On January 14th, 2008 Royce reopened a number of funds, including the Royce Micro-Cap Fund (RYOTX). I’ve always been a fan of the Royce family of funds, and I’m thrilled to see this fund opening to new investors once again. This fund is a true micro-cap fund with over 75% of its holdings falling into the micro-cap sector with the remainder in small-cap with just a couple mid-cap offerings.
- Managers: W. Whitney George, Jenifer Taylor, David Nadel
- Min. Initial Investment: $2,000 / IRA $1,000
- Front-Load: None
- 12(b)-1 Fee: None
- Expense Ratio: 1.43%
- Assets: $924 million
- Median Market Cap:$322 million
- Turnover: 42%
- Yield: 2.48%
It comes as no surprise that the Royce Micro-Cap fund has outperformed the S&P 500 because smaller companies have been one of the leading categories over the past few years, but where this fund really shines is relative to its peers over the past two or so years. From 2003 through 2005 this fund primarily mirrored the micro/small-cap category in terms of performance, but beginning in 2006 this fund really started to pull away. In 2006 this fund outperformed its category by a healthy 7.3% margin, and in 2007 it performed over 8% better. This has certainly been a strong performer in this category, and given its Morningstar 5-star rating, this is decent risk-adjusted performance as well.
Morningstar cites some of the strategies that have yielded these results:
Mmanagers Whitney George and Jenifer Taylor hunt down micro-cap companies with solid balance sheets that are trading at reasonable valuations. To balance the risks inherent in the micro-cap universe, management holds a large number of stocks and maintains a three- to five-year time horizon for its picks.
- No front load
- Relatively low turnover
- Morningstar 5-star rating
- Superior returns in category
- Offers a modest yield
- Above average expenses
- Very focused fund in volatile micro-cap category
- Newly reopened which could affect investment strategy
The Bottom Line
While the 1.43% expense ratio may seem a bit high, this is actually right in line with many of the micro-cap funds out there. Not only that, but all of the returns shown are as always, net of fees. So even so, it has been worth the higher expense over recent years as it continues to beat its peers by a hefty margin. While performance has been good, it is always worth noting that past performance does not indicate what the future holds, but given its track record and investment strategy, it appears to be one of the best funds if you’re looking to compliment your portfolio with some micro-cap stocks.
This fund should certainly only play a supporting role in your overall portfolio, but you are really doing yourself a disservice if you haven’t had any exposure to small companies over the past decade.
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About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.