FTF Royce US Smaller Companies Class W - Accumulation (GBP)

The fund's made attractive returns since Romeo became a co-manager in 2010 but hasn't managed to keep up with the broader US market of smaller companies. This is disappointing and we would have expected the fund to perform better given the manager's bias towards higher-quality smaller companies. But the manager's investment style, and so many of the companies she invests in have remained undervalued and out of favour for much of this period, holding back returns.

Manager Lauren Romeo invests in unloved US smaller companies, with the potential to come back into favour or recover in future. Smaller businesses are often among the most innovative and offer lots of growth potential, but they're higher risk than their larger counterparts.

Romeo aims to invest in companies that are unpopular with investors and buy their shares at a price significantly lower than she feels they're worth. They might be facing headwinds in the shorter term, so it's important they don't have too much debt. Romeo and her team spend a lot of time meeting with a company's managers to make sure they've got the skill and experience to turn the business around. They also speak to customers, suppliers and competitors to make sure the managers are executing their plan.

This analysis leads Romeo's team to decide what they think a company's shares are worth. She thinks this process provides opportunities to spot companies that are undervalued. This could also provide some support when markets are weaker. If a company's share price is already lower than it should be, it might not fall quite so far as those that are more expensive. They won't get it right every time though and even when they do, it can take some time for other investors to realise the opportunity and to see the share price rise. This means there will be periods where the fund underperforms and seems at odds with the wider market, so this style of investing requires patience.