We recently received an inquiry about big-yield small and micro-cap closed-end funds (CEFs) from Royce Investment Partners (specifically tickers RVT and RMT, which currently yield 9.4% and 10.7%, respectively). Here is the inquiry and our response:
RVT has taken a significant hit even though it has gained a huge respect for its long term record. I would love to have your take on its business and if an investor should have concerns regarding its future performance.
First of all, thank you for the inquiry. And to be as direct as possible, we like these two funds for the following reasons.
They both trade at significant discounts to NAV (a unqiue characteristic of CEFs that creates risks and opportunities). We really like the price discounts because it is like buying the shares of all the underlying holdings in these funds at a discount to their market price. It also helps offset the fees on these funds.
We really like small and micro cap stocks right now from a contrarian standpoint. These are the stocks that can be more volatile and take a big hit when the market sells off, but they’re also the stocks that can rebound extremely hard when the market rebounds. We like that these two strategies instantly give us diversified exposure to small and micro cap stocks and an experienced (and successful) management team at Royce.
It’s important for investors to know that the distribution yields on these funds can bounce around (and they include a return of capital gains too—not just dividends on the underlying shares).
We like both of these funds a lot right now (from a long-term contrarian standpoint), and you can access our previous reports on these funds here:
Also, here is a new report from the Royce team about the attractiveness of small cap stocks right now (worth a read!)…
We continue to own RVT and RMT (in our Income Equity and High Income NOW portfolios) and we have no intention of selling.
Thanks!!