Royce Premier Fund: Building a High-Conviction Portfolio of Superior Businesses by Royce Funds
Portfolio Manager Lauren Romeo talks about how many holdings that populate this Royce portfolio are companies we have seen persevere through various economic cycles, changing industry conditions, and company-specific challenges.
Steve Lipper: Lauren, as we think about Royce Premier Fund and the strategy, how would you describe what we’re trying to accomplish?
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
Lauren Romeo: With Royce Premier Fund, we’re trying to construct a relatively concentrated portfolio of smaller-cap companies in which we have a high degree of confidence in their business models.
Specifically, for a stock to get into the Premier portfolio means that we’ve developed an extremely high conviction that the company has some sustainable competitive advantage, or as Warren Buffett would call it, an economic moat around its business.
Steve: So developing enterprise conviction as confidence in the company’s business model is an important part of the process. How do we go about doing that?
Lauren: Many of the companies that find their way into Premier are ones that we’ve owned for several years within other more diversified funds at Royce. As a result, we’ve done a significant amount of analysis of these companies over the years, and we’ve lived with the companies and management through various economic cycles, changing industry conditions, and company-specific challenges.
When we build positions we do it incrementally over time, really trying to take advantage of the valuation opportunities that the market presents. A byproduct of this high-conviction, long-term approach to investing is relatively low portfolio turnover.
Steve: Lauren, you’ve been an assistant portfolio manager for eight years on Royce Premier Fund. Tell us what that role entails.
Lauren: My responsibilities include generating new stock ideas for the Fund, doing maintenance research and having opinions on our existing holdings, as well as assisting in portfolio construction.
Steve: Steve McBoyle was recently named an assistant portfolio manager for Royce Premier Fund as well. Has Steve been doing research on similar companies with strong economic moats?
Lauren: Yes—Steve, in his seven years as a portfolio manager here at Royce, has worked on Funds that have a similar quality company focus. So as a result he’s been heavily involved in the conviction-building process on a good portion of the names that are in Premier Fund.