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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 $30 billion in assets under management, the fund specializes in investing in smaller companies, with approximately two-thirds of its assets deployed into small- and micro-cap equities, and most of the remaining one-third in mid-cap equities. The belief is that because they are small, they are 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.

Royce offers 37 open- and close-end funds, with almost all of them returning between 10% and 15% average annual return over the past ten 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.

Royce holds a diversified portfolio of 1,475 equity positions, and its portfolio turnover is 15%-20%, implying an average holding period of five to six years. Based on its most recent SEC 13-F filing for the June 2011 quarter, we determined that its portfolio is over-weight in the services (17%) and basic materials (14%) sectors, and it is underweight healthcare (6%) and energy (5%) sectors, compared to the weighting of these sectors in the overall economy. The following summarizes the fund’s most significant picks and pans in the latest reported 13-F filing for the June 2011 quarter, updated based on any 13-G filings since the end of the quarter:

Technology sector: Royce added $220 million to its $5.77 billion prior quarter position in the technology sector, including adding $88 million to its $130 million prior quarter position in Teradyne Inc. (NYSE:TER), a manufacturer of IC test systems for the automotive, communications, consumer, computer and electronic game markets; cutting $13 million from its $218 million prior quarter position in Graftech International Ltd. (NYSE:GTI), a manufacturer of carbon and graphite products for the metal production, electronics, aerospace and transportation industries; and cutting $264 million from its $395 million prior quarter position in Varian Semiconductor Equipment Corporation, a manufacturer of single wafer ion implantation system and equipment used in the fabrication of IC chips, that was acquired in May by semiconductor equipment market leader Applied Materials Inc. (NASDAQ:AMAT), a manufacturer of deposition, inspection, and etching equipment used in IC and flat panel display fabrication.

Basic materials sector: Royce added $180 million to its $4.11 billion prior quarter position in the basic materials sector, including cutting $43 million from its $50 million position in Newmont Mining Corp. (NYSE:NEM), a producer of gold in the U.S., Australia, Peru, Indonesia, Canada, New Zealand, Ghana and Mexico; adding $25 million to its large $281 million position in Pan American Silver Corp. (NASDAQ:PAAS), a Canadian company engaged in the exploration, acquisition and development of silver and other minerals in Mexico; and adding $16 million to its $253 million position in Reliance Steel & Aluminum (NYSE:RS), a processor of carbon and aluminum and stainless steel products for construction, transportation, aerospace and semiconductor markets.

Consumer sector: Royce cut $70 million from its $3.24 billion prior quarter position in the consumer sector, including cutting $72 million from its $201 million position in Fossil Inc. (NASDAQ:FOSL) that designs, develops, markets and distributes fashion accessories worldwide, including fashion watches, handbags, belts, small leather goods, jewelry, and sunglasses; and cutting $59 million from its $222 million prior quarter position in Timberland Co. (NYSE:TBL) that markets outdoor footwear, apparel and accessories for men, women and children, that is under acquisition by VF Corp. (NYSE:VFC), a manufacturer of branded jeans-wear, outdoor apparel, sportswear, athletic apparel and occupational apparel.

Healthcare sector: Royce cut $60 million from its $1.91 billion prior quarter position in the healthcare sector, including cutting $156 million from its $201 million prior quarter position in Endo Pharmaceuticals Holding (NASDAQ:ENDP), a developer of branded and generic pharmaceutical products that treat various conditions such as pain and overactive bladder; and adding $99 million to its $67 million prior quarter position in Myriad Genetics (NASDAQ:MYGN), a developer of molecular diagnostic products that analyze genes and their mutations to assess risk of cancer and diseases.

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Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: Top Q2 Picks of Small Cap Focused Royce Funds