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By Karin Anderson | 05-28-2009 12:11 PM

Royce: Quality Doubly Important

The Royce Funds president discusses the small-cap shop's search for quality companies, portfolio moves in the downturn, and the factors behind a poor 2008 performance.

Karin Anderson: Hello. I am Karin Anderson. I am a mutual fund analyst at Morningstar. I am here today with Chuck Royce, the president of The Royce Funds. Chuck, thank you for being here.

Charles Royce: Great.

Anderson: First of all, I would like to get a sense of how you navigated the 2008 downturn. You run several small-cap funds, and you have been through downturns before. So what was different this time around? What were some of the key takeaways?

Royce: Well navigate is probably giving a little more favorable twist to what happened last year. We did poorly, certainly far worse than I would have ever wanted to do on a given year. The world had this absolute blowup starting in mid-September. There was this, what has become known as the "Black Swan Effect" of a variety of circumstances ganging up at once that certainly was not in our mind-set.

We definitely believed that we were going to have a recession. We believed that we were going to have a market correction. We believed we had certain things in mind of what would go on, but really it happened at multiples of that; two or three times that.Read Full Transcript

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