Taking Stock Of The Changing Environment by The Royce Funds
Over the past several years, the firm has been hit with a number of headwinds—investors have preferred high yields and/or fast growth, putting our primary investment style out of favor. In an investment world that is constantly changing, we are working to meet these challenges by using the bedrock principles that have served us well for more than 40 years.
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Fastenal: Why Being Cheap Works As a Business Strategy
Fastenal is one of the best-performing stocks of the past decade. Since the beginning of January 2010, shares in the industrial distribution company have yielded an average annual return of 16%, turning every $10,000 invested into $44,264. Q2 2020 hedge fund letters, conferences and more In many ways, Fastenal is not the sort of business Read More
Taking Stock of the Changing Environment
“After several decades of outperforming our benchmarks, we do find ourselves in a moment here where the post-financial crisis period has been one where we have underperformed our benchmarks. While we’ve been satisfied with the absolute returns, it’s clear that we’ve been in an environment that’s offered higher returns.
“I think one thing that we understand is that our industry is constantly changing. The environment is evolutionary. We have to make sure that we are adapting, thinking, growing, and constantly improving all that we’re doing. So it’s really been a period of self-reflection.
“There were clearly some mistakes that we made in some of the investment decisions that we made broadly as a firm, and then there were clearly some headwinds related to our risk-oriented discipline that stunted our performance in an environment that was rewarding the types of companies that we typically avoid.”
Experience and Patience Drive Our Discipline
“We’re very fortunate to have a very seasoned team of investment professionals that have seen multiple cycles. We’ve had this type of experience before. In the late 90s we went through a period of underperformance. In fact, our clients who know us best know that we are required to go through fallow periods and periods of underperformance to drive the types of long-term returns that reward shareholders over full market cycles.”
Towards an Enduring Business with Distinctive Strategies
“We’ve made a lot of changes over the past couple of years, and we think we’re largely through them. There’ve been very important adjustments both in terms of creating an enduring management structure for the organization, as well as creating appropriate teams around the core franchises that really define Royce as a business.
“We’re obviously small-cap specialists, but we’ve increasingly focused our teams in some very important areas, such as the high-quality zone in the small-cap space. Micro-cap is a very important segment within our firm. We have a growth capability. We have an international franchise. We do lots of things in the small-cap space, but we’ve been very purposeful about focusing the energies of our investment professionals in each of those core zones. And we think we’ve largely completed that. We did rationalize some products, and this is really to drive appropriate investment focus.”
A Collaborative Culture Where Clients Come First
“You know, I think being a boutique has a wonderful quality to it. It really talks about the culture and what really embodies the values of the organization. We really view ourselves as a small, independent, autonomously managed organization. Obviously within the context of a very strong parent in Legg Mason, but we believe that to sustain the type of culture that we think retains the best people and ultimately drives the best outcomes for our shareholders, having really this boutique feel to our business is very important.
“The overarching principle that we operate under is that we’re fiduciaries. We put the best interests of our clients first and foremost in everything that we do. We’re very fortunate to do the things that we love to do because people entrust us with their assets, and we take that very seriously. So, very importantly, we view ourselves as fiduciaries.”
For The Royce Funds’ one-, five-, 10-year, and/or since inception returns as of the most recent quarter-end period, please see our Prices and Performance page.