GuruFocus is excited to announce that renowned small-cap investing guru Chuck Royce will join our readers for a Q&A session. Mr. Royce is the President and Co-Chief Investment Officer of New York-based Royce & Associates, a tremendously successful small-cap investing firm which has $37 billion in assets under management.
With 48 years of experience, he has one of the longest tenures of any active mutual fund manager. Royce’s Premier Fund has had stellar performance – in 2010 it returned 26.5 percent versus the S&P 500’s 15.1%, and in 2009 it returned 33.3% versus the S&P 500’s 26.5%. In the last 11 years, it has had only 2 years with negative returns. From 2006-2010, his five-year cumulative return was 45.3%, compared to the S&P 500’s 12.2%, and his 10-year cumulative return was 186.5%, compared to the S&P’s 16.4%.
Royce’s firm specializes in high-quality small companies with market capitalizations that rarely exceed $5 billion, although some of his funds contain stock of companies with market capitalizations of up to $10 billion. In this year’s economic climate, he is seeing strong returns in these stocks. He believes the opportunity in the next 10-20 years in the international smaller cap world is just as solid as it was 20 years ago. He is currently sticking with quality buys, and has a long-term interest in industrial companies, factories – which he believes are benefited by lower dollar and global activity – and global enterprises both in the United States and in developed foreign countries.
In the long term, Mr. Royce is optimistic about the prospects for equities. He expects them to have annual returns in the high single or low double digits, especially for the decade cumulatively. He believes small-cap stocks will fully participate, although he believes it will be a cyclical market with frequent rotations in leadership.
Royce is a value investor who looks for what he believes to be terrific stocks that trade for less than the companies’ estimated worth (or their enterprise value), and preferably 30% to 50% less.
To select portfolio holdings, he uses a bottom-up approach focusing on the following characteristics:
- High internal rates of return
- Strong balance sheet
- Ability to generate free cash flow
Part of the firm’s search for eligible companies may involve interviewing senior management and interviewing customers, suppliers and competitors.
Royce portfolios are usually highly diversified, with no one stock taking up more than 2% of his holdings. GuruFocus offers a full list of his holdings here.
To ask your questions to Chuck Royce, simply enter them in the comment box below. We will send them to him and publish his responses.