The history of our management of Royce Small-Cap Fund—our flagship offering—dates back to November 1972 when a young analyst named Chuck Royce took on sole portfolio management responsibilities for an open-end mutual fund that was then called Pennsylvania Mutual Fund. Few investors at that time were thinking about small-cap as an asset class where one could find companies trading at attractively cheap share prices that also boasted rock solid fundamentals and strong long-term growth potential.

We were among a small handful of asset managers who thought otherwise, and the Fund’s long-term success became a proof point that the small-cap universe was home to far more stocks than risky, highly volatile growth companies. Although often categorized as a value fund, our approach was more eclectic and has made room over the ensuing decades for small-cap companies that paid consistent dividends, had high returns on invested capital (“ROIC”), and those that our research showed were capable of evolving into stable, high-quality enterprises, among other attributes.

This initial willingness to look beyond conventional investment style parameters has remained a defining characteristic of the Fund. Over time, what began as a flexible approach to identifying attractive small-cap businesses has evolved into a deliberate multi-discipline strategy, bringing together complementary investment approaches that have tended to perform well in different market environments. To be sure, we think the Fund’s consistent, bottom-up, and multi-discipline approach makes it an attractive all-weather small-cap strategy—which is bolstered by its impressive long-term performance record.

An Impressive Growth of Investment
Value of $10,000 Invested on 12/29/78 (Russell 2000 Inception) as of 9/30/26 ($)

Past performance is no guarantee of future results.

Today, the Fund is the centerpiece of our Small-Cap Core Strategy.

This Strategy focuses on small-cap stocks (those whose market caps are less than the largest stock in the Russell 2000® Index) that have above-average profitability, below-average leverage, and attractive valuations. The Fund’s portfolio management team consists of Royce veterans Jay Kaplan, Miles Lewis, Steven McBoyle, Andrew Palen, Lauren Romeo, and Co-CIO Francis Gannon, who works with the team by monitoring and, from time to time, adjusting allocations across various segments of the Fund’s portfolio.

The multi-discipline approach offers investors exposure to strategies that have tended to perform well in different market environments, including High Quality, Emerging Quality, Traditional Value, and Quality Value. Each of the portfolio managers pursue their own distinct approach, combining autonomy and accountability on stock selection. The portfolio consists of five concentrated segments, each usually holding less than 65 stocks.

We think the team-based, multi-discipline approach has helped the Fund maintain its attractive risk profile. For example, the Fund has shown below average volatility within its peer group of 514 Small-Cap Funds based on 5-year rolling standard deviation—while also outperforming the Russell 2000 during 13 out of 15 downturns of 15% or more from the index’s prior historical high since the index’s inception. Unsurprisingly, then, the Fund outperformed the Russell 2000 from the inception of the small-cap index at the end of 1978—with lower volatility.

Three Charts Showing Long-Term Risk Measurement as of 09/30/26

From the Russell 2000's Inception on 12/31/78, the Fund Outperformed the Small-Cap Index with Lower Volatility

The Fund Outperformed the Russell 2000 with Lower Volatility for the 10-Year Period Ended 9/30/26

The Fund Outperformed the Russell 2000 with Lower Volatility for the 5-Year Period Ended 9/30/26

Lower volatility, however, does not tell the whole story. The Fund has enjoyed a solid record of both up and down market results, as measured by its long-term Upside Capture and Downside Capture Ratios, shown below.

Upside and Downside Capture Ratios
From the inception of the Russell 2000 on 12/31/78 through 9/30/26

Upside Capture Ratio measures a manager’s performance in up markets relative to the Fund’s benchmark (Russell 2000). It is calculated by measuring the Fund’s performance in quarters when the benchmark goes up and dividing it by the benchmark’s return in those quarters. Downside Capture Ratio measures a manager’s performance in down markets relative to the Fund’s benchmark (Russell 2000). It is calculated by measuring the Fund’s performance in quarters when the benchmark goes down and dividing it by the benchmark’s return in those quarters.

For these reasons—a broad and diverse portfolio supported by a long record of strong absolute and relative performance over several different market cycles and economic environments—we think the Fund has more than earned its all-weather bona fides.

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