FTF ROYCE US SMALLER COMPANIES X

Investment Process

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. The fund focuses on US companies with a market cap less than US$5bn, though stocks may continue to be held once they grow above this. Approximately 15% of the portfolio is likely to be in micro-cap companies of below US$1bn; 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%.