How did Royce Small-Cap Fund perform in 1Q26?

Lauren Romeo: The Fund advanced 3.9% for the quarter, outperforming its benchmark, the Russell 2000 Index, which was up 0.9%.

How did the Fund perform compared to the Russell 2000 over longer-term periods?

Jay Kaplan: We’re very pleased with our long-term absolute and relative results. The Fund beat the Russell 2000 for the 5-, 10-, 20-, 25-, 30-, 35-, 40-, and 45-year periods ended 3/31/26.

Which portfolio sectors made the biggest impact on 1Q26’s performance?

Andrew Palen: Five of the portfolio’s 10 equity sectors made a positive impact on quarterly performance. Information Technology led by a good-sized margin, followed by Industrials and Materials. The biggest negative impact by far came from Health Care, which was the Fund’s top contributor in 4Q25, followed by much smaller detractions in Real Estate and Consumer Staples.

What happened at the industry level in 1Q26?

Miles Lewis: At the industry level, semiconductors & semiconductor equipment (Information Technology), machinery (Industrials), and electronic equipment, instruments & components (Information Technology) contributed most for the quarter, while software (Information Technology), professional services (Industrials), and IT services (Information Technology) were the largest detractors. Many holdings in the two top-performing tech industries benefited from AI exposure while the three top detracting industries were hurt by the perception that AI will make these businesses obsolete by doing the most if not all the work they’re currently doing. Trying to separate which companies appear positioned to eventually survive and thrive from those that might not make it is both an exciting and daunting challenge for our team.

At the sector level, what factors made the biggest impact relative to the benchmark in 1Q26?

Steven McBoyle: The Fund’s advantage over the Russell 2000 came from stock selection in the first quarter, with stock picking in Information Technology having the biggest positive impact by a wide margin. Stock selection and our higher weightings in Materials and Industrials also made notable positive effects. Conversely, our much lower weighting in Energy detracted the most by far, followed by stock selection in Health Care and Consumer Staples.

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

Francis Gannon: We are confident that small-caps can sustain market leadership and are working to use short-term volatility to our long-term advantage and create market-beating returns. We also want to remind investors that the opportunity still exists to build one’s small-cap allocation at attractive valuations. The current period looks to us like an especially opportune time to invest in select small-caps for the long run. We think it’s also important to know that at the end of March, the Russell 2000’s 5-year annualized total return was 3.8%. Since the inception of the small-cap index at the end of 1978, whenever the average annualized 5-year return was 5% or less, subsequent 3- and 5-year returns were positive 100% of the time—and were higher than each period’s average annualized returns since inception. This underscores our conviction that, current volatility notwithstanding, we are in a very promising period for small-cap leadership and disciplined active small-cap management. More specifically, several catalysts, including reindustrialization, reshoring, and ongoing infrastructure improvements, should help keep the Fund’s risk-averse approaches in a sustained leadership role, as can the possibility of a healthy CapEx cycle and the benefits accruing to those small-cap companies that continue to provide AI’s ‘picks & shovels.’

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