For this episode of Planet MicroCap Podcast, I spoke with Bill Hench, Portfolio Manager at Royce Funds. For more than 40 years, Royce & Associates, investment advisor to The Royce Funds, has been managing MicroCap, Small-Cap and small/midcap portfolios. Bill and his partner, Buzz Zaino, run the MicroCap Opportunity Fund and the Opportunity Fund. I wanted to speak with Bill to get his perspective on MicroCap investing. A couple things stood out in our interview, including: Bill and Buzz’s four themes for portfolio construction, his definition of “cheap” stocks, but I thought Bill’s point about diversification vs. concentration as a MicroCap investor was also intriguing. He brought this point up multiple times throughout our interview. The goal for this episode is to learn about Bill’s approach to portfolio construction, advice for new MicroCap investors, his stance on diversification vs. concentration, and much more!
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In this episode, Bill and I discuss the following topics:
- Bill's background
- What got Bill into investing in MicroCap stocks
- Describes the Opportunity Fund and the Micro-Cap Opportunity Fund at Royce
- Diversified vs. concentrated portfolio
- How Bill defines a "cheap" stock
- Asset plays, turnarounds, undervalued growth stories and interrupted earnings are Bill's four themes for portfolio construction: why focus on these themes?
- What does a “Deep Value Strategy” mean?
- In one of Bill's videos, he mentions that a third of the portfolio at any given time includes turnarounds and “broken IPOs”, how do you assess companies that you think fit this mold for potential investment?
- “Exploiting Market Inefficiencies” is a key phrase that many MicroCap investors/funds find attractive about MicroCap investing: what the phrase means to Bill
- Does Bill ever overweigh one sector or another and conversely do you avoid any sectors in their entirety?
- An experience(s) that shaped his MicroCap investing strategy
- Bill's advice for new MicroCap investors
For more information about Bill Hench and The Royce Funds, please visit: www.RoyceFunds.com