“Small-cap value investment is our core business” says Chuck Royce. Royce & Associates, founded by Chuck Royce in 1972, employs a value-based approach to invest in companies with small market capitalizations. The company looks for small-cap companies that are underpriced relative to the enterprise value. Most stocks in its portfolio are companies with less than $5 billion in market capitalizations.
Top 20 positions in Royce’s 13F portfolio as of September 30, 2011 are as follows:
Company Name | Ticker | Value | Activity |
NU SKIN ENTERPRISES INC | 328511 | -10% | |
PAN AMERICAN SILVER | 288920 | 1% | |
BUCKLE INC | 267892 | -2% | |
UNIT CORP | 257828 | 2% | |
ALLIED NEVADA GOLD CORP | 254032 | -21% | |
TERADYNE INC | 246538 | 21% | |
LINCOLN ELECTRIC | 236159 | 5% | |
FEDERATED INVESTORS | 227946 | 3% | |
RELIANCE STEEL & ALUMINUM | 226994 | -1% | |
GRAFTECH INTL | 201394 | 8% | |
SILVER STANDARD RES | 196344 | 2% | |
GARTNER INC | 192974 | 0% | |
MYRIAD GENETICS INC | 187680 | 14% | |
WESTLAKE CHEMICAL CORP | 186641 | 5% | |
ALLEGHANY CORP DE | 183741 | 6% | |
THOR INDUSTRIES INC | 182804 | 2% | |
AMERICAN EAGLE OUTFITTERS | 171350 | 9% | |
RITCHIE BROS AUCTIONEERS | 170294 | 8% | |
I D E X X LABORATORIES | 169383 | 0% | |
JOS A BANK CLOTHIERS | 165632 | -5% |
The total value of the 13F portfolio was reduced from $35.4 billion at the end of June to $27.5 billion at the end of September. The number of positions in the portfolio was also reduced from 1476 to 1452. Royce sold out many positions over the third quarter. The biggest position sold out by Royce was Polo Ralph Lauren Corp (RL), in which Royce & Associated reported to own $110 million at the end of June. RL returned 11.95% since the end of the third quarter, versus 9.77% for SPY. Royce also sold out Lubrizol Corp (LZ), SRA International Inc (SRX) and 90 other positions.
During the third quarter, Royce increased his stakes in Teradyne Inc (TER) by 21%. According to the latest 13F filing of Royce & Associates, the company had $247 million invested in TER at the end of September. Since then, TER returned 24.61%, outperforming the market by nearly 15 percentage points. Teradyne is a company that supplies automatic test equipment. It has a market cap of $2.53B and a P/E ratio of 11.53. Jim Simons’ Renaissance Technologies also had $25 million invested in TER.
Royce was also bullish about Nu Skin Enterprises Inc (NUS), a company that sells personal care and nutrition products. NUS was the largest position in the 13F portfolio of Royce & Associates at the end of September. Royce had over $300 million invested in this stock and it returned 20.83% since the end of the third quarter, more than doubling that of SPY. Richard Driehaus, Jim Simons, and Steven Cohen were also bullish about NUS. Royce was also bullish about Pan American Silver Corp (PAAS) and Buckle Inc (BKE). Royce & Associates invested $289 million in PAAS and $268 million in BKE at the end of the third quarter. PAAS lost 10.96%, but BKE returned 10.06% so far in the fourth quarter.
Other stocks that Royce was in favor of include Unit Corp (UNT), Allied Nevada Gold Corp (ANY), Lincoln Electric Holdings (LECO), Federated Investors Inc (FII), Reliance Steel & Aluminum Co (RS), and Graftech International Ltd (GTI). Overall, Royce is doing quite well in the fourth quarter. Seven out of his top ten positions outperformed the market. These ten stocks generated a weighted average return of 13.12% since the end of the third quarter, beating the market by more than 3 percent. Our research has shown that by focusing on the top stock picks of successful fund managers like Royce & Associates, investors will be more likely to outperform the market in the long term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
