Royce Small-Cap Special Equity Fund Is One of Morningstar’s “All Weather Funds”—Royce
article 01-26-2023

Royce Small-Cap Special Equity Fund Is One of Morningstar’s “All Weather Funds”

Morningstar’s John Rekenthaler mentioned Royce Small-Cap Special Equity Fund’s Investment Class as one of five funds that qualify in his view as “all weather.”


On 1/12/23, Morningstar’s John Rekenthaler discussed five funds that he believes are “all weather,” including Royce Small-Cap Special Equity Fund, which is managed by Charlie Dreifus, CFA®, in “All-Weather Stock Funds Do Exist: Unfortunately, almost nobody owns them.”

In making his determination, he first examined mutual fund and ETF performance in three bear market years: 2022, 2008, and 2022. Only diversified U.S. equity funds with at least 21 years of history that also invested an average of 85% of their assets in stocks were eligible for the study. Rekenthaler then screened for funds that had returns of -19.43% or better in 2022 (a return hurdle he admits is “very much relative”) before further screening for those that had also beaten the Morningstar US Market Index in both 2008 and 2002.

The next step involved determining which funds had also demonstrated solid overall performance over the last 21 years, which led him to screen for portfolios that outperformed the Morningstar US Market’s average annualized return of 8.17% from 2002-2021. He then further refined his test by defining as “all weather” those funds “that have outgained the overall stock market over the long haul while also experiencing less than 70% of the stock market’s decline in 2002, 2008, and 2022.” That whittled the list down to five funds, each of which is “sponsored by a niche organization… have relatively few shareholders, and their performances are driven by small to midsized companies that sell at low price multiples.”

You can read the piece here.

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Average Annual Total Returns as of 12/31/2022 (%)

NET               GROSS
Small-Cap Special Equity 11.48 -6.33 7.22 4.59 7.42 8.45 05/01/98  1.20  1.20
Russell 2000 Value
8.42 -14.48 4.70 4.13 8.48 7.41 N/A  N/A  N/A
Russell 2000
6.23 -20.44 3.10 4.13 9.01 6.77 N/A  N/A  N/A
1 Not annualized.

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