Royce Investment Partners: Opp – GuruFocus.com

How did the Royce Opportunity Fund perform in 4Q21?

Jim stoeffel The Fund had a strong quarter in both absolute and relative terms, advancing 5.7% and outperforming its primary benchmark while the Russell 2000 Value Index gained 4.4%. Opportunity also outperformed the Russell 2000 Index, which rose 2.1% for the same period. Although returns across the market were lower than what we have seen in the previous two quarters, we are very happy with our performance.

Over longer term periods, how has the Fund performed relative to its benchmarks?

Brendan Hartman We are also satisfied with the long term results of the Fund. For the calendar year versus the core portfolio benchmark, Opportunity posted a strong performance, up 30.8% vs. 28.3% while also outperforming the Russell 2000 (+ 14.8%) . Opportunity has beaten the Value Index for 3, 5, 10, 15, 20, 25 year time frames and from inception (11/19/96) through 12/31/21.

How were the Fund’s segment results in 4Q21?

Jim harvey Ten of the 11 equity sectors in the portfolio had a positive impact on quarterly performance. Our most significant positive contributions again came from information technology, followed by industrial products and materials. The only negative impact came from energy while the smallest positive impacts came from utilities, our lowest weighting, and consumer staples, our second lowest weighting, which was also a sector that didn’t. has not performed well on a market scale.

What happened at the industry level in the fourth quarter?

Kavitha Venkatraman Semiconductors and semiconductor equipment, which belong to information technology, largely contributed. We have always had higher exposure to this industry. This is followed by trading companies and distributors in the industrial sector and durable household goods in the consumer discretionary sector. However, airlines in the industry continued to suffer due to travel restrictions. This led it to be the biggest detractor for the quarter, followed by healthcare equipment and supplies in healthcare and consumer services diversified in consumer discretionary.

Which position contributed the most in the fourth quarter?

JS A company called BlueLinx Holdings (BXC, Financial) was our main contributor. The company is a wholesale distributor of construction and industrial products that benefited from rising lumber prices that helped generate quarterly net sales and record gross margins in the high teens. .

Which position hurt 4Q21 the most?

JH Our biggest detractor was CalAmp Corporation (CAMP, Financial), which manufactures wireless communications products that provide anytime, anywhere access to critical information, data and entertainment content. The company’s third-quarter profits, which were announced in December, missed both revenue and profit estimates as component shortages caused by supply chain issues hurt to its activities.

What was the source of the Fund’s advantage over the Russell 2000 Value Index in 4Q21?

JS Our relative advantage over the Small Cap Value Index comes from a combination of sector allocation and stock selection. Stock selection and our low exposure helped Healthcare, which not only performed poorly in the Russell 2000, but was also the biggest detractor and highest sector weight in the Russell 2000, the secondary benchmark of the Fund as a whole. Communications services also added to our relative strength as our effective stock picks and lower weighting helped.

BH Not everything worked, of course. Our lower exposure to real estate detracted from relative performance, as did our higher exposure to consumer discretionary. Finally, our industry stock selections weighed on relative results – our higher weighting was positive, but not sufficient to offset the effects of stock selection.

In terms of timing, which areas had the most impact on the portfolio?

JH All 11 equity sectors in the portfolio had a positive impact on 2021 performance. The sectors that made the most positive contributions were Industrials and Information Technology, our two highest weightings. Materials completed the first three. The lowest positive impacts came from utilities, our lowest weighting, commodities and communications services.

What worked at the industry level in 2021?

BH Semiconductors and semiconductor equipment in information technology, healthcare providers and services in healthcare, and chemicals in materials contributed the most.

KV On the flip side, biotechnology in healthcare, automotive components in consumer discretionary, and diversified consumer services in consumer discretionary were the main drag during the calendar year.

Which position contributed the most in 2021?

JS We have seen the greatest contribution of Alpha & Omega Semiconductor (AOSL, Financial), in line with our preference for semiconductors and semiconductor equipment. The company designs, develops and supplies a wide range of power semiconductors. In September, Alpha & Omega reported double-digit growth in each of their market segments, along with record revenues and high profitability for the first fiscal quarter of 2022, along with an optimistic long-term outlook.

Which detention hurt the most in 2021?

JH The biggest detractor has been LL Flooring Holdings (LL, Financial), which people know better as Lumber Liquidators. The company is a retailer of hard surface flooring, including hardwood flooring, laminate flooring, vinyl flooring, tile flooring, bamboo flooring and cork flooring, as well as flooring tools and accessories. Its shares fell in May after the company reported fairly good results but removed any indications of COVID concerns. Its inventory fell again in the fall due to pandemic supply and inventory replenishment issues and year-over-year drops in sales.

What sectors helped or hurt the Fund relative to the Russell 2000 Value in 2021?

BH Our advantage for the calendar year was entirely due to stock selection (the sector allocation was negative). Materials, our biggest relative contributor, benefited from wise stock selection and higher exposure. Healthcare and IT followed due to security selection and sector allocation, with our lower exposure helping in the former and our much higher weighting in the latter. On the flip side, stock selection and our higher exposure to consumer discretionary detracted from relative performance, as did our cash holdings. Energy, which suffered from our weaker weighting and stock selection, was the last drag. These were the only ones that detracted from relative results in 2021.

What are your prospects for the portfolio?

JS Over the past three months, neither our positioning nor our outlook has changed significantly. We still expect B2B businesses to perform better than B2C over the long term, as consumers are expected to continue to experience inflation. The portfolio’s opportunistic value strategy often takes us to places where few or no other investors turn because stocks have performed poorly. We believe some areas of consumer retail offer an example where many companies have everything investors want to hate in stocks: the resurgence of COVID, supply chain issues – where shortages create pressure on margins – and rising energy prices, all of which create demand for certain retailers just as they have caused us to add selective positions.

BH We have also been active in the aerospace and defense industry, which suffered a double whammy in 2021 with COVID and issues around the MAX 737. Both of these created production issues. While none of these issues have corrected to the extent many had hoped, the industry appeared to be closing in at the end of 2021. We bought stocks of companies for which we see attractive valuations and capacity. growth. We continue to see opportunities in the Temporary Personnel and Industrial Distributor industries, both of which have benefited from the otherwise difficult problem of skilled labor shortages. Finally, we are seeing what we believe are very promising long-term opportunities in certain areas of technology, where supply chain consolidation has helped some companies gain market share.

The thoughts and opinions of Mr. Stoeffel, Mr. Hartman, Mr. Harvey and Ms. Venkatraman regarding the stock market are theirs and, of course, there can be no assurance as to future market movements. No assurance can be given that the past performance trends described above will continue into the future.

The performance data and trends described in this presentation are presented for illustrative purposes only. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements.

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