Bestinvest says
The fund invests in US companies smaller than US$5bn. 15% is in micro-cap companies (under US$500m), though it may hold some equities where strong performance has pushed them into the mid cap range. Stock screening initially targets quality businesses with a high return on capital, which generate free cash flow and have low levels of leverage. Royce buys these companies when they are out of favour and trade at 30-50% discount to Royce's estimate of their worth.
This fund is benchmarked for reference purposes only against the Russell 2000 index, however, the style bias of this fund implies that performance characteristics will vary considerably on occasions. Historically, this style of long only equity investment has provided investors with superior capital protection and low volatility of returns. The fund focuses on US companies with a market cap of <US$2.5bn, approximately 15% of the portfolio is likely to be in micro-cap companies of <US$500m; it will also hold some equities that have crossed over to the mid cap sector as a result of good performance.
Stock selection initially targets quality business models that exhibit a high return on capital, generate free cash flow and have low levels of leverage. Royce buys these companies whilst they are depressed either due to a quarterly earnings estimate being missed or the industry itself being out of favour and when they trade at 30-50% discount to Royce's estimate of their worth. In the past, stock turnover has been in the region of 25%.