This Small-Value Fund Is Not for the Faint of Heart

Tony Thomas: Bronze-rated Royce Opportunity is an intriguing small-cap value option. But let's be clear: It's best for patient, risk-tolerant investors. The fund targets deeply undervalued businesses and turnaround stories, so it can bounce around wildly. For example, its annual returns have been top- or bottom-quartile in its category for 12 straight years.

So why does such a volatile fund earn a Bronze rating? For one thing, lead manager Bill Hench can keep things steady at the helm. He recently took over for longtime manager Buzz Zaino after working at Zaino's side since 2004. Hench has since added two assistant managers who are familiar with the strategy.

That strategy is a sensible approach to deep-value, small-cap investing. Hench dilutes risk by holding over 250 names and keeping individual position sizes modest. He also gives his holdings ample time to overcome their challenges. These traits give the fund a long-term edge despite its bouncy nature.

Now with a retooled team but the same guiding principles, Royce Opportunity remains an attractive option for clear-eyed investors.