Royce Global Value Trust Manager Commentary
article 12-31-2019

Royce Global Value Trust Manager Commentary

The Fund outperformed its benchmark on both an NAV (net asset value) and market price basis, while also holding its advantage for the three- and five-year periods ended 12/31/19.

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Fund Performance

Royce Global Value Trust (“RGT”) advanced 31.2% on an NAV (net asset value) basis and 32.3% based on market price for 2019, outperforming its unleveraged benchmark, the MSCI ACWI Small Cap Index, which gained 24.7% for the same period. The Fund also outpaced its benchmark on an NAV and market price basis for the three- and five-year periods ended 12/31/19.

What Worked… And What Didn’t

Ten of RGT’s 11 portfolio sectors made a positive contribution to performance in 2019, with by far the biggest impact coming from Industrials and Information Technology—the Fund’s two largest sectors at year-end. Financials also made a solid positive impact while Communication Services was the only sector that detracted—doing so quite modestly. Utilities and Consumer Staples made the smallest contributions. At the industry level, machinery (Industrials) had the biggest positive effect, followed by notable contributions from electronic equipment, instruments & components (Information Technology) and capital markets (Financials). The top detracting industries were paper & forest products (Materials), industrial conglomerates (Industrials), and media (Communication Services).

The Fund’s top-contributing position was Brazil’s TOTVS, which provides enterprise resource planning and supply chain management software solutions. TOTVS capped a strong 2019 with robust revenue growth, effective cost management that created greater operational efficiency, and adjusted EBITDA margin expansion driven by its core software business. The cost of its new initiatives also did not significantly impact the firm’s profits. Finally, TOTVS acquired SUPPLIER, a credit card company with a virtual private label B2B solution. KBR, which offers differentiated engineering and related services and technologies, followed as the next-best contributor. The company operates in three synergistic segments: Government Solutions, Technology Solutions, and Energy Solutions. Its shares benefited from KBR exceeding earnings estimates for four consecutive quarters as of October 2019. This growth was driven by robust book-to-bill rates and notable strength in its Energy Solutions division.


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Virtu Financial is a New York City based financial company that uses its technology to act as a market maker and liquidity provider to the global financial markets. Its business endured a slump through most of the year as the company typically does best in highly volatile markets—which were mostly absent in 2019—and/or when global trading volumes are heavy. Believing that volatility is more likely, we built our position. The stock of U.K.-based Metro Bank fell earlier in the year after the discovery in the first quarter of a historic accounting error relating to how the bank calculated loan risk. We exited our position in June. Canadian company Pason Systems provides instrumentation and data management systems for drilling rigs. The company saw its near-term outlook weaken in 2019 as North American drilling activity declined through the year on supply/demand concerns exacerbated by slumping oil and natural gas prices as well as the slower global economy. We think the market has more than fully discounted the negative impact of these developments on Pason’s near-term fundamentals while also seeming not to recognize the attributes that look obvious to us: a durable, high-ROIC business model, an innovative and robust technology pipeline, and a debt-free balance sheet.

Relative to the MSCI ACWI Small Cap, the Fund benefited from both stock selection and sector allocation, with the former having by far the highest impact. Industrials, Information Technology, and Energy were the top contributors at the sector level. Our relative advantage in the first and third were keyed by stock selection while in Tech both stock picking and our greater exposure contributed, with the latter having the bigger impact. Conversely, poor stock selection hampered relative performance most in Financials and Communication Services; RGT’s cash position also detracted in 2019.


Top Contributors to Performance 20191 (%)

TOTVS S.A.1.02
KBR0.87
CIRCOR International0.70
Ashmore Group plc0.63
Altus Group Limited0.63

1 Includes dividends

Top Detractors from Performance 20192 (%)

Virtu Financial Cl. A-0.78
Metro Bank PLC-0.31
Pason Systems Inc.-0.29
Burford Capital Limited-0.22
Stella-Jones Inc.-0.15

2 Net of dividends

Current Positioning And Outlook

We see several potential tailwinds for global small-caps, particularly those in more economically sensitive cyclical industries. China had shown intermittent but promising signs of renewed growth prior to the outbreak of the coronavirus. Europe, particularly Germany, has been caught in the middle of the U.S.-China trade and tariff disputes given its more export-driven economies. It was also slowed by the protracted uncertainty over Brexit. Yet December showed marginal improvements through much of Europe, including upticks in business confidence and retail sales, which indicate that the global economy has bottomed—it grew by about 2% in 2019. If it were to begin rebounding towards the 20-year average annual nominal GDP rate of around 5%—a not unreasonable expectation, we think—then that should create enough lift to sustain small-cap cyclicals. Earnings have also been growing—at a healthy clip for many companies—further bolstering the case for ongoing positive performance. In our view, attractively valued cyclicals, a strengthening global economy, low rates throughout most of the developed world, and ample access to capital here in the U.S. together suggest that the next few years are likely to be at least as good for global small-caps as the last few—and quite possibly better.

Average Annual Total Returns Through 12/31/19 (%)

QTR1 YTD1 1YR 3YR 5YR SINCE INCEPT. DATE
RGT 16.1232.3332.3314.078.895.54 10/17/13
XRGTX (NAV) 13.6431.2031.2012.999.136.65 10/17/13

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 www.royceinvest.com. 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.

Closed-End Funds are registered investment companies whose shares of common stock may trade at a discount to their net asset value. Shares of each Fund's common stock are also subject to the market risks of investing in the underlying portoflio securities held by each Fund, respectively. Royce Fund Services, LLC ("RFS") is a member of FINRA and may file this material with FINRA on behalf of each Fund. RFS is not an underwriter or distributor of the closed-end funds.

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, 2019, 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, 2019 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 12/31/19, the percentage of Fund assets was as follows: TOTVS was 0.9%, KBR was 1.4%, CIRCOR International was 0.7%, Ashmore Group was 1.1%, Altus Group was 0.9%, Virtu Financial Cl. A was 1.4%, Metro Bank was 0.0%, Pason Systems was 0.7%, Burford Capital was 0.0%, Stella-Jones was 0.7%


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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