PDueDiligence (< 20)

Practice Due Diligence- Royce Value Trust (RVT)

April 27, 2010 – Comments (1) | RELATED TICKERS: RVT

I usually buy individual stocks, but when I find a fund manager that picks the same types of companies I like, I’ll let him do some of my work for me.   Royce Value Trust is a closed ended mutual fund which means it is a basket of stocks that trade under one symbol.  A closed ended mutual fund can trade at a premium or discount to its NCAV (value of its underlying securities).  Royce Value Trust paid a 10% distribution until 2009 when the distribution was suspended because RVT managers thought the distribution allocation would provide higher returns in the discounted market place.  The suspension of the distribution caused the 10% premium placed on the trust to fade to a 15% discount.  RVT fund managers have already said in their annual letter that they plan to reinstate the dividend when the market cools off.  The 15% discount should at least return to NCAV for a 15% gain in stock price.  The 15% gain will be followed with RVT’s market beating value strategy and a yearly distribution of around 10%.  A 10% dividend and 15% capital appreciation.  Sign me up!    

Check out the top ten holdings.  I put them through my stock screener and listed their Piotroski numbers along with the value investing category they fit in to.

Top 10 as % of Total 9.2%:

Sotheby's 1.1%- Piotroski- 4;  

Reliance Steel & Aluminum 1.0%- Piotroski- 6; Graham Growth   

Ash Grove Cement Cl. B 0.9%- Piotroski- Error   

Simpson Manufacturing 0.9%- Piotroski- 4; Graham Value

AllianceBernstein Holding L.P. 0.9%- Piotroski- Error   

Alleghany Corporation 0.9%- Piotroski- Error

SEACOR Holdings 0.9%- Piotroski- 5; Graham Growth     

HEICO Corporation 0.9%- Piotroski- 9; Graham Growth      

Oil States International 0.9%- Piotroski- 5; Graham Value      

Plexus Corporation 0.8%- Piotroski- 5; Graham Value

Graham Value- NCAV (Current Assets – Total Liabilities > Stock Price)

Graham Growth-   Value = Current (Normal) Earnings x (8.5 + (2 x Expected Annual Growth Rate) x (4.40/today’s 20yr bond yield)

Check out the historical returns Royce has logged using his value investing approach:

http://www.roycefunds.com/Funds/Closed/rvt/?fund_id=19

Inception (11/26/86) 10.29% annualized return 

Annual Report:

http://www.roycefunds.com/pdf/annual_report_ce.pdf

Disclosure:

RVT is not currently in my portfolio.  I have been raising cash anticipating a market correction.