article 02-26-2015

Francis Gannon on the Unintended Consequence of ZIRP in Bloomberg

"We have been using the same process to pick stocks for 40 years and we have confidence in it."


"Managers say they haven't changed, the market has," penned Bloomberg reporter Charles Stein in his February 24, 2015 article "Best Stock Pickers Say Easy Money Has Made Their Job Harder."

"The easy money climate of near-zero interest rates engineered by the Federal Reserve has artificially inflated prices of lower-quality U.S. stocks, they say, punishing those who focus on businesses with the best fundamentals. At the same time, the relentless climb of prices across equity markets has left them with few chances to sniff out bargains or show what they can do in more-volatile times."

According to Stein, actively managed U.S. stock funds saw $98 billion in redemptions last year. Despite these outflows and extended period of underperformance relative to passive approaches, there are some active stock pickers reluctant to abandon their investment process, including Co-Chief Investment Officer Francis Gannon.

"We have been using the same process to pick stocks for 40 years and we have confidence in it," said Francis, who added that the Darwinian process that typically follows a recession—in which high-quality stocks with strong balance sheets survive over their low-quality, highly leveraged peers—was something of a nonevent following the 2008-2009 financial crisis.

Francis Gannon has 22 years of investment industry experience, eight of which at Royce. Effective January 1, 2014, Francis was named Co-Chief Investment Officer of Royce & Associates, LLC, investment adviser to The Royce Funds, alongside President Chris Clark.

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