David Nadel (Trades, Portfolio), manager of the Royce International Premier Fund, disclosed this week his fund's top five buys for the second quarter included two new holdings and raised bets in three existing holdings.
Nadel joined Royce Funds, whose chairman is Chuck Royce (Trades, Portfolio), in 2006. Prior to joining the firm, Nadel previously worked as senior portfolio manager at Neuberger Berman Inc. and as a senior analyst at Pequot Capital Management.
The fund focuses on a limited number of premier non-U.S. small-cap companies: Such companies have market caps below $3 billion, yet also have discernable competitive advantages, high returns on invested capital and sustainable, moat-like franchises.
Nadel said in a May interview that the economic weakness in Europe is creating opportunities for the fund's "quality at a reasonable price" strategy, citing a perception that small caps are "more cyclical" than the large caps within the sector. The fund manager said he has been able to exploit this perception in the European segment of his fund's portfolio.
As of quarter-end, the $583 million equity portfolio contains 51 stocks, of which three represent new holdings. The fund's top two sectors in terms of portfolio weight are industrials, which occupies 30.59% of the equity portfolio, and technology, which occupies 28.65% of the equity portfolio.
For the quarter, the fund's top five buys were Croda International PLC (LSE:CRDA), Norma Group SE (XTER:NOEJ), Victrex PLC (LSE:VCT), Hexpol AB (OSTO:HPOL B) and Loomis AB (OSTO:LOOM B).
Nadel's fund purchased 195,000 shares of Croda, giving the position 2.18% weight in the equity portfolio. Shares averaged 51.68 pounds ($62.80) during the quarter.
The East Yorkshire-based specialty chemicals company operates four business segments: personal care, life sciences, performance technologies and industrial chemicals. GuruFocus ranks Croda's profitability 8 out of 10 on several positive indicators, which include margins and returns outperforming over 88% of global competitors. Additionally, the company's business predictability ranks 3.5 stars out of five on consistent revenue and earnings growth over the past 10 years.
The fund purchased 250,000 shares of Norma, giving the holding 1.78% weight in the equity portfolio. Shares averaged 39.82 euros ($44.09) during the quarter.
Norma manufactures a wide range of joining technology solutions, products that ensure reliable flow of liquids, gases and other elements. GuruFocus ranks the German industrial products manufacturer's profitability 5 out of 10: Although the company's profit margins are outperforming over 60% of global competitors, its three-year Ebitda growth rate of 4.90% underperforms 83.93% of global peers.
The fund added 340,000 shares of Victrex, increasing the position 133.33% and its equity portfolio 1.61%. Shares averaged 22.16 pounds during the quarter.
The Lancashire-based company manufactures products using polyetheretherketone, an ultra-high-performance lightweight plastic. GuruFocus ranks the company's financial strength 10 out of 10 on several positive indicators, which include no long-term debt and a robust Altman Z-score of 16.98.
Victrex's profitability ranks 8 out of 10 as operating margins that outperform 97.88% of global competitors offset a three-year revenue growth rate that underperforms 60.38% of global peers.
The fund added 1.015 million shares of Hexpol, increasing the stake 106.28% and its equity portfolio 1.42%. Shares averaged 77.06 Swedish krona ($7.98) during the quarter.
The Malmo, Sweden-based company manufactures and sells a variety of chemicals and chemical-based products through two business segments: compounds and engineered products. GuruFocus ranks Hexpol's financial strength and profitability 7 out of 10 on several positive indicators, which include robust interest coverage, profit margins that outperform approximately 74% of global competitors and a return on assets that outperforms 82.16% of global chemical manufacturers. Despite this, Hexpol's three-year Ebitda growth rate of 3.90% underperforms 86.14% of global peers.
The fund added 190,000 shares of Loomis, increasing the position 84.44% and the equity portfolio 1.12%. Shares averaged 328.95 Swedish krona during the quarter.
Nadel said in his May interview that the fund established a holding in Loomis and then expanded the stake over the past two quarters. The fund manager said Loomis' roots go back over 150 years; further, the company is a "global leader" in the area of cash transit and valuables transit.
GuruFocus ranks the company's financial strength 4 out of 10: Although it has a solid Piotroski F-score of 5, Loomis' debt ratios are underperforming over 69% of global competitors.
The fund's third new position for the quarter is a 149,000-share stake in Cyient Ltd. (NSE:CYIENT). The shares averaged 569.61 Indian rupees ($8.24) during the quarter; the position represents just 0.20% of the equity portfolio.
Disclosure: No positions.
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