Q. After several bad years, I’m making changes in my investment portfolio. I like the looks of Royce Premier Fund. What’s your opinion of it?
T.B., Via the Internet
A. Long-term consistency with low risk is its strength. That’s important in small-cap portfolios, which often dole out pain along with gain.
Portfolio manager Charles Royce, with three decades of experience, has in just a dozen years built Royce & Associates into what may be the top small-cap investment firm in the country. Its talented team of managers handles a dozen small-cap funds that feature different strategies.
The $1.23 billion Royce Premier Fund (RYPRX) has gained 31 percent in the past 12 months to rank below the midpoint of small growth and value funds. Its three-year annualized return of 14 percent places it in the upper one-third of its peers.
“This small-cap fund would be good for investors who already have their bases covered in terms of large-cap or Standard & Poor’s 500 funds,” said Dan McNeela, analyst with Morningstar Inc. in Chicago. “The only concern is that Royce’s popularity means its assets have grown considerably, so it faces some hurdles in managing its growth and keeping its funds on track.”
McNeela adds the caveat that small-cap stocks have been leaders the past few years and that this fund has had impressive gains this year. That means investors should be more reasonable in their expectations going forward, he believes.
One-fourth of Royce Premier’s assets are in industrial materials, with other significant concentrations in health care and business services. Its portfolio has only about 50 stock names, which increases the risk involved with individual issues. However, Royce does shy away from micro-caps, highflying stocks or deep turnaround situations in favor of more established firms.
Its top holdings were recently Endo Pharmaceutical Holdings, Simpson Manufacturing, Tom Brown, Goldcorp, Florida Rock Industries, Big Lots, Dionex, Winnebago Industries, Covance and Erie Indemnity “A.”
This “no-load” (no sales charge) fund requires a $2,000 minimum initial investment. Its annual expense ratio is 1.17 percent.
Q. How does an investor determine a stock’s ex-dividend date? Will this information be necessary to determine if dividends qualify for the 15 percent tax rate?
G.S., via the Internet.
A. When a company declares a dividend, it sets a record date when one must be on the company’s books as a shareholder in order to receive the dividend.
Once the company sets the record date, the stock exchanges or National Association of Securities Dealers fix the ex-dividend date. It is normally set for stocks two business days before the record date.
As a result, if you buy a stock on its ex-dividend date or after, you won’t receive the next dividend payment. The seller will instead get the dividend. But if you buy before the ex-dividend date, you’ll get the dividend.
Qualifying for the new 15 percent dividend tax rate requires that you pay close attention to that date.
“In order to qualify for the 15 percent dividend tax rate, you must hold the stock for more than 60 days during a 120-day window that starts 60 days before the ex-dividend date,” explained Steve Pierson, partner with BDO Seidman LLP in Chicago.
If you don’t hold the stock for 60 days during the 120-day period, the dividend will be taxed at your ordinary income tax rate, he cautioned.
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Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, #184, 369-B Third St., San Rafael, CA 94901-3581, or e-mail andrewinv@ aol.com.
