article 07-27-2016

Barron's Talks to Chuck Royce: "A Value Investor's Dream"

"Small-cap expert" Chuck Royce tells Barron's why he's bullish on alternative asset managers and other financial services firms. 

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"In many ways, alternative-asset managers are similar to traditional asset managers, which went public in the 1980s and confused investors. It is the perfect dream scenario for a value investor," said Chuck Royce.

Chuck spoke with Ben Levisohn of Barron's about "an often-overlooked corner of the alternative-investment world: alternative-asset-management companies" and his thoughts on the prospects for active small-cap management, for the paper's "Alternatives Monthly" pull-out section entitled, "Why Alt Stocks Are a Value Investor's Dream."

The piece opens with the observation that "Charles M. 'Chuck' Royce probably isn't the first person you'd expect to discuss alternative assets." Chuck has been particularly active in that space since the 2008 Financial Crisis and shares why he likes KKR, Ares, Lazard and others.

Chuck examines the qualities he finds attractive about alternative asset managers, private equity, and non-traditional lenders. Many of these firms have complex business models and/or long business cycles that most investors are unfamiliar (and quickly grow impatient) with—thus creating potentially rewarding long-term investment opportunities.

While many investors may lack the patience to stick with these companies, Chuck sees their investment status today as analogous to how more traditional asset managers were seen in the 1980s. He points out that traditional asset management firms also initially confused investors and created opportunities for those willing to research the businesses and stay with them for long-term periods.

He then delves into several companies that he thinks currently exemplify the attributes he likes in financial services businesses, including Ares Management, KKR, and Lazard. Chuck also discusses his view of how new regulation since the financial crisis "has created tremendous opportunities for non-banks."

Finally, Chuck looks at the turnaround for actively managed small-cap portfolios so far in 2016 and why he believes that active management will always have a place in the small-cap world.

"It is a wonderful, large space with plenty of opportunities."

Chuck Royce has 53 years of investment industry experience. Chuck manages Royce Pennsylvania Mutual FundRoyce Premier Fund (with Lauren Romeo and Steven McBoyle), Royce Total Return Fund and Dividend Value Fund (with Jay Kaplan), and Royce Global Financial Services Fund (with Chris Flynn). He also manages Royce Value TrustMicro-Cap Trust, and Global Value Trust, the firm's three closed-end fund offerings.

Read the full article.

Important Disclosure Information

Chuck Royce is Chairman of the Board and a Portfolio Manager of Royce & Associates, LP, investment adviser to The Royce Funds. Mr. Royce's thoughts in this interview concerning the stock market reflect his opinions and, of course, there can be no assurance with regard to future market movements. No assurance can be given that the past performance trends as outlined above will continue in the future.

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.)

As of 6/30/16, these stocks mentioned in the Barron’s piece accounted for the following percentage of net assets:

Ares Management L.P. accounted for the following percentages in: Pennsylvania Mutual, 0.1; Total Return, 0.2; Premier, 1.6; Global Financial Services, 2.2; Royce Value Trust, 0.5. KKR & Co. L.P. accounted for the following percentages in: Total Return, 0.6; Dividend Value, 1.5; Global Financial Services, 0.6; Royce Value Trust, 0.0. Apollo Global Management LLC Cl.A accounted for the following percentages in: Total Return, 0.3; Dividend Value, 1.0; Global Financial Services, 1.1. Oaktree Capital Group LLC Cl. A accounted for the following percentages in: Total Return, 0.1; Dividend Value, 1.6; Global Financial Services, 1.3; Royce Value Trust, 0.4; Royce Global Value Trust, 0.5. Lazard Cl. A accounted for the following percentages in: Pennsylvania Mutual, 0.4; Premier, 0.9; Dividend Value; 1.1; Global Financial Services, 0.6; Royce Value Trust, 0.4; Royce Global Value Trust, 1.0. Evercore Partners accounted for the following percentages in: N/A. Greenhill & Co. accounted for the following percentages in: Total Return, 0.1. Moelis & Company Cl. A accounted for the following percentages in: Pennsylvania Mutual, 0.3; Total Return, 0.5; Dividend Value, 0.6. Carlyle Group L.P. accounted for the following percentages in: Dividend Value, 0.9; Global Financial Services, 1.5. 

There can be no assurance that any of the securities mentioned in this piece will be included in these portfolios in the future. References to specific securities in this piece are not intended as recommendations and should not be relied upon as the basis for anyone to buy, sell, or hold any security.

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