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Charles Royce, chief investment officer of New York, NY-based The Royce Funds since 1972, is among the most high profile mutual fund managers. With $34 billion in assets under management (AUM), the fund specializes in investing in smaller companies, with over half of its assets deployed into small- and micro-cap equities, and most of the remaining half in mid-cap equities. The belief is that because it's small, it's less covered by institutions and hence there is more price inefficiency that can be exploited using a disciplined value and a long-term holding approach.
The fund holds a diversified portfolio of over 1,500 positions, and is over-weight the Basic Materials, Transportation, and Services sectors; it is under-weight the Energy, Utility and Healthcare Sectors. Within those sectors, it was over-weighted in the Semiconductor Equipment Group and the Industrial Metals and Goods Manufacturing Group in the quarter ending December 2010, and per the 13-F filings for the most recently reported March 2011 quarter, it deployed more capital into those groups, thus continuing to be over-weight those groups.
Furthermore, its portfolio turnover is between 20-25%, implying a holding period approaching four to five years. It offers 37 open- and close-end funds, with almost all of them returning between 10% and 15% average annual return over the past 10 years compared to 3.3% for the S&P 500 and 7.9% for the Russell 2000. The return for these funds exceeds 10% even since inception, which in the case of many of these funds is nearly 30 years.
Based on a review of available SEC 13-F filings, Royce Funds started buying Varian Semiconductor Equipment Associates (NASDAQ:VSEA) since the quarter ending June 30, 1999, bought at a price between $5 and $8, when it held split-adjusted 123,750 shares. Since then, it's kept accumulating VSEA shares, holding 6.8 million shares or 9% of the outstanding shares of the company. On May 4, Applied Materials (NASDAQ:AMAT) announced that it would buy VSEA for $63 per share in cash, netting The Royce Funds almost a 10-fold return over its initial investment over the last 11 years.
Charles Royce is a very savvy investor, and besides VSEA, his initial investment in Dionex Corp. in 1999, which was also recently acquired at the end of 2010 for $118, represented almost a 10-fold return over the 11-year period. The following summarizes its other high conviction picks and pans based on the latest reported 13-F filing for the March 2011 quarter:
  • Teradyne Inc. (NYSE:TER) manufactures IC test systems for the automotive, communications, consumer, computer and electronic game markets.
  • Newmont Mining Corp. (NYSE:NEM) produces gold in the U.S., Australia, Peru, Indonesia, Canada, New Zealand, Ghana and Mexico.
  • Fossil Inc. (NASDAQ:FOSL) operates 355 accessories stores and outlets.
  • Gardner Denver Inc. (NYSE:GDI) manufactures compressor, vacuum and fluid transfer products used in industrial, water, jetting and drilling applications.
  • Allied Nevada Gold Corp. (NYSEMKT:ANV) engaged in the exploration, acquisition, development and operation of gold properties in NV.
  • Nu Skin Enterprise CL A (NYSE:NUS) is a network marketer of personal care products and nutritional supplements under the Nu Skin and Pharmanex brands.
  • Littlefuse Inc. (NASDAQ:LFUS) manufactures circuit protection systems and electrical fuses for the electronics, automotive and electrical markets.
  • Reliance Steel & Aluminum (NYSE:RS) processes carbon, aluminum, steel and stainless steel products for construction, transportation, aerospace and semiconductor markets.
  • Globe Specialty Metals (NASDAQ:GSM) manufactures specialty metals including silicon-based metals for the chemical and automotive industries.
  • Rofin-sinar Tech (NASDAQ:RSTI) manufactures CO2, solid-state and diode lasers to cut, weld, mark and perforate industrial materials.
  • IPG Photonics Corp. (NASDAQ:IPGP) manufactures fiber optic lasers and amplifiers used in materials processing, telecom, medical and measurement markets.
  • Oil States International (NYSE:OIS) provides specialty products and services to oil and gas drilling and production companies worldwide.
  • Thomas & Betts Corp. (TNB) manufactures electrical connectors, components, steel transmission and distribution poles, heaters and furnaces.
  • Rowan Companies Inc. (NYSE:RDC) provides international and domestic contract drilling services and related equipment.
New or Increased or Decreased Position
Market Value at end of March 2011 Quarter
Change in Value from Prior Quarter
Teradyne Inc.
$ 196 million
$ 110 million
Newmont Mining Corp.
$ 50 million
$ 88 million
Fossil Inc.
$ 229 million
$ 87 million
Gardner Denver Inc.
$ 201 million
$ 75 million
Allied Nevada Gold Corp.
$ 319 million
$ 75 million
Nu Skin Enterprise CL A
$ 234 million
$ 55 million
Littlefuse Inc.
$ 117 million
$ 54 million
Reliance Steel & Aluminum
$ 368 million
$ 45 million
Globe Specialty Metals
$ 44 million
$ 44 million
Rofin-Sinar Tech
$ 63 million
$ 42 million
IPG Photonics Corp.
$ 51 million
$ 41 million
Oil States International
$ 131 million
$ 39 million
Thomas & Betts Corp.
$ 110 million
$ 39 million
Rowan Companies Inc.
$ 74 million
$ 38 million
Credit: Historical fundamentals, including operating metrics and stock ownership information were derived using I-Metrix® by Edgar Online®, Zacks Investment Research, DailyGraphs®, Thomson Reuters and Fund data, including assets under management and firm profiles are sourced mostly from The information and data are believed to be accurate, but no guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.