Finding Deep Value In The Small-Cap Market by Bill Hench, The Royce Funds
Portfolio Manager Bill Hench on where he sees value in the small-cap market, with turnarounds.
See the video here.
Finding Value in the Small-Cap Market
Where are we finding value today? Most of the market in small cap value is cheap. If you look at last year’s market, it was really made up of two different markets.
It was made up of small-cap growth and small-cap value. Almost everything in the value world lacked any sort of participation in what was a pretty good market for small companies in general.
So you had – on the growth side, you had healthcare, you had software, software as services, you had a lot of media, things that did very, very well but most of the value names were down and many of them were down over 50%. And if you look, it even goes back probably about 18 months where you have had really no participation on the value side.
So lots of places to look – we think housing; we think most of the consumer is cheap. The best acting part of the market for us right now is the non-residential housing and the numbers are off the charts as far as activity going into ’16 and ’17. So it’s a really, really exciting place to be for an investor.
Turnarounds Poised to Benefit
As far as our thematic approach, if you look at our portfolio now, you will notice that many of the turnarounds are starting to do very well and these are things we bought a year and a half, two years and in some instances maybe even three years ago and they’re doing well because we have had this recovery in the US.
A lot of people have complained about the recovery but in point of fact what you have seen is terrific auto sales; you have seen a recovery in the housing market that I think is going to accelerate in ’16 and ’17; you have seen better employment and you continue to see benefits to the consumer – low energy prices and low commodity prices, low import prices.
These are all adding up to a very, very good mix, I think for our part of the market and the beneficiaries in our market – in our portfolio rather, are the turnarounds.