Royce Funds: Investing During Turbulent Markets

Investing During Turbulent Markets By Chris Flynn, Royce Funds

Portfolio Manager Chris Flynn explains why volatility plays such an important role in our investment process.

See the video here.

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“After the crash in 2008 people would ask me, ‘Well, what are you doing differently now? What are you doing now?’ And my answer was, ‘Well, it’s the same thing I’ve always been doing.’ I’m looking for cheap stocks. It doesn’t really change whether the market’s high or the market’s low. We’re looking for a discount to the intrinsic value of the company. So that activity doesn’t change. It’s not based on what the Fed is going to do; it’s not based on what Mario Draghi is going to do. It’s the same activity throughout market cycles.

“People are made nervous by volatility. It scares people away. I welcome volatility. It creates opportunity. So when there’s turbulence and when there’s uncertainty, that’s where the opportunities come up.

“Our activity here kind of cycles around what’s happening with the market. When things are calm, when the market is sort of trending upwards nicely, we’re doing a lot of research. We’re learning about a lot of managers and a lot of businesses and industries. We’re doing an occasional opportunistic buy of something. But when we really go to work and get very active in terms of buying stuff is when we get a correction.

“By way of analogy, in North America there’s a species of duck called the harlequin. The harlequin duck is like any other species—it has its niche. The harlequin duck operates in turbulent water; it’s their niche. They enjoy turbulence because it stirs up a lot of crustaceans and a lot of feeding opportunities from the bottom. They don’t sit in ponds. They don’t do very well in calm water, flat water. We are, or I am, one of the harlequin ducks in the capital markets, thriving on turbulence. And that’s our niche. That’s what I enjoy. That’s where I find opportunity.”