Performance Update For Our High-Quality Strategy
article , video 10-30-2019

Performance Update For Our High-Quality Strategy

Portfolio Manager Steven McBoyle discusses his outlook and details which sectors mattered most in recent performance for our High-Quality Strategy.

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WHAT YOU
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How did Premier perform in 3Q19?

This is a good news story. The Premier strategy has provided strong, absolute and relative performance over the last quarter, year-to-date, one year, three year and five-year period through September. And there’s really two important performance highlights.

First, during all those time periods that I referenced, the relative outperformance has been driven by stock selection. And secondly, over the last five-year period, Premier has performed strongly during times of differing market style leadership. 

Which sectors helped and hindered performance?

Just to remind investors, Premier is invested in high-barrier, high-return, leading businesses with strong capital reinvestment opportunities. With that said, performance has been very broad. All nine sectors were positive, including Energy. Specifically, the largest weighting in Industrials was our largest positive impact. Year-to-date, the fund holdings were up over 25%, and broad, as I mentioned, in nature. So, we had strong performers from leading aircraft leasing business to leading aerospace supply component manufacture to a food solutions provider. Again, very broad in nature within the industrial sector.

Financials, our second-largest positive sector, was driven very strong by capital markets names, in particular, Ashmore, a leading emerging market debt specialist, as well as private credit specialist Ares. Beyond that, it was Information Technology, specifically software, where we saw strong stock selection. So amongst the detractors, we saw negative relative performance in Materials from a stock selection perspective that was driven predominantly by Quaker Houghton, which is a specialty chemical company serving predominantly automotive, where we saw a deterioration in the fundamentals.

Having said that though, we think the recent combination of Quaker and Houghton to be a formidable platform for outsized growth in the years to come. Beyond that, we had negative relative performance within Real Estate and Utilities, obviously, strong performing sectors during the time period, that we were underweight, which is typical for us in the Premier strategy.

What is your outlook?

As we sit here today, the global macro is cloudy at best. And so, rightfully, investors are most concerned about the cyclical elements of the market. We obviously have a healthy weight in cyclical companies and sectors. But these are not commodity businesses.

We actually believe our cyclical orientated names are going to perform well in the market, largely because again, the perception is that these are commodity businesses. And yet we believe that their business models have very durable, differentiating features. For example, they may be very asset light in nature. They may have a very high aftermarket parts and services mix. They oftentimes tend to have very customer orientated market, meaning they are low cost to provide but high cost to failure. And in instances like that, they tend to have much more durable features.

There clearly is no perfect crystal ball, but I strongly believe that Premier, which is a representation of quality and value, is going to perform well during a period where the profit cycle is slowing.

 

ROYCE PREMIER FUND

 

Important Disclosure Information

Average Annual Total Returns as of 9/30/19 (%) 

  3Q191 YTD1 1YR 3YR 5YR 10YR 15YR 20YR SINCE INCEPT. DATE
Premier 1.56 23.58 2.29 14.05 8.94 10.73 9.68 11.13 11.55 12/31/91
Russell 2000 -2.40 14.18 -8.89 8.23 8.19 11.19 8.19 7.99 9.28 N/A

Annual Operating Expenses: 1.17

1 Not annualized.

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 October 8, 2019 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.

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.

Percentage of Fund Holdings As of 9/30/2019 (%)

  Royce 
Premier Fund

Ares Management Cl. A

2.3

Ashmore Group

2.6

Quaker Houghton

2.6

Company examples are for illustrative purposes only. This does not constitute a recommendation to buy or sell any stock. There can be no assurance that the securities mentioned in this piece will be included in any Fund’s portfolio in the future.

Cyclical and Defensive are defined as follows: Cyclical: Communication Services, Consumer Discretionary, Energy, Financials, Industrials, Information Technology, and Materials. Defensive: Consumer Staples, Health Care, Real Estate, Utilities.

Sector weightings are determined using the Global Industry Classification Standard ("GICS"). GICS was developed by, and is the exclusive property of, Standard & Poor's Financial Services LLC ("S&P") and MSCI Inc. ("MSCI"). GICS is the trademark of S&P and MSCI. "Global Industry Classification Standard (GICS)" and "GICS Direct" are service marks of S&P and MSCI.

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. All indexes referenced are unmanaged and capitalization-weighted. 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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