4
That time is a worry, but I welcome their embrace of
controversial stocks. It’s awfully tough to beat the
S
&
P
500
by purchasing popular names that are easy
to understand. It can be done, but even successful
growth managers have to go against the grain by
purchasing on dips.
Montag
&
Caldwell is something of a mirror image.
After holding up beautifully with a
2008
loss that was
smaller than
95%
of its peers, the fund’s high-quality
portfolio has skidded around more recently. It lagged
significantly in
2009
and
2010
, then held up well in
a tough
2011
before watching its peers zip by in
2012
and so far in
2013
. Ron Canakaris and team argue
it is simply that high-quality has fallen out of favor.
Others, such as the people at
GMO
, have made a
similar case.
The fund’s
10
-year returns are now right in line with
the category average, yet it has gotten there with
lower risk as the blow-by-blow on calendar years
illustrates. That’s still pretty respectable. Going back
to the fund’s
1994
inception, returns are ahead of
the category but only in line with the S
&
P
500
. Yet,
given the investor comfort level with more-stable
returns, I see plenty of appeal.
At Royce, most funds are doing fine, but George’s
Royce Low Priced Stock
RYLPX
has a line of red
returns in
FundInvestor,
indicating it has the lowest
returns of any small-growth fund in the Morningstar
500
for the trailing one-, three-, and five-year periods.
The culprit has mostly been materials stocks. When
most stocks are up
25%
or more, having a handful of
double-digit losers can be brutal. George has pared
that stake a bit. Only owning a smattering of health-
care names has also held it back.
No doubt the market will rotate to George’s sectors
at some point and shareholders will be rewarded.
Still, this tells me most investors should keep
their weighting in this fund to a small portion of
their portfolio.
Succession
Longleaf has built a strong group of analysts behind
Cates and Hawkins. Hawkins is
65
, and it wouldn’t
surprise me if he sticks around for a long time. Cates
is
16
years younger than Hawkins and serves as
the bridge to a younger group of analysts. In the long
run, his departure is the one that should worry fund-
holders most.
At Montag, the
69
-year-old Canakaris is the only
named manager, but the approach is a team-driven
one, where Andrew Jung and Scott Thompson play
key roles. Each is named co-director of research,
and they are joined by a number of seasoned pros
with ownership of the firm.
Chuck Royce is
73
years old, and he’s taken steps to
formalize the firm’s leadership team even though
he, too, professes no interest in retirement. The lead-
ership team includes Royce, George, John Diederich,
Chris Clark, Francis Gannon, and George Wyper. In
addition, David Nadal has spearheaded their overseas
research effort. It’s a great group that should provide
stability. As an owner of
Royce Special Equity
RYSEX
, however, I’m not sure I’d stick around when
Charlie Dreifus retires. He’s in his
60
s.
Conclusion
Consistent with these firms’ long-term outlooks,
they’ve built good teams around them to keep their
missions going for a long time. My visits encour-
aged me, while also reinforcing the importance of the
long-term commitment required from fundholders
if they want to reach their goals using these funds.
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