Addus Homecare Corporation (ADUS), Virtus Investment Partners Inc (VRTS), GP Strategies Corporation (GPX): The Hidden Bargains in Micro Caps

Bumps in the road

The road has been more difficult as of late for the team at Royce Micro-Cap (RYOTX), but the longer-term case for owning the fund is still solid. Management seeks out high-quality emerging companies with stable earnings and high returns on capital. For example, the second largest holding in the fund is professional training and coaching service provider GP Strategies Corporation (NYSE:GPX), which is a favorite because of its successful performance in a challenging environment as well as recent acquisitions that have helped boost the company’s bottom line.

While the fund boasts a solid investment process and long-term track record, Royce Micro-Cap has run into difficulties in recent years, with performance falling into the bottom 3% of its peer group over the most recent three-year period. The fund has been stung by its heavy exposure to materials stocks and its large foreign stock allocation, as these two areas of the market have been under pressure in recent years. However, the investment approach that has led to great success in the past remains intact and should help steer the portfolio back on track. This fund isn’t for the volatility-shy, but over time it should prove to be a market-beating source of return for micro-cap investors.

The article The Hidden Bargains in Micro Caps originally appeared on Fool.com and is written by Amanda Kish.

Amanda Kish is the Fool’s resident fund advisor for the Rule Your Retirement investment newsletter. She and The Motley Fool have no position in any of the stocks mentioned. 

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