Jay Kaplan: A Review and Outlook for Our Small-Cap Dividend Strategy | Royce
article , video 02-12-2018

Jay Kaplan: A Review and Outlook for Our Small-Cap Dividend Strategy

Portfolio Manager Jay Kaplan explains why a growing global economy could mean good things for our small-cap dividend value strategy.


What's your perspective on how the Fund did last year?

I think Total Return had a good year. At first blush, somebody might look and say the Fund was 100 basis points less than the Russell, and that's not so great. And I would say, okay, hold on a second. Let's think about what the Fund is and what it's supposed to be.

So the Fund goes after dividend-paying stocks. And if you look at the dividend-paying stocks in the Russell 2000, in 2017, they were up around 9%, and the Fund was up around 13%. So 13 to nine I think is a pretty good result.

Dividend Payers Lagged in 2017
Average Annual Total Return as of 12/31/17


Think about this another way. It's a mid-teens return, and in a Fund that has very low volatility, a mid-teens return in a mid-teens upmarket is a pretty good result. So I'd say, all-in-all, we're pretty pleased with the year we had in Total Return in 2017. 

What do you think investors should expect from Total Return?

The Total Return Fund, if you look historically, is one of the least volatile small-cap funds in the universe, growth funds, core funds, value funds, all small-cap funds, number one. And number two, you'll see, if you look at the history, in really big up markets, the Fund trails a little bit most of the time. In the big down-markets, the Fund does less bad most of the time.

So the setup is less volatile, better downside protection, hopefully, giving up a little upside, and that's the price you pay. And we think that's a great trade-off, because over time, over market cycles, the compounded return has been really good for the amount of risk that we've taken. 

In the Bottom 20% of Volatility for all Small-Cap Funds
5-Year Relative Standard Deviation vs. all Small-Cap Funds tracked by Morningstar as of 12/31/17

The Fund was in the lowest volatility quintile compared with all Funds in Morningstar’s Small Growth, Small Blend, and Small Value Categories with at least five years of history, a total of 520 Funds as of 12/31/17. The universe consists of each Fund's oldest share class only. Volatility quintiles are based on the average five-year standard deviation for each of the last four calendar quarters. Higher volatility is usually associated with higher risk.

What's your perspective on how the Fund's positioned for 2018?

I think the Fund is pretty well positioned for 2018, and let me tell you why. The economy is growing, cyclical stocks should do well in that environment, and we have a fair amount of cyclical exposure.

Total Return is Weighted to Cyclicals


As of 12/31/17

We have materials and industrials, like we always do, because that's where the dividends are, but we have a good core around that base, and if the economy does well, those stocks will do well. Now, if the market should hit a pothole some of the areas that are more highly valued, and in my opinion could get hurt the most, like healthcare and technology, there's not a lot of dividend-paying stocks there, so we tend to be underrepresented there, and if we hit a pothole, that would be pretty good as well. So I think on both sides of the coin, the positioning for 2018 is really good. 

Important Disclosure Information

Average Annual Total Returns (%) as of 12/31/17 

Total Return 4.41 13.65 13.65 9.90 12.30 7.98 9.37 11.04 12/15/93
Russell 2000 3.34 14.65 14.65 9.96 14.12 8.71 7.89 9.31 N/A
Annual Operating Expenses: 1.21%
1 Not Annualized

All performance information reflects past performance, is presented on a total return basis, reflects the reinvestment of distributions, and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate, so that shares may be worth more or less than their original cost when redeemed. Shares redeemed within 30 days of purchase may be subject to a 1% redemption fee, payable to the Fund, which is not reflected in the performance shown above; if it were, performance would be lower. Current month-end performance may be higher or lower than performance quoted and may be obtained at www.roycefunds.com. Operating expenses reflect the Fund's total annual operating expenses for the Investment Class as of the Fund's most current prospectus and include management fees, other expenses, and acquired fund fees and expenses. Acquired fund fees and expenses reflect the estimated amount of the fees and expenses incurred indirectly by the Fund through its investments in mutual funds, hedge funds, private equity funds, and other investment companies.

The thoughts and opinions expressed in the video are solely those of the persons speaking as of January 9, 2018 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.

Cyclical and Defensive are defined as follows: Cyclical Consumer Discretionary, Energy, Financials, Industrials. Defensive: Consumer Staples, Health Care, Real Estate, Telecommunications Services, Utilities.

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. The Russell 2000 Index is an unmanaged, capitalization-weighted index of domestic small-cap stocks. It measures the performance of the 2,000 smallest publicly traded U.S. companies in the Russell 3000 Index. The Russell 2000 Value and Growth indexes consist of the respective value and growth stocks within the Russell 2000 as determined by Russell Investments. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index.

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. The Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.) The Fund’s broadly diversified portfolio does not ensure a profit or guarantee against loss. The Fund may invest up to 25% of its net assets (measured at the time of investment) in securities of companies headquartered in foreign countries, which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing Foreign Securities" in the prospectus.)  



Sign Up