A new feature here at Generation X Finance will be to review a mutual fund each week that is generally unknown to investors. Understandably we focus a great deal on Vanguard, index funds, ETFs, etc. but very little attention is given to many other investment options that may not be popular yet could find a place in your portfolio. I will generally focus on undiscovered gems but will from time to time highlight some funds to stay away from as well.
- Manager: Charles Royce (34 year tenure)
- Min. Initial Investment: $2,000
- Front-Load: None
- 12(b)-1 Fee: None
- Expense Ratio: 0.90%
- Net Assets: $3.7 billion
- Median Market Cap: $1.62 billion
- Turnover: 26%
This fund is built on risk management in the small-cap arena. This is Royce’s flagship fund. As such, its managers run it as an all-weather vehicle that should suffice to provide an investor’s domestic small-cap exposure. It holds a roughly even mix of micro-caps and standard small caps, and it spreads assets across the value, blend, and growth categories.
This fund displays strong returns relative to the benchmarks:
While the S&P index is not a direct benchmark, you can see that this fund has had no trouble beating it. So the better benchmark is the peach colored line which is a small blend index. Again, when compared to a similar investment class it has for the most part outperformed that slightly, more so over the long-term periods.
As you can see, the same trend is being shown. Over the long-term, the annualized returns are higher, whereas the short-term periods the funds behave almost in sync with each other. The only real differences between the two funds are the expense ratio, which the Vanguard is 0.67% advantage and a slightly different standard deviation. Morningstar classifies NAESX as above average risk vs. PENNX as below average risk.
The Bottom Line
- No front-load
- Relatively low expenses compared to average
- Excellent manager tenure
- Solid returns with minimized risk
- Higher expenses than some similar index options
- Above average exposure to micro-cap holdings
For a small-cap fund, Royce Pennsylvania has delivered consistent long-term results over its peers. Considering it focuses on minimizing risk yet still produces returns as good or better than other comparable options this fund is worth considering even with slightly higher expenses. While this is certainly no replacement for a core holding in your portfolio, this fund does work well as a supporting player if you need small-cap exposure.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.