Discover all the presentations of the Investment Summit Benelux 2023

The under-appreciated asset class: how to take advantage of the opportunity set in U.S. small cap stocks

14h00 - 14h30
Conference Room 4

U.S. Small Caps could be viewed as a “forgotten asset class”: For instance, the Russell 2000 index of smaller companies only makes up 6.1% of the All Cap Russell 3000 index currently, near its closest ebb in 20 years. Investors have instead focused their attention on other segments of the amarket such as large cap growth stocks. Yet, this runs counter to longer term return trends and could set small caps up for a sustained period of stronger performance, particularly as they appear historically cheap, in both absolute terms and relative to large caps.
They are also well positioned if markets have entered a phase of higher rates and higher inflation given their solid record in such environments.
In addition, trailing 5-year returns for U.S. smaller companies have been weak in comparison to long-term averages and in this configuration, the subsequent average annualized 5-year performance for the Russell 2000 small cap index has been positive 100% of the time and higher than the average 5-year return (13.8% vs. 10.5%).
Royce Investment Partners is a specialist investment manager subsidiary of Franklin Templeton and has been part of this organization since 2001 but its existence dates back to 1972 when it was founded by Chuck Royce, even before the main small cap indices were launched. It is a dedicated small cap specialist as opposed to a small component of a larger business and the totality of its 39 investment professionals are focused on this space. This has enabled the company to build a unique domain knowledge of the asset class, which would be nearly impossible to replicate today. It also allows for a broad dissemination and sharing of ideas across the firm.
We offer both U.S. and global portfolios investing in smaller companies. Two U.S. small cap UCITS funds are available, representing highly active, very complementary approaches in this space.
• Royce US Small Cap Opportunity fund

o The process starts with looking for cheap stocks that are experiencing a rough patch to due to challenges specific to the company or because of industry-wide issues.
o It is a value strategy investing in a very diversified portfolio of small and micro caps, differentiating it firmly from most of the competition, which gravitates towards quality and growth.
o It is a volatile fund that tends to amplify market moves up and down, with upside/downside capture ratios of 1.29 and 1.08 respectively over the past 3 years. It has a great track record of capturing the upside coming off significant drawdowns, e.g. most recently in 2020.

• Royce US Smaller Companies fund

o The starting point is a quality starting point. The fund looks for companies with solid balance sheets, superior profitability and the ability to generate high levels of Free-Cash-Flow, which it seeks to purchase at attractive valuations. As Lauren Romeo, the portfolio manager, puts it, it invests at the “intersection of quality and value”.
o This makes it a core portfolio which could be a better option for investors which struggle to get over the level of diversification in US Small Cap Opportunity or prefer a more balanced option. Upside/downside capture is 1.04 and 0.99 over the trailing-3 years.

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What lies behind Vanguard’s investment success: 6 investing myths to avoid

16h00 - 16h30
Conference Room 4

In this 30-minute session, Vanguard’s European head of investment product specialism, Mark Fitzgerald, will explore the fundamental principles of investment success that have served Vanguard’s investors so well as the company has grown to become one of the world’s largest asset managers.

Maintaining a long-term, balanced approach lies at the core of Vanguard’s investment philosophy, helping the firm grow its global multi-asset franchise to over a trillion euros AUM in 2022. Yet the past year has been unusually difficult for multi-asset investors, with global equities and bonds falling in tandem, and bonds in particular posting record losses. Inevitably, this has fueled questions around the role of the traditional balanced portfolio of shares and bonds and has given rise to a number of ‘myths’ around multi-asset investing that have grown in popularity.

To help investors stay focused on their long-term plans amid the volatility, Mark will debunk some of the top myths that have been gaining traction in the current market and highlight the benefits of Vanguard’s long-term balanced approach to investing:

• Myth 1: Bonds no longer provide sufficient diversification from equity markets
• Myth 2: Rising rates are bad for bond investors
• Myth 3: Investors are better off withdrawing to cash until markets recover
• Myth 4: Alternatives offer a better hedge against inflation
• Myth 5: Active managers outperform in down markets
• Myth 6: Thematic exposures help investors navigate volatile markets

There will be a Q&A at the end of the session for participants to ask questions. We hope you’ll join us for this timely and informative discussion.

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