2016: A Terrific Year for Small-Caps
Why good times for value (and small-cap active management) are just beginning.
NEW YORK, Jan. 5, 2017 /PRNewswire/ -- Chairman Chuck Royce and Co-CIO Francis Gannon of The Royce Funds, the small-cap specialist, recap the strong year for small-cap stocks and explain why they think the rally has room to run.
Chuck Royce recalled the year's activities, "Small-caps experienced a significant bear market from their peak on 6/23/15 through the bottom on 2/11/16, falling 25.7%. And value recaptured small-cap leadership in 2016."
He added, "We have definitely turned the page on that highly anomalous period that stretched from 2011-2015 when extraordinary monetary accommodations caused the financial markets to behave in odd and unprecedented ways. In our view, we are squarely on the road back to a more historically normal market environment."
Francis Gannon described some of the significant changes for small-caps in 2016, saying, "We saw more return dispersion and declining correlation, a steepening yield curve, and an increase in bankruptcies. Cyclical or commodity-based areas did very well in 2016, and valuation and quality factors were back in high demand. These are all signs of growing normalization. Finally, and most important from my perspective, we're seeing animal spirits rekindled—another key signal. We think this can last, especially with the potential for increased industrial activity here in the U.S."
With small-caps taking off after the election, where could the small-cap bull market go? Chuck Royce believes it can continue: "I'd never try to call a top or a bottom, but small-cap rallies historically have gone beyond the Russell 2000's 44.3% increase from its February 2016 trough through the end of 2016. And the small-cap index was only 7.2% above its June 2015 peak at the end of 2016."
Francis Gannon thinks fundamentals will keep driving small-caps and sees increased optimism from management teams, "The fact that the market seems to be acting in a more historically familiar way should play a large role in keeping investors focused on prudently managed, conservatively capitalized companies that are improving their competitive positions and profitability."
What's next for small-caps, and why does Chuck Royce see an edge for active management going forward? Click here to read Chuck Royce and Francis Gannon's full commentary on 2016 and small-caps.
About Royce & Associates, LP: Royce & Associates, LP, investment adviser to The Royce Funds, is a small-cap specialist offering distinct investment strategies with different risk/return profiles designed to meet a variety of investors' needs. Each of our strategies focuses on the kind of fundamental, intensive company research that we have done for more than 40 years. Chuck Royce, the firm's founder and a pioneer of small-cap investing, enjoys one of the longest tenures of any mutual fund manager. Royce & Associates, LP is an affiliate of Legg Mason Inc. (NYSE: LM).
Important Disclosure Information
An investor should carefully consider a Fund's investment objective, risks, charges, and expenses before investing or sending money. This and other important information about The Royce Funds can be found in the Funds' prospectus. To obtain a prospectus, and information about The Royce Funds, please call (800) 221-4268 or visit www.roycefunds.com. Please read the prospectus carefully before investing.
Mr. Royce's and Mr. Gannon's thoughts and opinions concerning the stock market are solely their own and, of course, there can be no assurance with regard to future market movements. No assurance can be given that the past performance trends as outlined above will continue in the future.
The Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group. The Russell 2000 Index is an index of domestic small-cap stocks that measures the performance of the 2,000 smallest publicly traded U.S. companies in the Russell 3000 Index. The Russell 2000 Value and Growth indexes consist of the respective value and growth stocks within the Russell 2000 as determined by Russell Investments. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index.
Distributor: Royce Fund Services, Inc. is a member of FINRA and the SIPC.
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