Chris Clark: Chuck, Fed Chairman Yellen recently spoke about not only what the Fed's activities are going to be going forward in terms of tapering—as well as potentially raising interest rates over time—but she also identified segments of the market that she felt were showing elements of froth, specifically small-cap stocks, and then at a sector level biotechnology and social media stocks. What do you think about those views and is there any correlation to the activities that we're engaged in?
Chuck Royce (Trades, Portfolio): The idea of asset bubbles; it's always a fun kind of thing to talk about. Sure, there are excessive valuations in certain sectors—social media, for sure, and biotech. Actually, though, this has really nothing to do with the opportunity set that we have in the more plain vanilla company. We continue to have the opportunity to double our money with our new purchases over the next three to five years, and I'm very confident that that can continue to be the opportunity.
Chris: How would you respond to her blanket statement that small-cap companies are overvalued?
Chuck: I think she is focusing on these two particular sectors, which I think there's a grain of truth in it, but it is not true overall.
Chris: How do you view that in the context of the opportunity set in the equity class, equity asset class broadly, and are we finding enough things to do to make our portfolios attractive for the next three to five years?
Chuck: We are absolutely finding things to do. We have not modified our valuation standards at all. We're still looking to, as I said, double our money over three to five years. Of course, small stocks as a group will lead or lag, rotate, from time to time, and that would be perfectly normal. So I would expect plenty of rotation, but plenty of non-correlated, strong returns.
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