article 05-11-2017

CNBC PRO Talks: Chuck Royce Talks to Mike Santoli about Long-Term Investing and the Future of Small-Cap Active Management

An interview with CNBC PRO Talks in which Chuck Royce details where he's currently finding attractive opportunities, particularly within financials. 

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Chuck Royce spoke to Michael Santoli of CNBC Pro Talks about where he's finding opportunities in the small-cap space, his thoughts on the market, and the future of active management.

Chuck offers insight into the small-cap universe, including his investment process, and explains how looks for companies "that we can take a very long-term view on." He addresses recent movements in the small-cap market, including 2016’s little discussed bear market, and why he believes value still has room to run.

Chuck describes why he's looking at small-cap financials more closely than ever, saying they are "a fascinating, broad area with lots of change and innovation." He adds that he likes alternative asset managers, as many have complex business models, have historically been under researched, and remain undervalued.

Chuck describes how he determines companies that are at the intersection of value and quality, "They [companies] have to not only have high returns but they have to have excellent reinvestment opportunities."

He highlights several companies that he likes in financial services businesses, including Ares Management and KKR.

Chuck discusses the larger trend of passive ownership and indexing and why in the long run it may be setting up a "platform for active management… and opportunity for an active investor." He adds that he is optimistic for active management's prospects, reasoning that they may do better in a "slower, flatter, lower return market."

Finally, Chuck imparts an important investment lesson: "I think having a long-term attitude, sticking with it, not giving up, and equity markets aren’t going away."

Chuck Royce has 54 years of investment industry experience. Chuck manages Royce Pennsylvania Mutual Fund, Royce 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 Trust, Micro-Cap Trust, and Global Value Trust, the firm's three closed-end fund offerings.

Watch Chuck's interview with CNBC Pro here. Please note that this video is part of CNBC Pro's premium membership content. You need a paid subscription to view the entire interview.

Important Disclosure Information

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.

As of 3/31/17, Ares Management L.P. was 0.0% of Royce Pennsylvania Mutual Fund's assets, 1.8% of Royce Premier Fund's assets, 0.2% of Royce Total Return Fund's assets, 0.0% of Royce Dividend Value Fund's assets, 2.0% of Royce Global Financial Services Fund's assets, 0.5% of Royce Value Trust's assets, 0.0% of Royce Micro-Cap Trust's assets, and 0.0% of Royce Global Value Trust's assets.

As of 3/31/17, KKR & Co. L.P. was 0.0% of Royce Pennsylvania Mutual Fund's assets, 0.0% of Royce Premier Fund's assets, 0.8% of Royce Total Return Fund's assets, 1.6% of Royce Dividend Value Fund's assets, 0.5% of Royce Global Financial Services Fund's assets, 0.0% of Royce Value Trust's assets, 0.0% of Royce Micro-Cap Trust's assets, and 0.0% of Royce Global Value Trust's assets.

As of 3/31/17, Cognex Corporation was 0.8% of Royce Pennsylvania Mutual Fund's assets, 2.4% of Royce Premier Fund's assets, 0.4% of Royce Total Return Fund's assets, 0.0% of Royce Dividend Value Fund's assets, 0.8% of Royce Global Financial Services Fund's assets, 0.8% of Royce Value Trust's assets, 0.0% of Royce Micro-Cap Trust's assets, and 0.0% of Royce Global Value Trust's assets.

As of 3/31/17, Lincoln Electric Holdings was 0.5% of Royce Pennsylvania Mutual Fund's assets, 2.5% of Royce Premier Fund's assets, 0.3% of Royce Total Return Fund's assets, 0.7% of Royce Dividend Value Fund's assets, 0.0% of Royce Global Financial Services Fund's assets, 0.3% of Royce Value Trust's assets, 0.0% of Royce Micro-Cap Trust's assets, and 0.0% of Royce Global Value Trust's assets.

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.

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. Investments in securities of small-cap companies may involve considerably more risk than investments in securities of larger-cap companies. (Please see "Primary Risks for Fund Investors" in the prospectus.)

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