Royce Value Trust Manager Commentary
article 12-31-2020

Royce Value Trust Manager Commentary

The Fund outperformed its indexes on an NAV (net asset value) and market price basis, while also outpacing the Russell 2000 for the one-, three-, five-, 20-, 25-, 30-year, and since inception (11/26/86) periods ended 12/31/20.

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Fund Performance

In as extreme a year as we can remember, Royce Value Trust (“RVT”) outpaced both of its unleveraged small-cap benchmarks on an NAV (net asset value) basis. For 2020, the Fund gained 21.9% based on NAV and 19.2% based on market price, compared to respective advances of 20.0% and 11.2% for the Russell 2000 and S&P SmallCap 600 Indexes for the same period. We were equally if not more pleased that on an NAV basis, RVT outpaced the Russell 2000 for the one-, three-, five-, 20-, 25-, 30-year, and since inception (11/26/86) periods ended 12/31/20. The Fund also beat the Russell 2000 on a market price basis for the five-, 20-, 25-, 30-year, and since inception periods ended 12/31/20.

What Worked… And What Didn’t

Eight of the Fund’s 11 equity sectors finished 2020 in the black, led by Information Technology, which more than doubled the respective impacts made by the second- and third-best contributors, Consumer Discretionary and Health Care. Energy and Utilities were the only sector detractors while Real Estate was flat for the year. At the industry level, two industries from Information Technology led—semiconductors & semiconductor equipment and electronic equipment, instruments & components—while energy equipment & services (Energy) and marine (Industrials) were the two biggest detractors.

Bandwidth, RVT’s top-contributing position, is a communications platform-as-a-service (CPaaS) company that offers cloud-based software to integrate voice and text into online applications. The company benefited from the dramatic increase in the need for work-from-home and related remote technologies in 2020, which helped its shares reach triple-digit percentage growth. The company boasts an impressive roster of customers, including Microsoft, Google, and Zoom, while in November it announced the acquisition of Belgian competitor Voxbone, which opens Bandwidth to business in more than 60 countries. The portfolio’s next top-contributing position was e-commerce retailer Etsy, which focuses on handmade or vintage items and craft supplies. Its business was growing at a steady pace prior to 2020, but revenues reached triple-digit rates in 2020’s fiscal second quarter and stayed enviably high in the third quarter. While much of its sales were attributable to face masks, the company also had success with several other major categories in 2020, including apparel, personal care, and homewares.


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Offshore transport solutions specialist SEACOR Marine Holdings detracted most at the position level. In May, the company reported that it was anticipating a significant negative impact on revenues through the rest of 2020 as a result of the pandemic, which, along with plummeting oil and gas prices, greatly reduced demand for its services. We finished exiting our position in December. Kirby Corporation also detracted notably in 2020. The company operates barges for petrochemicals and refined petroleum products on U.S. inland waterways. With chemical volume demand and exports hit hard during the pandemic, Kirby’s inland barge utilization rates fell close to an all-time low, hitting 73% in the second quarter. Kirby’s segment that services the oil and gas and commercial & industrial markets ran a loss in 2020 due to lower U.S. fleet miles, fewer fleet repairs, and depressed demand for hydraulic fracturing. We will continue to closely assess its prospects for recovery as cyclical industry dynamics are increasingly overwhelming the positive attributes we see in its business model.

Looking at attribution for the calendar year, stock selection had the most significant impact on outperformance, most notably in Financials, Real Estate (where our lower exposure helped even more), and Materials. Conversely, our substantially lower weight hurt in Health Care, as did ineffective stock selection. Greater exposure to the struggling Energy sector hampered relative results—our stock picks in the sector detracted only marginally—while stock selection hurt enough in Industrials to outweigh the positive effect of our sector overweight.


Top Contributors to Performance 20201 (%)

Bandwidth Cl. A1.47
Etsy1.32
Virgin Galactic Holdings1.15
Camping World Holdings Cl. A0.98
Quaker Chemical0.87

1 Includes dividends

Top Detractors from Performance 20202 (%)

SEACOR Marine Holdings-0.74
Kirby Corporation-0.71
Pason Systems-0.50
ProAssurance Corporation-0.49
RBC Bearings-0.48

2 Net of dividends

Current Positioning And Outlook

The positive news on vaccines was, in our view, the critical element in the recent small-cap surge. We believe the reality of vaccines has allowed investors to see past the current economic uncertainty to a tangible return to something like normal. These very encouraging developments seem to have led them to take a fresh look at those companies, particularly in more cyclical areas, that had been relatively neglected for the last few years. Many of these companies should receive an additional boost from ongoing monetary and fiscal stimulus, along with an anticipated increase in the latter. We believe these measures will only add to the strength of the global economy, which was beginning to accelerate before the pandemic. Our outlook for cyclicals in 2021 and 2022 is therefore brighter than it was at the beginning of last year. Following the vaccine roll-out, all of these developments should support higher growth rates than we were looking for a year ago. However, growth is likely to be unevenly distributed—and that is where we think active managers can offer an edge. The ability to recognize patterns, understand industry dynamics, and evaluate management teams should all prove crucial in such a climate.

Average Annual Total Returns Through 12/31/20 (%)

QTR1 YTD1 1YR 3YR 5YR 10YR 15YR 20YR SINCE INCEPT. DATE
RVT 29.6619.2019.208.6515.6310.297.099.5110.14 11/26/86
XRVTX (NAV) 26.1321.8521.8510.7915.5310.268.539.5110.82 11/26/86

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 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 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, 2020, 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, 2020 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 12/31/20, the percentage of Fund assets was as follows: Bandwidth Cl. A was 1.2%, Etsy was 1.2%, Virgin Galactic Holdings was 0.3%, Camping World Holdings Cl. A was 0.5%, Quaker Chemical was 1.7%, SEACOR Marine Holdings was 0.0%, Kirby Corporation was 0.1%, Pason Systems was 0.6%, ProAssurance Corporation was 0.2%, RBC Bearings was 0.0%


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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