Royce Smaller-Companies Growth Fund (formerly Royce Value Plus Fund) looks for growth at a reasonable price. Portfolio Managers Chip Skinner and Carl Brown discuss their criteria and the themes in which they're currently interested.
Chip Skinner: I would describe Royce Smaller-Companies Growth Fund (formerly Royce Value Plus Fund) as a smaller companies growth fund. I think of it as growth at a reasonable price (GARP). It's a fund where we're trying to find growth companies, growth themes, and growth megatrends.
Carl Brown: We're looking for companies that are growing at above-average rates both on the top and bottom line, and we're realistic about the fact that when you're looking for those types of companies, you'll have to pay a higher multiple than you otherwise would normally have to. So we're willing to pay up a little bit for companies that have higher growth potential.
Chip: We're trying to find companies that are going to grow for a very long time that we can tuck away and not worry about. Clearly we're going to monitor these companies and we might trim our position around the edges, but it's something we want core to the portfolio.
Our largest theme is a theme that we refer to as a better mousetrap. It represents almost 25% of the portfolio. And these are companies who have a leading product. They're not startup companies but they have a product which actually is taking share.
IPG Photonics (IPGP, Financial) is a company that we've owned for a very long time. It is a company that makes lasers. They make a certain type of laser called a fiber laser, which is the next generation from a typical CO2 laser company. It requires less power, it is more efficient, it is the same price as a CO2 laser. And it's been a phenomenal company that has broken into various end markets, and they continue to grow. We've owned this company since the IPO.
Carl: Where are we in terms of the shift to these net generation lasers in the industry?
Chip: The industry penetration for fiber lasers is on the order of 25% and it continues to make a greater penetration. There are other companies that are coming up with fiber lasers to compete, but these guys have been able to stay a couple of years ahead of the competition.
Carl: Where do you think that penetration can go over time?
Chip: I think it could probably get close to 75%, and I think that's what some of the industry experts are also saying.
Important Disclosure Information
Chip Skinner and Carl Brown are Portfolio Managers of Royce & Associates, LLC, investment advisor to The Royce Funds. Chip Skinner serves as portfolio manager for Royce Smaller Companies Growth Fund and Carl Brown serves as assistant portfolio manager for Royce Smaller Companies Growth Fund and Royce Low-Priced Stock Fund. The thoughts and opinions expressed in the video are solely those of the persons speaking and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.
This material is not authorized for distribution unless preceded or accompanied by a currentprospectus. Please read the prospectus carefully before investing or sending money. Royce Smaller-Companies Growth Fund invests primarily in small-cap and mid-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.) In addition, as of 3/31/15 the Fund invested a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than a more broadly diversified portfolio because a decline in the value of any of these stocks would cause the Fund's overall value to decline to a greater degree. The Fund may invest up to 25% of its net assets in foreign securities (measured at the time of investment), which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.)
