Fund Performance

Royce Premier Fund increased 3.0% in 2024, trailing the Russell 2000 Index, which was up 11.5% for the same period. However, this underwhelming result did not erode the Fund’s longer-term relative advantages: the Fund beat the small-cap index for the 3-, 10-, 20-, 25-, 30-year, and since inception (12/31/91) periods ended 12/31/24. Premier’s average annual total return since inception was 11.0%.

What Worked… and What Didn’t

Five of the portfolio’s nine equity sectors made a positive impact on calendar year period performance, with Industrials, Financials and Consumer Discretionary making the biggest positive contributions while the largest negative effects came from Materials, Health Care, and Communication Services. At the industry level, capital markets (Financials), machinery, and construction & engineering (both in Industrials) contributed most fin 2024, while chemicals (Materials), health care equipment & supplies (Health Care), and electronic equipment, instruments & components (Information Technology) were the largest detractors.

The portfolio’s top contributor at the position level in 2024 was Ralph Lauren, a premium apparel and lifestyle company with an iconic, globally recognized brand that promotes an upscale pedigree Its appeal is supported by the fact that more than a third of apparel products are core and shelf ready to be sold year after year. Ralph Lauren has successfully executed on a multi-year transformation of its business and brand optimization strategy, which included the quality of sales initiatives (as seen through average unit retail pricing), strategic channel shifts (by reinvigorating its direct to customer channel), geographic expansion, distribution network restructuring (seen by a material decline in wholesale doors), and elevated pricing strategies. In 2024, the company continued to execute successfully, posting industry leading results even in the face of declining consumer sentiment and deteriorating industry trends driven by soft consumer demand and elevated wholesale channel inventories. Specifically, Ralph Lauren’s sales, average unit retail pricing, and margin trajectories continued to exceed industry trends while management continued to execute on a multi-year cost reduction program. The year marked another proof point that the Ralph Lauren brand continues to elevate and resonate in consumers’ minds while direct to consumer channel focus and successful digitization efforts are driving higher rates of profitability for the company.

SEI Investments provides technology and investment solutions that connect the financial services industry with capabilities ranging from investment processing, operations, and asset management. SEI works with corporations, financial institutions and professionals, and ultra-high-net-worth families to help drive growth, make confident decisions, and protect their futures. It has a dominant share within the U.S., serving 10 of the top 20 U.S. banks and 48 of the top 100 investment managers worldwide. A scaled provider, SEI has a combined $1.4 trillion in assets under management and assets under administration. Of late, it has also become the globe’s largest private credit fund administrator, with more than $1.5 trillion in assets under administration. Its value proposition involves managing operations so that its clients can focus on “front-office” responsibilities like security selection and relationship management. This creates sticky customer relationships because SEI’s services are embedded into their operations. SEI reported strong and improving results throughout 2024, specifically in its business pipeline, customer activity, and profits. Its most recently reported results showcased all-time record revenue, margins, and earnings. Equally important was management’s commentary becoming more positive as the year progressed around SEI’s many strategic initiatives designed to increase its addressable markets.

RB Global (formerly Ritchie Brothers) is the world’s global leader in asset management and disposition of heavy equipment offering the largest auction platform—both physical and online—globally. The company benefits from a powerful network effect by aggregating and attracting the largest buyer and seller base while also armed with the best data and market intelligence on equipment asset values and market supply/demand dynamics. In 2024, RB Global demonstrated robust performance by capitalizing on its strong market presence and operational efficiencies. The company exhibited strong gross transaction value in the heavy equipment marketplace while improving the attach rate of services revenue while the salvage auto auction business improved branch operations, initiated customer facing value proposition metrics that illustrated industry leading performance which drove the stabilization of market share in the US and increased share globally. The Company executed on cost initiatives from the IAA faster than anticipated and the balance sheet continues to strengthen. We remain optimistic about Ritchie Brothers’ prospects, as the company continues to leverage its extensive network, technological advancements, and strategic initiatives to drive long-term growth and value creation.

Kadant supplies critical components and engineered systems used in process industries. The company operates through three segments: Flow Control, Industrial Processing, and Material Handling. Traditionally, the pulp and paper industry suffered from limited secular growth, yet Kadant is now a direct beneficiary of the increased demands on core packaging processing equipment due to the global rise of online retailing; specifically, e-commerce uses three- to six-times more containerboard per shipment than a retail store, so Kadant’s dominant global share position in recycled linerboard and tissue processing equipment has experienced a resurgence. Even more important, Kadant’s management has recently transitioned the business to be a more growth-oriented company serving multiple industries where the company serves as either the #1 or #2 player in its markets. In 2024, the company benefited from favorable demand and strong customer capital budgets while consumables revenue and mix reached record levels. We like Kadant’s tech-driven, asset light, after-market orientation approach that also has the company benefiting from a long history of loyal customer relations and an ever-increasing installed base of equipment. We are confident that management’s new operating model, in particular its quality attributes, can result in continued favorable compounding returns.

Dorman Products provides largely exclusive “new to the aftermarket,” formerly dealer only parts, for both light-duty and heavy-duty vehicles. Its asset light business model is built on unique market intelligence of “newly failed OEM parts” that are replicated in low-cost markets and distributed in scale to all channels of the auto parts industry within the U.S., where favorable market dynamics exist due to the increasing miles being driven along with an aging car parc. Dorman has recently extended this unique approach to aftermarket parts to the all-terrain vehicle (ATV)and heavy-duty truck markets with early success. The company benefited from strong operational execution on costs in 2024 while restoring strong pricing that returned its margin profile back to historically high levels. During the year, anticipated secular tailwinds as the U.S. car parc increasingly aged up, moving into the 7-to-12-year-old age range—which is the sweet spot for replacement part demand. Furthermore, Dorman’s recent diversification into aftermarket parts and accessories for both heavy duty trucks and the powersports industry has exhibited early success, with revenue growth in excess of underlying market trends thanks to product innovation, new product introductions, and distribution network expansion, which drove market share gains. Dorman was particularly successful in expanding the distribution channel of its ATV aftermarket parts from a strong eastern U.S. presence and moving farther the west, thereby adding over a thousand new customers and exhibiting strong market out-growth. We continue to believe that secular demand tailwinds for auto aftermarket parts, Dorman’s differentiated approach to capitalizing on high return on investment pockets of demand, and its new growth platforms in heavy duty truck and powersports aftermarkets parts will yield significantly higher earnings power.

The Fund’s top detractor was Quaker Houghton, which produces, develops, and markets industrial chemical products, including heat treatment, metal forming, forging, and tin plating fluids, as well as cleaners, casting lubricants, greases, ground control agents, and metal rolling oils. We see Quaker as an attractive asset light business, with recurring revenues and strong customer loyalty. After a strong performance in 2023, its stock fell as the company faced more difficult sales growth comparisons as it lapped strategic price increases and volumes varied by geographic region, reflecting slower global industrial growth. Quaker Houghton recently promoted to CEO a respected, internal “rising star” who has overseen global growth initiatives and the merger integration of Houghton. We believe much of his focus is on reemphasizing the company’s “customer intimacy” sales process to accelerate new product growth and geographic expansion (e.g., to India), as well as more effectively capitalizing on cross-selling opportunities across its customers base.

Ziff Davis acquires and operates digital media and internet brands in high value verticals. About 60% of its revenues come from advertising revenue on its sites while 40% is subscription-based revenue from its broadband connectivity data services and its marketing technology and cybersecurity offerings. The stock has been a consistent underperformer with the emergence of generative AI-based search and associated concerns about potential disruption of the traditional digital search advertising model. Additionally, Ziff Davis hadn’t completed a meaningful acquisition for about two years until the second half of 2024, despite M&A being a core source of historic value creation, averaging roughly 20%+ internal rates of return. We sold our position as our conviction in the long-term business model has waned given continual improvements in AI, combined with new AI search offerings from both incumbents such as Google, as well as new AI search entrants, such as ChatGPT Search and Perplexity. The threat of disruption to the Google-dominated search advertising ecosystem appears to be growing, with content creators such as Ziff Davis, which receive significant traffic from Google, in the crosshairs for potential disintermediation.

Forrester Research is a subscription-based information technology research company geared toward helping businesses understand and determine their needs while maximizing the utilization of emerging technologies and key vendors. While we like the company’s asset light, high contribution margin model, management’s execution has admittedly been inconsistent in recent years. The company is in the midst of changing its go-to-market strategy, a shift that is taking time to gain traction, which influenced our decision to reduce our position in the stock.

Brunswick holds the dominant position in recreational boat engines, is a leader in boat parts, accessories, and technology systems, and manufactures select boat brands. The stock declined as estimates were reduced during 2024, with sluggish consumer spending and higher interest rates leading to another year of lackluster sales of new boat sales and accessories. While dealers made progress reducing aged inventory, they have remained cautious on 2025 model year orders heading into this spring’s peak selling season. This is an industrywide issue, and while Brunswick is by no means immune, it should remain solidly profitable and continue to fare better than its peers since about one-third of its profit comes from parts & accessories—that is, driven by boat usage rather than new boat sales. The company’s cost reduction actions also set the stage for enviable earnings leverage when volumes eventually recover.

Enovis Corporation is an orthopedic-focused, medical technology company with a leading global market share in Prevention & Recovery (braces and other rehabilitation products) and a growing Reconstruction segment (e.g., surgical implants for extremities). The stock has been under pressure, however, since Enovis closed its acquisition of Lima in 2024, the company’s largest-ever deal. The strategic fit and valuation of the deal made sense to us, but the stock was hurt by near-term concerns about integration and sales dis-synergies, especially with the elevation of new leadership in the Reconstruction segment. Yet management actually delivered results consistent with what it had outlined and entered 2025 with most of these headwinds behind it. With several new product introductions in the pipeline and a sales force that is now focused on driving cross-selling across the combined customer base, Enovis should be positioned to deliver on its target model of high-single-digit annual organic growth and annual EBITDA margin expansion, while applying excess free cash flow to reduce debt.

Premier’s disadvantage versus the Russell 2000 was attributable to stock selection in 2024—our sector allocation decisions were additive. At the sector level, stock selection and our slightly lower weighting in Information Technology, stock selection and our higher weighting in Materials, and stock selection in Industrials hampered relative results the most. Conversely, stock selection in Financials, as well as the portfolio’s lack of exposure to Energy and Utilities, helped most vis-à-vis the index.

Current Positioning and Outlook

Having endured a multi-year earnings recession in small cap, we are expecting a (long-awaited) period of sustained small-cap leadership, driven by stronger relative earnings growth and more attractive valuations. Prior small-cap leadership cycles have distinct dynamics at different points in the cycle, and low-quality factors often drive performance as the cycle gets under way. Given Premier’s disciplined focus on owning quality companies—those with high returns on invested capital, consistent free cash flow, and strong balance sheets—we are often challenged to keep pace with the initial run for lower-quality names. In time, however, this dynamic has reversed, as more high-quality factors assumed long-term leadership and outperformed. At times in 2024, we saw sectors and industries where we rarely find companies with superior economics—namely, banks, utilities, and REITs—fueled the benchmark’s performance while also witnessing periods where our preferred quality metrics saw outsized unfavorable spreads. Yet we remained patient. A key differentiator of our approach is the long-term investment horizon inherent in taking a business buyer’s approach. This enables the Fund to arbitrage time by adding to existing names or buying new high-quality holdings when their valuations contract due to short-term sentiment that often overshadows attractive and sustainable long-term value creation drivers. Though positioning changed little throughout the year, with relatively few new names being added, we were active in reducing multi-year outperformers while adding to lower market cap holdings that were down due to cyclical or macro concerns and where our conviction in the business model and long-term earnings power remains strong.

Average Annual Total Returns Through 12/31/24 (%)

Annual Operating Expenses: 1.19

¹ Not annualized.

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