Case study of the Royce Global Small-Cap Premier Fund


Franklin Templeton’s Royce Investment Partners is launching the Royce Global Small-Cap Premier Fund to Australian retail investors. Matthew Harrison, Franklin Templeton managing director – Australia and New Zealand, explained how the strategy will meet a pent-up demand to Industry Moves.

What goes into launching a new product?

Franklin Templeton is a 10,000 plus employee organisation globally, so as you can imagine, there are a wide range of stakeholders and functions operating behind the scenes in both Australia and offshore to bring a product to market. With that said, our product development in Australia is driven by our clients. We generally launch multiple funds each year with the product ideas deriving from client conversations. We seek to understand the investment needs they have and deliver our best-in-class capabilities from across the global Franklin Templeton organisation. As a result, when we go to market, we are confident in its growth given it has been launched with client input and usually an initial seed client.

Why did you decide to launch now?

This launch dovetails with our local strategy of delivering best-of-breed investment capabilities from across our global organisation to Australia to meet client needs. We launched this fund with a seed client, a financial planning firm that was looking for a core global small-cap equity strategy backed by an experienced active manager. The investment manager for the fund is Royce Investment Partners, a US-based specialist investment manager of Franklin Templeton with strong expertise in small caps and no prior presence in Australia. From an asset class perspective, we are seeing increasing interest among clients in the global small-cap sector where many companies have strong long-term growth potential but are lightly researched and potentially undervalued by the market.

How did you research market opportunities?

We conduct extensive market research to understand our clients’ needs and look to areas where we expect to see growth in demand into the future. This is validated through the insights we gain from direct engagement with our clients. We see the global small-cap sector as one in which skilled active managers can add significant value. As investors continue to diversify their portfolios with an increased allocation to global asset classes, we believe this fund can help our clients achieve their investment goals.

What is your outlook for global small caps?

Chuck Royce, the founder of Royce Investment Partners, sees very strong signs for positive small-cap performance moving forward, highlighting the considerable pent-up demand and improving state of economies in many parts of the world as they emerge from the Covid-19 crisis. He notes small-cap stocks historically have performed well, on both an absolute basis and relative to large-cap stocks, when economies are expanding.

What challenges did you face and how were they overcome?

Given the number of stakeholders across multiple geographies and time zones, close coordination was needed with substantial demands placed on both Franklin Templeton employees and those of our key service providers. It is a testament to the strength of the partnerships we have formed with key service providers, such as JP Morgan and IRESS, that allowed us to make this exciting investment capability available in Australia.

How did you decide on service providers?

As part of the acquisition of Legg Mason in 2020, Franklin Templeton added Royce Investment Partners, a small-cap equity specialist, to the organisation and this fund launch was an opportunity to offer that capability more broadly to Australian clients. Royce is well regarded as a pioneer in small-cap investing with a 45-year history focused on this distinctive asset class. We find their strong experience and “premier quality” style investment strategy they have been successfully managing for many years a great fit for the Australian market. Apart from the appointed investment manager, we are using the same service providers as other funds in our range – JP Morgan for custody and fund administration services and IRESS for unit registry – who are excellent partners for our business.

Can you explain the fee structure?

The Royce Global Small-Cap Premier Fund, an unlisted Australian unit trust, is an actively managed, core small-cap equity fund. The strategy is driven by fundamental, bottom-up research and seeks to identify leading quality companies with discernible competitive advantages and high returns on invested capital. The fund has a management fee of 1.10 per cent per annum.

Franklin Templeton Investments Australia The Royce Global Small-Cap Premier Fund Launched on 28 July 2021 Designed for retail investors. Find out more This report is informational only in nature. Industry Moves neither recommends nor endorses this product/service.