PEOPLE: BONIFACE ZAINO SLEEPY ROYCE GETS WAKE-UP BUZZ

Boniface “Buzz” Zaino is back doing what he likes best — picking stocks.

The mutual fund veteran arrived at Royce & Associates in April after 14 years in Trust Co. of the West’s New York office. He had built its small-company value business from scratch to $2 billion in assets. He’s proud of that accomplishment for the Los Angeles-based company, but says he tired of the headaches that come with managing a department.

“You spend less time chasing down stocks,” he says. “It’s a lot more fun getting back into the research business, managing a portfolio.”

Mr. Zaino, 54, is managing New York-based Royce’s PMF II, a small-cap value fund — an 18-month-old offshoot of Royce’s flagship Pennsylvania Mutual Fund. In addition, he has assumed oversight of the firm’s two commingled institutional portfolios, Quest Group Trust and Quest Endowment Fund.

Mr. Zaino arrives as founder and president Charles Royce tries to reinvigorate a 25-year-old company that has lost some luster of late. The firm recently hired Charles Dreifus, formerly of Lazard Fr%E8;res, to manage a new portfolio called Royce Special Equity.

“This is a terrific sign that they’re bringing in more talent,” says Don Phillips, president of Morningstar Inc. in Chicago. “They are certainly a trusted name among financial planners.”

down to three stars

Mr. Royce is considered the dean of small-company value stock picking. And in the early years the firm promoted its pioneering investment style to the financial planning community. But Pennsylvania Mutual has lost one of its four stars from Morningstar. While its performance numbers have steadily improved, it has slipped in the Lipper Analytical Services rankings as new funds have moved ahead of it. As of June 18, It had a five-year annualized return of 13.67% and a ranking of 128; its three-year return was 17.42%, ranking it 185th.

Financial advisers note that Mr. Royce has far more competition now than two decades ago, and, viewing the market as overvalued, has avoided pulling the trigger on stocks that would have boosted his performance.

The addition of Mr. Zaino is seen as a major plus by Lewis J. Altfest, a financial adviser in New York who oversees about $100 million in assets. Mr. Altfest got to know Mr. Zaino while they were colleagues at Lehman Brothers in the late 1960s and early 1970s. He says “Zaino is a street-smart guy,” and “all the inside people” at Lehman would invest in his portfolios.

Despite a “low-key” personality, Mr. Zaino has a singular passion for investing, Mr. Altfest says. “I once asked him when he was going to retire and he said, ‘When I retire what am I going to do? I’ll sit back and take a copy of Barron’s and go through it.’ ”

Mr. Zaino, whose passion for horseback riding in the West matches his love of stock picking, has slightly outperformed Mr. Royce over the years by taking more risk (his beta, the usual measure of volatility, is 0.85, compared to Mr. Royce’s 0.65, he says.) He likes a $2 stock, IndeNet. The Livonia, Mich., firm provides software that helps television stations track advertising dollars.

“In a sense there’s a regeneration” at Royce, he says. “Chuck is broad-minded enough to know there are other ways to make money than his own way.”

The differences in style between Mr. Zaino and Mr. Royce are subtle. And the competition between them has been healthy.

“I’ve known Chuck for at least 20 years,” he says. “We’re survivors of the ’70s when things were so tough you hated coming to work in the morning. All of us (value managers), rather than being competitors, leaned on each other.”