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Chuck Royce is wildly experienced: He has been managing his own fund, Royce & Associates, since 1972. Prior to starting Royce & Associates, he worked as the director for research at Scheinman Hochstin Trotta, and a security analyst for Blair & Co before that.

Royce uses a value-based approach to selecting smaller companies for his investment positions. He focuses specifically on companies that have market capitalizations less than $15 billion, although most have market capitalizations are under $5 billion. Royce looks for companies that are underpriced relative to their enterprise value.

Historically, Royce has had good performance, but since June his top stock picks have not fared so well. They lost 16.3% since the end of last quarter compared to a loss of just over 11% for the SPY.

Company

Ticker

Value (x1,000)

Return Since June

UNIT CORP

(UNT)

418659

-30%

NU SKIN ENTERPRISES INC

(NUS)

339428

20%

RELIANCE STEEL & ALUMINUM CO

(RS)

336339

-26%

PAN AMERICAN SILVER CORP

(PAAS)

328785

4%

ALLIED NEVADA GOLD CORP

(ANV)

318377

22%

BUCKLE INC

(BKE)

303113

-12%

FEDERATED INVESTORS INC PA

(FII)

300570

-29%

GRAFTECH INTERNATIONAL LTD

(GTI)

296662

-31%

SILVER STANDARD RESOURCES INC

(SSRI)

280689

-6%

LINCOLN ELECTRIC HOLDINGS INC

(LECO)

278396

-15%

TERADYNE INC

(TER)

273261

-21%

WESTLAKE CHEMICAL CORP

(WLK)

269521

-24%

SIMS METAL MANAGEMENT LTD

(SMS)

233822

-33%

THOR INDUSTRIES INC

(THO)

232957

-33%

GARTNER INC

(IT)

222969

-11%

KENNAMETAL INC

(KMT)

221864

-23%

SCHNITZER STEEL INDUSTRIES INC

(SCHN)

215617

-33%

RITCHIE BROS AUCTIONEERS INC

(RBA)

214372

-24%

HELMERICH & PAYNE INC

(HP)

207443

-27%

ALLEGHANY CORP DE

(Y)

199471

-15%

MYRIAD GENETICS INC

(MYGN)

199132

-16%

ADTRAN INC

(ADTN)

198955

-23%

TOTAL SYSTEM SERVICES INC

(TSS)

198910

-5%

FAIRCHILD SEMICONDUCTOR INTL INC

(FCS)

198684

-24%

M K S INSTRUMENTS INC

(MKSI)

196766

-15%

Royce’s position in Unit Corp is his top position, at $418 million, after he increased his holding in the company by 2% last quarter. However, the stock has been losing big since the end of June. So far this quarter, Unit Corp is down 30%. Cliff Asness of AQR Capital Management is a fan of Unit Corp as well (check out Asness’ top picks).

Royce’s second-largest position is Nu Skin Enterprises Inc is one of his most profitable. Since the end of last quarter, Nu Skin has returned 20%. Royce owns a position worth $339 million in the company. Nu Skin is also popular with Jim Simons of Renaissance Technologies (see Simons’ top picks).

Royce is almost just as bullish about Reliance Steel & Aluminum Co. He owns a $336 position in the stock. Unfortunately, he has not done as well through this position, losing 26% since the end of June. Phil Gross and Robert Atchinson, the team behind Adage Capital Management, are also bullish on Reliance Steel.

Pan American Silver Corp is Royce’s fourth-largest position. He holds $328 million in the company. The position has done well so far this quarter, earning him a 4% return after he increased his position by 9% in the company last quarter. Richard Chilton of Chilton Investment Company also increased his position in Pan American Silver last quarter (read about Chilton’s top picks).

Royce is bullish on gold too. He holds $318 million in Allied Nevada Gold Corp. The position is one of his top performers, bringing in 22% since the end of June. Seth Klarman’s Baupost Group is fan as well (see Klarman’s top picks). SSRI and TSS are his other positions that managed to outperformed the market.

We like Royce but his positions this quarter are unpopular and largely losing; out of his top 25 picks, only 3 have produced a positive return. Luckily, all 3 were in his top five. An investor who had an equal-weighted portfolio of his top 5 stock picks could have outperformed the market by more than 9 percentage points.

Source: Chuck Royce's Top Stock Picks