Chuck Royce: Risk, Volatility, and Royce Total Return Fund by The Royce Funds
At Royce, we manage risk by embracing volatility and evaluating companies we believe to be undervalued—one of the keys to outperformance for active managers such as ourselves. In this piece we examine the role that volatility has played in the Fund’s performance history, which goes back to December 1993.
Financial Professionals can log in to see the full piece, including the Fund’s down market performance, standard deviations, and downside capture versus the Morningstar Small Blend Category. The expanded piece also shows the Fund’s historical risk-adjusted performance record (as measured by the Sharpe ratio) against the Russell 2000 and the Morningstar Small Blend category average.
In many ways, Royce Total Return Fund was designed to seek better downside protection and risk-adjusted returns.
It's no secret that this year has been a volatile one for the markets. The S&P 500 is down 18% year to date, while the Nasdaq Composite is off by 27% year to date. Meanwhile, the VIX, a key measure of volatility, is up 49% year to date at 24.72. However, it has spiked as Read More
The broadly diversified portfolio of dividend-paying small-cap stocks was meant to attempt to provide a potential cushion against the extremes of market volatility, particularly when markets were correcting. We seek to meet these goals by investing in companies that possess strong balance sheets, solid fundamentals and what we think are attractive valuations.
We are pleased that these goals have largely been met since the Fund’s inception on 12/15/93. Total Return beat its small-cap benchmark, the Russell 2000 Index, in all 11 down markets over the past 15 years (see the graph below).
Down Market Performance Comparison (%)