February 19, 2009 / 2:13 PM / 11 years ago

RPT-FUND VIEW-Royce likes precious metals; shy of financials

(Repeats story first published on Wednesday)

* Likes Canadian miners

* Underweight Financials but likes asset managers

* Says important to keep some exposure to precious metals

By Sweta Singh and Vikram Subhedar

BANGALORE, Feb 18 (Reuters) - Royce & Associates LLC, an investment manager which focuses solely on small companies, said it is getting more aggressive in its stock selection and suggested staying invested even as risk-averse investors flee equities.

The firm, founded by Charles Royce in 1972, likes to buy companies with strong balance sheets based on absolute valuations when they are out of favor - a discipline baptized in the bear market of 1973-74, fund manager Whitney George told Reuters.

“We like to buy stocks when they are on sale and certainly we have had one heck of a yard sale here in the last six months,” George, who helps manage about $7 billion in assets at Royce, said.

Over 28 years of investment management experience — with 17 of those at Royce — provides George with a little more confidence than someone who is coping with his first bear market.

“The more of these you live through, the more recoveries you see, the higher confidence you have that there is a dawn after night,” George, a survivor of the 1987 crash in which lost his job, said.

To be sure, the latest meltdown has taken its toll on the funds George runs.

His $885 million Royce Value Fund (RYVFX.O) was down 6.43 percent in January after falling almost 35 percent in 2008.

The Royce Low-Priced Stock Fund, which had about $2.5 billion is assets as of Dec. 31, 2008, and invests primarily in small- and mid-cap companies whose shares are below $25 each, is down about 7 percent year-to-date.

These funds have tracked the fall in the Russell 2000 index of small-cap stocks over those time periods but have outperformed the index on a 10-year time horizon.

BRIGHT SPOTS

Small Canadian gold and silver miners have been recent outperformers for Royce.

The firm, interested in precious metal and mining stocks for a decade, holds several Canadian miners including Pan American Silver PAA.TO, Agnico-Eagle Mines (AEM.TO), Gammon Gold GAM.TO, Silver Standard Resources SSO.TO, Red Back Mining RBI.TO in its portfolios.

While these companies have fallen sharply off their 2006 peaks as growing costs of energy, steel and labor costs outpaced prices of the commodities they were mining, they are up two to three times from their 2008 fall lows.

In the long run, George advises investors to have some exposure to precious metals as the massive effort to print money to stimulate the economy will bode well for gold, which has thousands of years of history as a store of value.

MONEY CHASING SAFETY

He is wary about financials, particularly banks, given the uncertainty surrounding their business models and balance sheets but does have a few choice picks, like asset manager Federated Investors (FII.N) in which he recently added positions.

George also likes Canadian money manager Sprott Capital (SII.TO) which specializes in resource stocks and went public in May 2008 at C$10 a share, but has since fallen to C$4.45 on the back of tumbling commodity prices.

Another financial stock to make it to George’s list is low cost, highly automated trading platform provider Knight Capital NITE.O. The company is expanding dramatically and is gaining market share from major Wall Street firms, George said.

A self-confessed Warren Buffet “groupie,” George said Berkshire Hathaway (BRKa.N) (BRKb.N), his largest personal shareholding outside of the Royce funds, is a good place to start if one wants to buy in a market where money is waiting for the next bull run.

“Money is chasing itself under a mattress looking for safety right now,” George said. “It’ll come back.” (Editing by Amitha Rajan)

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