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. (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.
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.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.