At Royce Funds we concentrate on individual companies, and our search for quality knows no borders. Portfolio Manager and Director of International Research David Nadel talks about how our approach applies to European small-cap stocks.
“European small-caps really performed well in 2013, particularly in the second half, and I think this was largely sort of a game of catch up. The daily sort of relentless doomsday scenario headlines have finally faded. I think people feel it’s safe to come back and invest in Europe.
We’ve always viewed the opportunity in Europe I think a little differently than some have. First of all, investors should not view Europe as a monolith. It is certainly comparable to the U.S. in terms of aggregate GDP, it’s comparable in terms of aggregate population, but the similarities end there.”
“You’re talking about an economic zone that is comprised of a very divergent set of countries, each with a separate set of laws, many different languages, different customs, etc. So there are big differences.
We at Royce Funds focus on high-quality companies. Often that means companies with strong balance sheets.”
“In Europe you have a bit of a balance sheet divide between the countries that are north of the Alps and the countries that are south of the Alps. It’s perhaps slightly simplistic to look at it this way, but by in large it holds that countries north of the Alps have stronger balance sheets, they tend to pay their bills quicker, and you get the opposite effects south of the Alps. So, we have traditionally had a more concentrated set of investments in Europe north of the Alps.
Last year we visited Italy, which was then viewed as the sick man of Europe. The Italian investments worked out quite well in 2013.”
“This year we’re focused a bit more on France. France is a market which is widely perceived negatively today. Certainly they have very persistent unemployment, they have a famously rigid labor market, and they have not balanced their budget since the mid-70s. French profit margins are at a 25-year low. That generally doesn’t go in one direction forever. We are certainly bullish on a number of companies in France.
Ultimately we’re investing in companies, not countries—so for us it’s really more important how good these businesses are fundamentally. But it helps when the public perception or when the consensus view is so negative in a market like France because you’re getting the stocks cheaper.”
Important Disclosure Information
The thoughts and opinions expressed in the video are solely those of the person speaking and may differ from those of other Royce Funds investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.
This material is not authorized for distribution unless preceded or accompanied by a currentprospectus. 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.) Investments in foreign companies may be subject to different risks than investments in securities of U.S. companies, including adverse political, social, economic, or other developments that are unique to a particular country or region. (Please see “Investing in Foreign Securities” in the prospectus.)
Via Royce Funds