In Royce Premier Fund, the mutual fund that we manage in the Strategy, one of 2024’s top contributors at the position level was SEI Investments, which provides technology and investment solutions that connect the financial services industry with capabilities ranging from investment processing, operations, and asset management. The Fund’s largest position at year-end, SEI works with corporations, financial institutions and professionals, and ultra-high-net-worth families to help drive growth, make confident decisions, and protect their futures. It has a dominant share within the U.S., serving 10 of the top 20 U.S. banks and 48 of the top 100 investment managers worldwide. A scaled provider, SEI has a combined $1.4 trillion in assets under management and assets under administration.

Of late, SEI has also become the globe’s largest private credit fund administrator, with more than $1.5 trillion in assets under administration. Its value proposition involves managing operations so that its clients can focus on “front-office” responsibilities like security selection and relationship management. This creates sticky customer relationships because SEI’s services are embedded into their operations. SEI reported strong and improving results throughout 2024, specifically in its business pipeline, customer activity, and profits. Its most recently reported results showcased all-time record revenue, margins, and earnings. Equally important was management’s commentary becoming more positive as the year progressed around SEI’s many strategic initiatives designed to increase its addressable markets.

SEI Investments (Nasdaq: SEIC)
12/29/23-12/31/24

Past performance is no guarantee of future results.

Another top performer in 2024 was Kadant, which supplies critical components and engineered systems used in process industries. The company operates through three segments: Flow Control, Industrial Processing, and Material Handling. Traditionally, the pulp and paper industry suffered from limited secular growth, yet Kadant is now a direct beneficiary of the increased demands on core packaging processing equipment due to the global rise of online retailing; specifically, e-commerce uses three- to six-times more containerboard per shipment than a retail store, so Kadant’s dominant global share position in recycled linerboard and tissue processing equipment has experienced a resurgence. Even more important, Kadant’s management has recently transitioned the business to be a more growth-oriented company serving multiple industries where the company serves as either the #1 or #2 player in its markets.

In 2024, the company benefited from favorable demand and strong customer capital budgets while consumables revenue and mix reached record levels. We like Kadant’s tech-driven, asset light, after-market orientation approach that also has the company benefiting from a long history of loyal customer relations and an ever-increasing installed base of equipment. We are confident that management’s new operating model, in particular its quality attributes, can result in continued favorable compounding returns.

Kadant (NYSE:KAI)
12/29/23-12/31/24

Past performance is no guarantee of future results.

The Fund’s top detractor in 2024 was Quaker Houghton, which produces, develops, and markets industrial chemical products, including heat treatment, metal forming, forging, and tin plating fluids, as well as cleaners, casting lubricants, greases, ground control agents, and metal rolling oils. We see Quaker as an attractive asset light business, with recurring revenues and strong customer loyalty. After a strong performance in 2023, Quaker’s stock fell as the company faced more difficult sales growth comparisons as it lapped strategic price increases and volumes varied by geographic region, reflecting slower global industrial growth.

Quaker recently promoted to CEO a respected, internal “rising star” who has overseen global growth initiatives and the merger integration of Houghton. We believe much of his focus is on reemphasizing the company’s “customer intimacy” sales process to accelerate new product growth and geographic expansion (e.g., to India), as well as more effectively capitalizing on cross-selling opportunities across Houghton and Quaker customers.

Quaker Houghton (NYSE: KWR)
12/29/23-12/31/24

Past performance is no guarantee of future results.

Another detractor that has our long-term confidence is Enovis Corporation, an orthopedic-focused medical technology company with a leading global market share in its Prevention & Recovery segment, which includes braces and rehabilitation products, as well as a growing Reconstruction segment that includes surgical implants for extremities.

Its stock has been under pressure since Enovis closed its largest ever acquisition earlier this year, pressure that included a 28% drop in 2Q24. The strategic fit and valuation of the deal make sense to us, but near-term integration is always a risky process, especially with new leadership in Enovis’s Reconstruction segment. Investors appear to be waiting for evidence that product line rationalization, salesforce integration, cost synergies, and, ultimately, revenue growth from cross selling the combined company’s product are materializing consistent with management’s expectations. Seeing what we thought were compelling valuations, we periodically built our stake in 2024.

Enovis (NYSE: ENOV)
12/29/23/-12/31/24

Past performance is no guarantee of future results.

Important Disclosure Information