How did the Small-Cap Opportunistic Value Strategy perform in 3Q25 and off the market low on 4/8/25?

Jim Harvey: We were very pleased with the way that Royce Small-Cap Opportunity Fund, the portfolio we manage in the Strategy, performed in both periods. The Fund increased 12.9% in the quarter, beating its primary small-cap benchmark, Russell 2000 Value Index, which was up 12.6%, and the small-cap Russell 2000 Index, which gained 12.4%, for the same period. From April 8th through the end of September, the Fund rose 47.3%, ahead of both the Russell 2000 Value, which was up 35.3%, and the Russell 2000, which was up 39.3%, for the same period.

How has the Fund done versus its benchmark over longer-term periods?

Brendan Hartman: If anything, we’re even more pleased with results over longer-term periods. The Fund beat the Russell 2000 Value for the year-to-date period ended 9/30/25, up 9.9% versus 9.0%, and outperformed both small-cap indexes for the 1-, 3-, 5-, 10-, 15-, 20-, 25-year, and since inception (11/19/96) periods ended 9/30/25.

What were the Fund’s results on a sector basis in 3Q25?

Kavitha Venkatraman Nine of the portfolio’s 10 equity sectors made a positive impact, with Industrials leading by a wide margin, followed by Consumer Discretionary and Information Technology. The only negative impact came from Communication Services.

What happened at the industry level during the quarter?

Jim Stoeffel: At the industry level, aerospace & defense (Industrials), semiconductors & semiconductor equipment (Information Technology), and electronic equipment, instruments & components (Information Technology) contributed most for the quarter, while IT services (Information Technology), software (Information Technology), and ground transportation (Industrials) were the largest detractors.

How did the Fund perform relative to the Russell 2000 Value on a sector basis in 3Q25?

BH: The portfolio’s advantage over the benchmark was primarily attributable to sector allocation in the quarter. At the sector level, stock selection in Industrials made the biggest positive impact, followed by a lower weighting and, to a lesser extent, stock selection in Financials and stock selection in Consumer Discretionary. Conversely, stock selection in Information Technology, Communication Services, and Health Care detracted most from relative quarterly results. In the first two sectors, the Fund’s overweight vis-à-vis the small-cap value index was positive, though not enough to surpass the negative impact of stock selection.

How did the Fund perform at the sector level for the year-to-date period ended 9/30/25?

KV: Four of the portfolio’s 10 equity sectors—Industrials, Financials, Information Technology, and Materials—made a positive impact on year-to-date period performance—and Industrials led by an even wider margin than in 3Q25. The biggest detractors on a sector level were Energy, Consumer Staples, and Health Care.

What were the biggest industry contributors and detractors for that period?

JH: The biggest contributions came from aerospace & defense (Industrials), electronic equipment, instruments & components (Information Technology), and construction & engineering (Industrials), while IT services (Information Technology), energy equipment & services (Energy), and textiles, apparel & luxury goods (Consumer Discretionary) were the largest detractors.

How did performance stack up at the sector level versus the Russell 2000 Value for the year-to-date period ended 9/30/25?

JS: The portfolio’s relative advantage was due to sector allocation decisions in the year-to-date period. At the sector level, the biggest relative boost by far came from stock selection in Industrials, followed by a very light weighting in Real Estate and the combination of a lighter weighting and stock selection in Financials. Conversely, stock selection in Information Technology hurt most (and outweighed the positive benefit of a large overweight in the sector). Stock selection also hurt in Communication Services, while the positive impact of the portfolio’s higher weighting in Energy was not enough to overcome the negative effects of stock selection.

What is your outlook for the Strategy?

BH: We’re pleased that small-caps beat large-caps in both 3Q25 and off the market low on 4/8/25 and that the Fund exhibited the bull phase outperformance that has been a hallmark of the portfolio for more than 25 years. In terms of positioning, the Fund is maintaining its pro-cyclical lean, with Industrials and Information Technology its largest sector weights at the end of 3Q25. The most recent investment emphasis has focused on infrastructure, AI data centers, and reindustrialization in the U.S., which encompasses both sectors in addition to Energy. Within tech, much of the portfolio’s exposure is in semiconductors and semiconductor capital equipment names. One AI theme includes companies involved in power generation, though small-cap companies are providing “picks and shovels” for AI and mega-cap companies’ CapEx needs across several industries. Other recent investment opportunities include names in Consumer Discretionary, where inflation and tariff worries bred attractive valuations earlier in the year, and Health Care, which has also seen depressed stock prices in several industries. In light of recent absolute and relative performance strength and the number of new opportunities we’ve been seeing, we remain highly confident in the Fund’s long-term prospects.

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