Five Small-Cap Veterans Share Their Outlook for 2016

Jan 27, 2016, 11:01 ET from The Royce Funds

NEW YORK, Jan. 27, 2016 /PRNewswire/ -- With the books closed on 2015 and a wild and volatile new year underway, portfolio managers from small-cap investing pioneer The Royce Funds discuss current fund positioning, economic prospects, and expectations for small-cap stocks in 2016.

Royce CEO Chuck Royce has positioned his portfolios for economic cyclicality and believes, "The protracted leadership period for growth over value stocks is likely to reverse in 2016." Chuck thinks companies with better balance sheets will do well in an environment of elevated corporate bond spreads while a tilt toward economically sensitive sectors will help put the market's focus on the attributes he emphasizes.

Portfolio Manager Buzz Zaino is bullish. He believes, "valuations for the majority of our portfolio holdings look attractive and are poised to benefit from ongoing U.S. economic growth." Buzz also expects the increased spending and business tax credits that take effect in 2016 should boost the pace of U.S. growth, helping areas such as nonresidential construction, defense, consumer, and technology.

Portfolio Manager Charlie Dreifus is a disciplined contrarian who is cautiously optimistic. He thinks, "The test next year, and further out, is whether current P/E multiples are sustainable without aggressive monetary policy. If not, can earnings growth compensate for declining multiples? The answer to these questions will determine the investment rate of return going forward."  

Portfolio Manager and Principal Chip Skinner expects the economy, "to continue growing in the same bumpy, slow-growth way as in 2015." He sees growth potential in many Health Care-related areas, such as drug development, medical devices, specialty pharma, and genetic testing.

Chip also thinks technology spending will increase in 2016, and is focused on areas such as cloud storage, data management, analytics, and cybersecurity. He sees potential growth in Big Data, machine-to-machine technologies, and semi-conductors.

Portfolio Manager Jay Kaplan believes the economic and equity fronts look even more uncertain than usual, and that business is weak in certain sectors and industries. However, he has confidence in the long-term outlook, saying, "the contraction in share values should create a lot of potentially promising opportunities. It also looks very much like we're at the end of the leverage-is-good era, which should benefit the kind of conservatively capitalized, free-cash-flow-generating companies I usually look for."

Important Disclosure Information

To obtain a prospectus for any of The Royce Funds, please go to or call (800) 841-1180. The prospectus includes investment objectives, risks, fees, charges, expenses, and other information that you should read and consider carefully before investing. The Royce Funds invest primarily in securities of small-cap companies, which may involve considerably more risk than investments in securities of larger-cap companies. (Please see "Primary Risks for Fund Investors" in the prospectus.)

The thoughts and opinions of Messrs. Royce, Zaino, Dreifus, Skinner, and Kaplan 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.

About Royce & Associates, LLC: For more than 40 years Royce & Associates, LLC, investment adviser to The Royce Funds, has used a disciplined, bottom-up approach to select micro-cap, small-cap, and/or mid-cap companies. We have a seasoned staff of investment professionals, most with more than 15 years of experience. 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, LLC is a wholly owned affiliate of Legg Mason Inc. (NYSE: LM). Royce Fund Services, Inc., the Fund's distributor, is a member of FINRA and the SIPC.

SOURCE The Royce Funds