Charlie Dreifus updates investors on Royce Special Equity | Royce
article , video 05-11-2018

Charlie Dreifus updates investors on Royce Special Equity

Charlie recaps the first quarter and looks at the signs he’s observed that suggest a small-cap market ready to shift.


How did Royce Special Equity perform in 1Q18?

It was a difficult quarter. We went down more than the market, which is never pleasant, but is not without some precedent. I've been managing funds on this basis since May of 1980, so that's 38 years. And there are roughly 200 market days a year, so we’re talking about roughly 8,000 NAVs that I've observed, and I've seen this disconnect before. It occurs when the market’s narrower, when it is sometimes, as it may be now, transitioning from one mode to another.

But when you take the longer perspective, the process is really the same. The history of Special Equity here at Royce, which now is 19 years and 11 months, the results over that period of time for the Fund is 9.05% annualized return. And the Russell 2000 is 7.35% annualized return. That's a 23% outperformance for 19 years.

Special Equity Performance Since Inception
Average Annual Total Return From 5/1/98 through 3/31/18

special equity long-term-performance

Why do you think the market will shift?

We need to comfort ourselves and gain confidence that, indeed, we are transitioning from this growth-driven market to a market that will be characterized by better performance for the cyclical value spectrum of companies.

The economy in the rest of the world generally is doing quite well. But if the progress continues, we should expect gradual, continued higher inflation, as well as higher interest rates. That works to cause growth stock investors to take some pause.

‘Cause that growth is discounted by a present value, which is often the interest rate. So as interest rates rise, that should diminish the attraction of growth stocks. The economy is strengthening and you don’t have to rely on growth stocks to get earnings growth. There are opportunities available in the cyclical area.

Important Disclosure Information

Average Annual Total Returns as of 3/31/18 (%)
Special Equity -5.00 2.80 5.06 7.40 8.76 9.63 9.05 05/01/98
Russell 2000 -0.08 11.79 8.39 11.47 9.84 11.50 7.35 N/A
Russell 2000 Value -2.64 5.13 7.87 9.96 8.61 10.85 8.02 N/A

Annual Operating Expenses: 1.17% 

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 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 and other expenses.

The thoughts and opinions expressed in the video are solely those of the persons speaking as of April 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.

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 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 .) As of 3/31/18 the Fund invested a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than more broadly diversified portfolio because a decline in the value of any one of these stocks would cause the Fund's overall value to decline to a greater degree. (Please see "Primary Risks for Fund Investors" in the prospectus.)



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