Royce Value Trust Manager Commentary
article 12-31-2022

Royce Value Trust Manager Commentary

The Fund outperformed the Russell 2000 on both an NAV and market price basis for the three-, five-, 10-, 25-, 30-, 35-year, and since inception (11/26/86) periods ended 12/31/22.


Fund Performance

Royce Value Trust (“RVT”) was down -21.2% on a net asset value (“NAV”) basis and -26.0% on a market price basis in 2022 versus respective losses of -20.4% and -16.2% for its unleveraged small-cap benchmarks, the Russell 2000 and S&P SmallCap 600 Indexes, for the same period.

Longer-term relative results were better, however, as RVT outperformed the Russell 2000 on both an NAV and market price basis for the three-, five-, 10-, 25-, 30-, 35-year, and since inception (11/26/86) periods ended 12/31/22.

What Worked… And What Didn’t

Ten of the Fund’s 11 equity sectors finished the year in the red, with the largest detractions coming from Information Technology, Industrials, and Consumer Discretionary. Energy made a small positive contribution while the smallest detractions came from Utilities and Consumer Staples. Two areas in Information Technology—semiconductors & semiconductor equipment and electronic equipment, instruments & components—were among the top three detractors at the industry level, along with real estate management & development (Real Estate). RVT’s top-contributing industries were the metals & mining group (Materials), oil, gas & consumable fuels (Energy), and electrical equipment (Industrials).

The Fund’s top detractor was MKS Instruments, which makes components, subsystems, and process control solutions that measure, power, and monitor semiconductor manufacturing processes. The company reduced earnings guidance on continued shipment delays due to industry supply chain issues, followed by a drop-off in orders as slowing consumer electronics demand and more cautious IT spending looked likely to cause declines in wafer fabrication equipment spending in 2023 as semiconductor manufacturers rebalance chip inventories. While it may take several quarters to work through these cyclical pressures, we believe longer-term secular tailwinds remain intact. Semiconductor usage continues to proliferate and, at the leading edge, semiconductors are becoming more complex to manufacture. AutoCanada, a multi-location North American automobile business, was a top contributor in 2021 before detracting in 2022 due to a range of industry challenges, including original equipment manufacturing production delays and inventory constraints that appeared to outweigh its effective operations in a challenging time for its industry. FormFactor designs, develops, manufactures, sells, and supports precision, high-performance, advanced semiconductor wafer probe cards. The stock declined after the company guided to a weaker third-quarter outlook due to reduced demand for foundry and logic probe cards from several large customers.

The portfolio’s top contributor was Richardson Electronics, which distributes electronic components, including electron tubes, microwave generators, and power semiconductors. Its shares rose in October when the company announced its ninth consecutive quarter of sequential revenue growth due to improvements in all four of its business units, including its new Green Energy Solutions segment. Headquartered in Canada, Alamos Gold operates three mines in North America and has development stage projects in Canada, Mexico, Turkey, and the U.S. Its shares also took off in October when it reported 3Q22 results that featured its highest increase in production in two years while also reaffirming a confident outlook. Valmont Industries manufactures fabricated metal products, metal and concrete pole and tower structures, and mechanized irrigation systems. It had healthy earnings throughout most of 2022, driven by continued investments in grid resiliency and infrastructure upgrades, steady demand for renewable power and clean energy solutions, and the 5G network transition.

RVT’s relative disadvantage versus the Russell 2000 came entirely from sector allocation in 2022, as stock selection was additive. At the sector level, relative results were hurt most by our lower exposures to both Energy and Utilities, as well as a combination of stock selection and our lower weighting in Financials. Conversely, five equity sectors contributed to relative performance. Relative results were helped by both stock picking and our larger weighting in Materials and Industrials, while our lower exposure helped in Health Care, as did the Fund’s cash holdings.

Top Contributors to Performance 20221 (%)

Richardson Electronics0.41
Alamos Gold Cl. A0.33
Valmont Industries0.32
Dorian LPG0.25

1 Includes dividends

Top Detractors from Performance 20222 (%)

MKS Instruments-0.92
FARO Technologies-0.55
SiTime Corporation-0.53

2 Net of dividends

Current Positioning And Outlook

We routinely examine past performance patterns to help us make sense of the present as we prepare for the uncertain days ahead. The Russell 2000 fell -31.9% from 11/8/21 through the current bottom on 6/16/22, which places it precisely at the average of Russell 2000 downturns of 15% or more since the index’s inception. Over that 44-year span, only three bear markets went markedly deeper than this one by falling at least another 10%. Each of these downturns was exacerbated by a monumental negative event: the Great Financial Crisis led to small-cap losses of -58.9% from 7/13/07-3/9/09; the bursting Internet Bubble saw the Russell 2000 down -44.1% from 3/9/00-10/9/02; and the Covid pandemic deepened the small-cap index decline of -41.8% from 8/31/18-3/18/20. As difficult as these markets were, each presented investors with an important opportunity to build their small-cap allocation because in each case the subsequent recovery was robust—but it was much more rewarding for those who stayed invested. Regardless of what happens in the near term, then, we see the current period of uncertainty as a highly opportune time to actively invest in select small caps for the long run.

Average Annual Total Returns Through 12/31/22 (%)

RVT 7.94-25.96-25.965.464.779.676.248.818.6610.829.50
XRVTX (NAV) 10.15-21.24-21.244.815.149.236.499.358.5710.6010.02

Annual Operating Expenses: N/A

1 Not annualized.

Important Performance, Expense, and Disclosure Information

Important Performance and Expense Information

All performance information reflects past performance, is presented on a total return basis, net of the Fund's investment advisory fee, 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 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 micro-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, 2022, 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, 2022 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 12/31/22, the percentage of Fund assets was as follows: Richardson Electronics was 0.6%, Alamos Gold Cl. A was 1.4%, Valmont Industries was 1.2%, Dorian LPG was 0.5%, Calix was 0.5%, MKS Instruments was 1.1%, AutoCanada was 0.7%, FormFactor was 0.5%, FARO Technologies was 0.5%, SiTime Corporation was 0.2%.

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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