Vantage: Royce’s Mark Fischer on keeping the faith in high-quality companies

Chuck Royce is a pioneer in small-cap investing and remains chair and a portfolio manager of Royce Investment Partners. We reconnect with Royce’s Mark Fischer, whom we last interviewed in December 2021. He and his team sift through the non-US listed small-cap universe looking for premier-quality companies with high and consistent returns on invested capital that are benefiting from long-term secular growth opportunities and are supported by a conservative balance sheet and a reasonable valuation. Mark explains that the stocks of many high-quality companies have underperformed over the last three years, initially due to rising interest in COVID-related stocks and work-from-home beneficiaries, which then shifted to reopening plays, and then over the past year to perceived inflation hedges such as energy stocks. But Mark is keeping the faith – he believes in the iron law that only companies whose returns exceed their cost of capital create shareholder value and that these companies will eventually return to favour and deliver outperformance. Mark illustrates his team’s approach by discussing two UK companies: Intertek (ITRK.L) and Restore (RST.L).