) The Fund may invest up to 25% of its net assets (measured at the time of investment) in securities of companies headquartered in foreign countries, which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.)

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