Francis Gannon on How Rising Rates May Impact Small-Caps—Royce
article 06-29-2022

Francis Gannon on How Rising Rates May Impact Small-Caps

Francis Gannon was a guest on Franklin Templeton’s Megatrends discussing the impact of rising rates on small-caps, what investors should know about the asset class’s performance in today’s environment, and more.


Co-CIO Francis Gannon was recently a guest on Franklin Templeton’s Megatrends delving into monetary policy tightening and how it may affect small-caps.

Listen to the podcast.

Francis looked to history to show how market extremes have provided opportunities for the asset class, noting that since 1945, based on data from the Center for Research in Security Prices at the University of Chicago (CRSP), small caps have posted positive annualized three-year returns 88% of the time on a rolling monthly basis, with an average return in the low double digits.

In addition, Francis made his case for quality stocks, which he defines as companies that have high return on invested capital and proven histories of long customer relationships.

“Granted, each bear market is different. But history has showed us, time and time again, that at market extremes there’s always a lot of opportunity. So your forward returns are really on sale today. And that’s what we as a firm are trying to take advantage of.”

Listen to the podcast.

Learn more about Francis Gannon.

Important Disclosure Information

The thoughts and opinions expressed in the video are solely those of the persons speaking as of June 15, 2022 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.

The performance data and trends outlined in this presentation are presented for illustrative purposes only. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements.

Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and / or Russell ratings or underlying data and no party may rely on any Russell Indexes and / or Russell ratings and / or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication. All indexes referenced are unmanaged and capitalization-weighted. The Russell 2000 Index is an index of domestic small-cap stocks that measures the performance of the 2,000 smallest publicly traded U.S. companies in the Russell 3000 Index. The (Center for Research in Security Prices) CRSP (Center for Research in Security Pricing) equally divides the companies listed on the NYSE into 10 deciles based on market capitalization. Deciles 1-5 represent the largest domestic equity companies and Deciles 6-10 represent the smallest. CRSP then sorts all listed domestic equity companies based on these market cap ranges. By way of comparison, the CRSP 1-5 would have similar capitalization parameters to the S&P 500 and the CRSP 6-10 would have similar capitalization parameters to those of the Russell 2000. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index.

Return on Invested Capital is calculated by dividing a company’s past 12 months of operating income (earnings before interest and taxes) by its average invested capital (total equity, less cash and cash equivalents, plus total debt, minority interest, and preferred stock).

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus carefully before investing or sending money. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.)



Sign Up