Brendan Hartman on Small-Cap Opportunities and Portfolio Construction on —Royce
article 10-06-2023

Brendan Hartman on Small-Cap Opportunities and Portfolio Construction on

How one Royce Strategy tries to turn “perceived flaws” in small caps to their advantage.


PM Brendan Hartman was recently featured in an article penned by James Faris that looked at the prospects for small caps and why the asset class shouldn’t be “an afterthought” for investors.

Read the piece (registration required).

The article describes how Brendan and the team that manages Royce Small-Cap Opportunity Fund work around the occasional criticisms of small-cap stocks—that they are “riskier because they tend to be more sensitive to swings in the economy, and their lack of size can also make them more volatile”—by trying to turn these “perceived flaws” to their advantage.

In detailing the portfolio’s approach, Brendan stressed the importance of meeting with management teams: “In these small companies, it really matters who’s running it and how they’re running it. It’s not like these big companies that have all sorts of divisions and systems. These are much more hands-on type companies, and their customer relationships are very important. So, we do spend a lot of time with management teams and making sure the story is consistent and hasn’t changed."

In discussing nine high-confidence holdings in the Fund, Brendan talked about the overlap between technology and industrial companies, saying, “There's a blending between these high-quality industrial businesses and technology because everybody's using more and more technology in their processes, whether they're automating production lines, whether they're speeding up, using more data centers, putting more processes in the cloud, getting better ERP systems to run their business more efficiently.”

Read the piece (registration required).

Learn more about Brendan Hartman.

Important Disclosure Information

Average Annual Total Returns as of 9/30/2023 (%)

NET               GROSS
Small-Cap Opportunity -4.95 20.85 17.48 7.53 8.61 11.58 11/19/96  1.23  1.23
Russell 2000 Value
-2.96 7.84 13.32 2.59 6.19 8.45 N/A  N/A  N/A
Russell 2000
-5.13 8.93 7.16 2.40 6.65 7.71 N/A  N/A  N/A
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.

Mr. Hartman’s thoughts and opinions concerning the stock market are solely his own and, of course, there can be no assurance with regard to future market movements. No assurance can be given that the past performance trends as outlined above will continue in the future.

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.

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 and micro-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.

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. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. The Russell 2000 Value and Growth indices consist of the respective value and growth stocks within the Russell 2000 as determined by Russell Investments. The Russell 2000 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.



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