Newsletter Watch: Royce Global Value
Given the market's high volatility of late, it may be an ideal time for small-cap investors to consider the Royce Global Value Fund (MUTF:RIVFX) — a small-cap fund with a focus on global opportunities within the framework of value-oriented investing.
Royce Global is the latest featured recommendation from Mark Salzinger in his No-Load Fund Investor newsletter.
"We continually search for new funds from experienced, successful managers. Such funds benefit from superior guidance and flexibility, and thus have a better than average chance of besting their peers." According to Salzinger, Royce Global Value is "one such fund."
Formerly known as Royce International Value from its late 2006 inception until early 2008, Royce Global has about $30 million in assets.
"The small-cap value approach [in Royce Global] attracts us greatly in this case, simply because it is so rare for an international or global fund," says Salzinger, pointing out that most international stock funds are oriented toward large caps. Further, of the small-cap international funds that do exist, most gravitate toward growth stocks.
"Despite the U.S. fund industry's apparent lock of interest in foreign small-cap value stocks, the style offers considerable potential for above-average returns over the long run," he says, noting that despite cyclical downturns, small-cap value in the United States has produced superior returns versus other investment styles over the long run.
In addition, he says, the relative lack of fundamental research on small-cap value stocks overseas offers "excellent opportunities for locating diamonds in the rough" in the global stock market.
Whitney George is the fund's portfolio manager and David Nadel is the assistant manager. According to Salzinger, George has been at Royce Associates for the past 16 years, after 11 years of being at other investment firms.
For Global Value, Salzinger says, the managers look for the best 50 to 60 stocks they can find anywhere in the world. According to the advisor, they use quantitative screening to eliminate the vast majority of potential investments and then perform fundamental
research on the remainder.
"According to Nadel, this later stage of analysis virtually always includes direct communications — and often face to face interaction — with the managements of the purchase candidates," Salzinger says.
The fund's country allocation, he says, is mainly residual of the investment process, not a result of desired exposure to certain countries. He notes that U.S. stocks recently accounted for about a quarter of the fund's assets.
Salzinger says that most of the fund's holdings, whatever their home countries, are "global" in nature, and many operate in industries that experience strong global growth. The natural resources and industrial products sectors account for the largest portions of the fund's assets (31% and 24%, respectively). Consumer products and technology (10% and 8%, respectively) are the only other sectors that account for significant assets.
As a fund family, Royce has long believed in the investment prospects for energy and many commodities in general. Small-cap Canadian energy services stocks, according to Salzinger, are widely present in the portfolio, as are small precious metals stocks including producers of gold, silver and platinum.
Salzinger says the fund's managers have also been finding attractive small companies in France and Germany, which are home to many small, yet leading manufacturers of pumps, process control and vacuum systems. (The latter, he says, are essential to many semiconductor, mining and health-care end products.)
Royce Global Value gained 14.3% in 2007. "After an especially strong May, the fund has gained 9% so far in 2008," he says. Despite the returns, Salzinger believes that the fund's portfolio still appears inexpensively priced based on traditional valuation metrics.
"Though the fund's net asset value would likely fall during sustained pullbacks in the prices of energy and precious metals (or during a sustained increase in the value of the U.S. dollar versus other countries), we expect volatility to be moderate over time," Salzinger says.
Because Royce funds tend to be managed with above-average cash positions, he says, and as such, "This contributes to downside protection." In the case of Royce Global Value, the fund currently holds 14% of its assets in cash.
Steven Halpern has just compiled a 35-page report on alternative energy, featuring the favorite solar, wind, nuclear, coal and natural gas stocks from the nation's leading financial newsletter advisors. The report is available for free to all Small Cap Newsletter readers.
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As a newsletter editor and financial journalist, Steven Halpern has covered the investment newsletter industry for 25 years.
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