How did Royce Small-Cap Fund perform in 2Q25?

Lauren Romeo: The Fund advanced 9.4% for the quarter, outperforming its benchmark, Russell 2000 Index, which was up 8.5% for the same period.

How was performance for year-to-date through 6/30/25 and over longer-term periods?

Jay Kaplan: The Fund also beat the Russell 2000 for the year-to-date period ended 6/30/25, down -0.8% versus -1.8%, and maintained its long-term relative advantages outpacing the benchmark for the 3-, 5-, 10-, 20-, 25-, 30-, 35-, 40-, and 45-year periods ended 6/30/25. For the 1-year period, certain attributes that go into our selection process underperformed, such as high returns on invested capital, lagged the benchmark.

Which portfolio sectors made the biggest impact on 2Q25’s performance?

Andrew Palen: Seven of the portfolio’s 10 equity sectors made a positive impact on 2Q25 performance. The sectors making the largest positive contributions were Industrials, Information Technology, and Financials while the largest negative impacts came from Energy, Real Estate, and Communication Services.

What happened at the industry level in 2Q25?

LR: The biggest contributors were construction & engineering (Industrials), capital markets (Financials), and electronic equipment, instruments & components (Information Technology), while financial services (Financials), real estate management & development (Real Estate), and oil, gas & consumable fuels (Energy) were the largest detractors.

At the sector level, what factors made the biggest impact relative to the benchmark in 2Q25?

ML: Lewis Our advantage over the benchmark was attributable to sector allocation decisions in the quarter. At the sector level, both stock selection and lower exposure to Health Care, stock selection in Financials, and a substantially lower weighting in Real Estate made the most significant positive impact versus the benchmark. Conversely, stock selection in Materials, Consumer Discretionary, and Industrials detracted most from relative quarterly results.

How did the Fund’s sectors perform for the year-to-date period ended 6/30/25?

Steven McBoyle: Six of the Fund’s 10 equity sectors detracted from performance in the year-to-date period, with the biggest detractions coming from Consumer Discretionary, Information Technology, and Real Estate while the largest positive impacts came from Financials, Industrials, and Health Care.

What about at the industry level?

ML: Semiconductors & semiconductor equipment (Information Technology), chemicals (Materials), and specialty retail (Consumer Discretionary) detracted most for the year-to-date period, while capital markets (Financials), construction & engineering (Industrials), and insurance (Financials) were the biggest contributors.

How did the Fund’s results compare with those of the Russell 2000?

AP: The portfolio’s advantage over the benchmark came from sector allocation decisions in the first half of 2025. At the sector level, stock selection in Financials, stock selection and, to a lesser extent, lower exposure to Health Care, and lower exposure to Energy did most to boost performance versus the benchmark. Conversely, stock selection and, to a lesser extent, a higher weighting in Information Technology, as well as stock selection in Consumer Discretionary and Materials, detracted most from relative year-to-date period results.

What’s your long-term outlook for the Fund?

Francis Gannon: Against a backdrop of ample economic and geopolitical uncertainty, we know that as of the end of June, the Russell 2000 remained much less expensive than the Russell 1000. Based on our preferred index valuation metric, EV/EBIT or enterprise value over earnings before interest and taxes, small-caps stayed close to a 25-year low relative to large-cap stocks. Many small-caps stocks are just beginning to emerge from a two-year earnings recession, which should help boost performance for an asset class that’s lagged large-cap for several years and currently faces low expectations. And previous low expectations and relatively underwhelming returns have often been opportune times to increase allocations. Historically, sitting on the sidelines during corrections or the early stage of rallies has carried a high cost. We are therefore cautiously optimistic for the advantages of active, risk-conscious, small-cap investing for the long run.

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