Seizing Opportunities When The Equity Market Pulls Back by Chip Skinner, The Royce Funds

The small-cap growth area of the equity market has been a great place for investors the last 5 or 6 years.

As we know, there will continue to be great innovation, there will continue to be fantastic growth companies out there but I also believe in reversion to the mean and, therefore, I would not be surprised to see maybe small-cap value actually do better in the next 5-6 years.

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Seizing Opportunities When The Equity Market Pulls Back

I believe it is impossible to predict the equity market. Your guess is as good as mine. We continue to find interesting opportunities and when we have seen a pullback like we have, about 15% drop from the peak, this summer, that creates better opportunities for us. We can actually start looking at some of those great growth stocks that may have been too expensive before.

It is a good thing I think to have periodic pullbacks in the market. Sometimes things can get a little frothy when returns are high. Sometimes you will expect to see a pullback when perhaps the Federal Reserve is a little bit sort of mixed in terms of their message, which I think we have seen lately.

We have also seen the growth engine globally. China has had a deceleration and I think that has affected a lot of companies, particularly ones that do business overseas.

So I think pullbacks can be healthy. This one has been one of the deeper pullbacks that we have seen in some time. It has come pretty quickly. We have seen valuations contract quite a bit in our area, the small-cap growth area, but at the same time it creates opportunity.