Boniface “Buzz” Zaino manages Royce Fund Opportunity/Inv (RYPNX) with an eye on micro-cap stocks that match a set of guiding themes.
He likes undervalued assets, the classic stratagem of finding hidden gems. In the micro-cap arena where Zaino works, the search for undiscovered gems is a given.
Zaino also pursues what he calls undervalued growth — a strong company in a weak sector.
He likes turnaround plays brought on by, say, new management.
And he favors what he calls “interrupted earnings growth.” An IPO that stumbles fits that description.
Zaino says much of the tech sector was like a broken IPO in the tech wreck of 2000.
Once he’s found a stock he likes, Zaino tends to hang on to it as turnover is a low 46% annually.
The buy-’em-when-they’re-down approach has brought some dazzling returns to investors since Zaino took on the fund in April 1998.
Royce Opportunity was up a sizzling 52% for the year going into Thursday, powered largely by tech hardware and industrial materials. Together they make up about half the fund’s assets of $1.13 billion.
One stock blowing the doors off performance is automation systems maker UNOVA Inc (UNA). The company specializes in machines and operating systems to automate processes such as engine making and transmission building.
A gain this year of 165% makes the company the top holding of the 250-stock fund. As with most of those holdings, Unova fits one or more of Zaino’s investing themes.
“It’s a big turnaround situation,” said Zaino. “It has an improving balance sheet. But (more important), there is a lot of attention for its home and industrial security products. Its industrial business (the machines that make engines and transmissions) is also improving.”
After such a sharp run-up in share price, Zaino said he’s been unloading Unova shares.
Zaino labels Alliance Semiconductor (ALSC) as an asset play, a turnaround and an undervalued growth play. Shares of the computer memory maker are up 60% for the year.