Royce Mid-Cap Fund to liquidate (with a follow-on discussion of international micro-cap funds)

TheShadow

http://www.sec.gov/Archives/edgar/data/709364/000090630412000497/rmm497-1012.htm


497 1 rmm497-1012.htm RMM SUPPLEMENT 10/11/12

The Royce Fund
Royce Mid-Cap Fund
Supplement to the Prospectus dated May 1, 2012




The Royce Fund’s Board of Trustees approved a plan of liquidation for Royce Mid-Cap Fund, to be effective on November 19, 2012. The Fund is being liquidated primarily because it has not attracted and maintained assets at a sufficient level for it to be viable. As of September 24, 2012, the Fund was no longer offering shares of the Fund for purchase and was not accepting any investments in the Fund.

October 11, 2012


RMM-SUPP-CLOSE

VintageFreak

Strange this. Royce trying to gather assets in Large Cap and Mid Cap. Got traction with Large Cap, but not with Mid Cap. Tells you I don't think they believe in their ability to invest in Mid Caps. Pure asset grab. The world needs yet another Royce fund ? And Royce is not big enough to eat losses on fund it believes in?

Even Bill Nygren called it a day with Oakmark Small Cap. He could have easily started again when the "climate" was right he didn't. Ariel tried Large Cap once and failed, then tried again when climate was right. I will never invest with Royce, Ariel, Janus, etc. Find something quite shameless about how they operate.

BannedfromBogleheads

Uh oh, if Royce is liquidating this fund then their international microcap fund (ROIMX) is sure to be next because it has 33% less assets under management (4 million vs 6 million for the mid-cap fund), is costing Royce over 2x as much in fee waivers (2.23% vs 0.99% for the mid-cap fund...Royce is paying more to manage my assets in ROIMX than I am) to keep afloat, and much worse performance since inception...so it seems the only thing keeping ROIMX open is that it was started 1 year later than RMIDX, but with its dismal past performance there's no way it's going to garner twice as much AUM (or whatever amount will cause Royce to see it as viable) in one more year.

This is quite upsetting to me because although I'm not necessarily enamored with Royce themselves the expense ratio for ROIMX is quite reasonable compared to other microcap funds and it is basically the only vehicle I have found for investing in international microcaps because, unlike domestic microcaps, I can't even create my own portfolio of international microcaps because I have a hard time even finding quotes for some of these stocks, much less actually buying them.

Therefore, in anticipation of ROIMX having a similar liquidation announcement next fall, can anyone recommend a fund or vehicle I can switch to for investing in international microcaps?

Heathbob

They are all pretty pricey but some good ones are WAIOX and GPIOX. Both funds contribute a large portion of their portfolios to international microcaps.

BannedfromBogleheads

Some thoughts:
According to the direct fund websites WAIOX and GPIOX have average market caps of $800-$1000 million, but isn't that a bit big to be called "microcap"? With an average market cap of ~$300M ROIMX is truly microcap (at least in domestic terms because surely even $300 million is a rather large company in less affluent parts of the world) and is value instead of growth oriented like WAIOX/GPIOX and I believe investing in growth stocks requires greater skill to be successful in the microcap arena. I also found QUSOX which invests in companies with an average market cap of $800-$1000M with a value orientation, but it's kind of a quant fund which is not an approach I'm comfortable with in the international arena.

Thanks very much for the input, but I'm not inclined to pay such expense ratios for funds that are within spitting distance of the $1200M average market cap of Vanguard's International Microcap ETF: VSS which has an ER of only 0.28%. But maybe if you guys start buying ROIMX along with me then it will remain viable for Royce to keep in service?

Heathbob

I think historically WAIOX has had a smaller market cap but I understand what you are saying. Sorry, but I will probably never invest in a Royce Fund again...despite how much Morningstar drools all over them.....and hypocritically so too I might add.....high expense ratios on bloated small cap funds.

Kenster1_GlobalValue

Yes the International funds you guys are referring to from Wasatch and Grandeur Peaks are not strictly Microcap funds --- but it invests mostly in Microcaps + Smallcaps.

So many investors don't mind having a fund that has that flexibility to target both International Microcaps + Smallcaps.....so it really depends on what you want. And the Wassatch/Grandeur Peak fund shops have been quite good investors --- they invest in both 'fallen Angels' stocks as well as quality stocks (which sometimes puts in growth category) but I wouldn't worry about that. Value and Growth investing globally in Microcaps are equally as hard.

Wasatch/Grandeur Peaks are looking more for quality companies with growth factors --- they're not really hot stock growth chasers per se.

I don't know how good Heartland is for international investing but they also have an International Fund (HINVX) that currently has 23% in microcaps.

http://heartlandinternationalfund.com/

http://heartlandinternationalfund.com/HeartlandFiles/International/HINVX_Factsheet.pdf

BannedfromBogleheads

Kenster,

I don't mind the flexibility of a fund that targets both microcaps+smallcaps either...I'm just not willing to pay those kind of expense ratios for stocks I could buy individually in my own brokerage account. That's not to say I'd want to track an index either, but I believe any decent manager has sufficient flexibility and will inevitably end up using that flexibility to target larger companies. So, just like Heathbob, I'm not interested in paying high expense ratios for bloated small cap funds which is why I would never consider any of Royce's other funds, but for this particular type of fund Royce just so happens to have the least bloated one of the bunch with only 4 million in AUM that's currently invested in a much smaller group of companies.

So hopefully ROIMX doesn't liquidate like RMIDX, but if it does I'm thinking I might go with something completely different and replace it with the closed end frontier markets fund FFD...even when I originally bought ROIMX I would have preferred a closed end international microcap fund because I like to buy my stock picking services at FMV instead of at full sticker price, but ROIMX was the only true microcap fund I could find for international stocks and, in my own estimation, the price seemed fair for what I was getting. But I am not such a strict asset allocator that I will pay any ripoff price at all and if the only pizza shops in town are charging exorbitant prices then I, for one, am inclined to develop a hunger for some other type of cuisine.

You guys aren't aware of any international micro/small/midcap CEFs are you?

Investor

Reply to @VintageFreak: Their small cap funds have largely moved to mid-caps after assets grew. Like many of Royce funds this fund did not offer anything special and this time investors did not bite.