Royce Special Equity 1Q19 Performance—Royce
article , video 05-10-2019

Charlie Dreifus On How He Manages Cash Levels

PM Charlie Dreifus details recent performance and updates for Royce Special Equity Fund.


How has the strategy performed recently?

Performance has been as I would hope and expect, and I hope my clients feel the same way. My objective is to try to produce absolute returns and contain downside, as well as have much lower volatility. All of which I think over the period of 21 years we’ve essentially done. So in the fourth quarter of last year, we declined less than half of the index decline, whereas in the first quarter of ’19, we advanced a bit more than half of the advance.

So yes, we didn't do anywhere near as well as the index in the very strong first quarter, but the protection that we afforded the portfolio in the fourth quarter resulted in the six month, the combined two quarters, the Fund having significantly outperformed the index, because of its losing less.


In what areas of the portfolio have you trimmed?

The greatest amount of reductions, either trimming in the sense of reducing the position, or in fact, eliminating the position, has occurred in the technology area. This has been the strongest area of the market over the past year. Valuations have gotten very high.

Obviously if world business does well, it will continue to do well, but there is some concern. I had several distributors in the portfolio and that business benefited over the last 12 to 18 months from a tightness of inventories, and there was double ordering. And so the book-to-bill, which is an expression of new orders compared to what we are shipping, has declined, suggesting that the cycle is becoming much less robust.

The other area that I found myself trimming back on was Consumer Discretionary.

For FPs: Royce's Annual Special Equity Webcast
June 25th at 11:00 AM ET
Portfolio Managers Charlie Dreifus and Steven McBoyle join Senior Investment Strategist Steve Lipper to discuss the strategy. Register


What updates have you made to the portfolio?

I find myself adhering to my discipline, which has a very strong value bias, being much more active than I have been historically. So starting last spring/summer, I was raising cash, such that it increased rather dramatically by the end of September. Then we had the selloff in the market, which I was able to find five new names and employ much of the cash into those names and, again, reduce the cash back to levels as it was in the beginning, before having raised cash.

But interestingly, now that the market has rebounded in the first quarter of ’19, my cash level has again risen beyond the high point of September of ’18, and again, I strongly feel that if you have an absolute return desire, although I don’t always attain that, you have to rigorously use the discipline when it's telling you that there are not enough inexpensive names around to invest in.

Percentage of Cash in Royce Special Equity Fund





Important Disclosure Information

Average Annual Total Returns as of 3/31/19 (%) 

Special Equity 7.69 2.18 9.43 4.33 11.88 7.33 10.04 8.71 5/1/98
Russell 2000 14.58 2.05 12.92 7.05 15.36 8.04 8.44 8.32 N/A
Russell 2000 Value 11.93 0.17 10.86 5.59 14.12 7.24 9.40 9.14 N/A

Annual Operating Expenses: 1.18% 

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, 2019 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.

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