Royce Global Value Trust Manager Commentary
article 02-22-2024

Royce Global Value Trust Manager Commentary

Our companies boast generally strong long-term growth prospects, low debt, positive free cash flows, high returns on invested capital, and/or proven management expertise. Overall, we think they appear well positioned for a market that is more focused on fundamentals and/or from a reaccelerating global economy.


Fund Performance

Royce Global Value Trust (RGT) gained 16.2% on a net asset value (NAV) basis and 14.5% on a market price basis in 2023 versus an increase of 16.8% for its unleveraged benchmark, the MSCI ACWI Small Cap Index, for the same period.

What Worked… And What Didn’t

Seven of the Fund’s 10 equity sectors contributed positively to 2023’s performance, led by Industrials, Information Technology, and Financials, while Communication Services, Health Care, and Real Estate were the detractors. At the industry level, capital markets (Financials) contributed most, followed by two groups in Industrials: machinery and trading companies & distributors. The top-detracting industries were entertainment (Communication Services), life sciences tools & services (Health Care), and professional services (Industrials).

The Fund’s top-contributing position was U.K.-based housing developer Vistry Group, which designs, builds, and sells new homes for both private customers and social landlords. It offers a portfolio of properties ranging from apartments to large detached family homes. We like its asset-light business model and its ongoing prospects as lower mortgage rates in the U.K. should help to stoke demand. APi Group provides safety, specialty, and industrial services globally, though its focus is on North America. The company announced record 2023 first-quarter results in May that included double-digit organic growth and expanded margins, a backlog near record highs, and vibrant activity across both its safety and specialty segments. This streak of robust demand, strong revenues and earnings, and margin expansion continued through the end of the year. ESAB Corporation is a U.S. company that provides fabrication technology and gas control solutions, offering its customers advanced equipment, consumables, robotics, and digital solutions. The company reported strong third-quarter results in November of 2023, characterized by organic growth, margin expansion, and positive cash flows, which led ESAB to raise full-year earnings guidance.

Chicken Soup for the Soul Entertainment, which produces and distributes video content, was the Fund’s top detractor in 2023. The hoped for spikes in DVD rental activity never materialized in 2023, and its streaming video business also disappointed, issues that influenced our decision to exit the position in the Fund. Shares of South African financial services company Transaction Capital went into freefall in March of 2023 after the firm issued a profit warning and record losses. We trimmed our position substantially in 2023’s second half. Mesa Laboratories develops and manufactures electronic measurement instruments for industrial and hemodialysis customers, including pipeline flow meters and calibration instruments. Its shares fell in 2023’s first half on currency headwinds across the company’s divisions, slower biopharmaceutical spending that affected its Biopharmaceutical Development Division, a significant decrease in Covid-driven revenues, and the loss taken in its high-margin Sema4 business, which is part of Mesa’s Clinical Genomics division. Later in the year, Mesa reported disappointing results due to sluggish capital equipment orders in its biopharmaceutical vertical and a key customer loss in its Clinical Genomics division. While confident that its business can rebound, we trimmed our position in the second half of 2023.

The Fund’s disadvantage versus the MSCI ACWI Small Cap came from stock selection in two sectors: Communication Services, which detracted significantly, and Health Care. Conversely, our substantially higher weighting in Industrials, stock selection in Financials, and lack of exposure to Utilities were most additive relative to the benchmark in 2023.

Top Contributors to Performance 20231 (%)

Vistry Group1.58
APi Group1.54
ESAB Corporation1.16
Vontier Corporation1.00
Griffon Corporation0.94

1 Includes dividends

Top Detractors from Performance 20232 (%)

Chicken Soup for the Soul Entertainment Cl. A-2.36
Transaction Capital-0.83
Mesa Laboratories-0.61

2 Net of dividends

Current Positioning And Outlook

Our long-term outlook remains essentially unchanged. The near-term forecast for equities remains unclear, though we see better weather on the horizon, especially for global small-cap stocks. There continues to be an array of potential triggers that we anticipate will jumpstart small-cap performance in the coming months. First, a soft landing for the U.S. economy looks more and more likely, and a recession—specifically the kind of deep and potentially lengthy contraction many have been anticipating since late 2021—looks less likely. Indeed, throughout 2022 and into 2023, we have been struck by the contrast between the more confident—albeit cautious—outlooks from the many management teams we met with, and the fatalistic headlines seen almost every day. Of course, our companies boast generally strong long-term growth prospects, low debt, positive free cash flows, high returns on invested capital, and/or proven management expertise. Overall, we think they appear well positioned for a market that is more focused on fundamentals and/or from a reaccelerating global economy. And while recession remains a reality or possibility (depending on geography), none of us knows how long it will last or how deep it will go. What we do know is that any recession—like any bear market—is ultimately finite. Any recession will be followed by a recovery. It’s worth keeping in mind that history also shows that small caps will likely begin an upward move before many of us know for sure that the economy is rebounding in earnest. For this and other reasons, we would welcome any degree of increased scrutiny of company fundamentals.

Average Annual Total Returns Through 12/31/23 (%)

RGT 13.7014.5014.50-2.828.614.884.68
XRGTX (NAV) 12.3116.1516.15-0.479.135.535.69

Annual Operating Expenses: N/A

1 Not annualized.

Important Performance and Disclosure Information

Important Performance and Expense Information

All performance information reflects past performance, is presented on a total return basis, and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Current performance may be higher or lower than performance quoted. Returns as of the most recent month-end may be obtained at The market price of the Fund's shares will fluctuate, so that shares may be worth more or less than their original cost when sold.

The Fund invests primarily in securities of small-cap and mid-cap companies, which may involve considerably more risk than investing in larger-cap companies. The Fund's broadly diversified portfolio does not ensure a profit or guarantee against loss. From time to time, the Fund may invest a significant portion of its net assets in foreign securities, which may involve political, economic, currency and other risks not encountered in U.S. investments.

Current month-end performance may be obtained at our Prices and Performance page.

Notes to Performance and Other Important Information

The thoughts expressed in this report concerning recent market movements and future prospects for small company stocks are solely the opinion of Royce at December 31, 2023, and, of course, historical market trends are not necessarily indicative of future market movements. Statements regarding the future prospects for particular securities held in the Funds’ portfolios and Royce’s investment intentions with respect to those securities reflect Royce’s opinions as of December 31, 2023 and are subject to change at any time without notice. There can be no assurance that securities mentioned in this report will be included in any Royce-managed portfolio in the future.

As of 12/31/23, the percentage of Fund assets was as follows: Vistry Group was 3.2%, APi Group was 2.4%, ESAB Corporation was 2.0%, Vontier Corporation was 1.5%, Griffon Corporation was 1.8%, Chicken Soup for the Soul Entertainment Cl. A was 0.0%, Transaction Capital was 0.2%, Mesa Laboratories was 0.7%, IPH was 1.5%, Restore was 0.6%.

Sector weightings are determined using the Global Industry Classification Standard (“GICS”). GICS was developed by, and is the exclusive property of, Standard & Poor’s Financial Services LLC (“S&P”) and MSCI Inc. (“MSCI”). GICS is the trademark of S&P and MSCI. “Global Industry Classification Standard (GICS)” and “GICS Direct” are service marks of S&P and MSCI.

All indexes referred to are unmanaged and capitalization weighted. Each index’s returns include net reinvested dividends and/or interest income. Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication. The Russell 2000 Index is an index of domestic small-cap stocks. It measures the performance of the 2,000 smallest publicly traded U.S. companies in the Russell 3000 Index. The Russell 2000 Value and Growth Indexes consist of the respective value and growth stocks within the Russell 2000 as determined by Russell Investments. The Russell Microcap Index includes 1,000 of the smallest securities in the Russell 2000 Index, along with the next smallest eligible securities as determined by Russell. The Russell 2500 is an unmanaged, capitalization-weighted index of the 2,500 smallest publicly traded U.S. companies in the Russell 3000 index. The returns for the Russell 2500-Financial Sector represent those of the financial services companies within the Russell 2500 index. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. The MSCI ACWI Small Cap Index is an unmanaged, capitalization-weighted index of global small-cap stocks.The MSCI ACWI ex USA Small Cap Index is an index of global small-cap stocks, excluding the United States.The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index. Returns for the market indexes used in this report were based on information supplied to Royce by Russell Investments. Royce has not independently verified the above described information.

This material contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties, including, among others, statements as to:

-the Funds’ future operating results,

-the prospects of the Funds’ portfolio companies,

-the impact of investments that the Funds have made or may make, the dependence of the Funds’ future success on the general economy and its impact on the companies and industries in which the Funds invest, and

-the ability of the Funds’ portfolio companies to achieve their objectives.

This discussion uses words such as “anticipates,” “believes,” “expects,” “future,” “intends,” and similar expressions to identify forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements for any reason.

The Royce Funds have based the forward-looking statements included in this commentary on information available to us on the date of the commentary, and we assume no obligation to update any such forward-looking statements. Although The Royce Funds undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise, you are advised to consult any additional disclosures that we may make through future shareholder communications or reports.

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus carefully before investing or sending money. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see ""Primary Risks for Fund Investors"" in the prospectus.)



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