We have always believed that entry or purchase price is a critical determinant of investment return. As a result, disciplined and intelligent trading, particularly in the small-cap universe where liquidity issues are often a challenge, is an important opportunity to potentially generate excess return.

The goal of our trading operation is twofold—to execute orders for our portfolio managers with as little market impact as possible and, second, to provide our portfolio managers with information on trading activities on securities that we own or are considering for purchase or sale to whatever degree our traders are aware.

Our investment Strategies are strongly oriented towards independent thinking. Each incorporates a contrarian lean, so we are often important providers of liquidity to the markets we trade in.

A Seasoned Team

The trading team at Royce is an experienced group of ten professionals with an average tenure of 25 years in the investment business and 17 years at Royce.

Dan O'Byrne, our Director of Trading, has been with the firm for 37 years. He manages all systems coordination, front-end trading desk compliance, and report design. Working with Dan are five full-time traders supporting our portfolio managers. While every trader has a primary exchange focus, all are capable and experienced at trading both OTC and listed stocks, which allows for appropriate redundancy and back-up.

Execution

Within Royce’s Investment Management System, our traders are assigned to specific portfolio managers, providing continuity in order execution and appropriate familiarity with the trading characteristics of portfolio positions. Importantly, our traders are singularly focused on order execution, with no proprietary trading responsibilities to draw attention away from their core execution function.

An important competitive advantage in the small-cap space is our asset size, which, combined with more than 50 years of experience investing in small-cap companies, puts Royce at the center of trading activity. We are frequently the first call when a large block of stock needs to be traded or timely information is released to the market place.

Trading in small- and micro-cap companies differs from trading in large caps. Many transactions require specialization and negotiation in execution. Liquidity, spreads, and market depth vary greatly and sometimes need to be followed for days, weeks, and even months, not just moments as is generally the case in the large-cap universe. We work patiently with thinly traded stocks, participating only in what we think is the appropriate amount of volume so as not to have a materially adverse impact on the price.

Trading Partners

Electronic trading has become an important part of the investment landscape over the past decade. While we do use electronic systems, the bulk of our trades are still negotiated with traditional brokerage firms. We use both the large investment houses and small boutiques, along with many high-touch brokers. A large number of smaller regional broker-dealers have been trading with us for decades.

Our scale and volume of transactions means that we are a very important customer to many of these organizations, which gives us commensurate attention and resources.

A Competitive Advantage

Trading in the small- and micro-cap area is not just highly specialized and time intensive—it is also an important component of return. Our five dedicated traders, combined with state of the art systems and programs, allow our portfolio managers to execute large and sophisticated trades with efficiency and minimal price impact.

Royce’s size and exclusive focus on smaller companies enables us to direct substantial resources to our trading effort. By doing so, we believe we can enhance performance.

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