Royce Value Trust Manager Commentary
article 12-31-2021

Royce Value Trust Manager Commentary

We are optimistic about the relative performance outlook for high quality and value stocks, and we think the Fund’s combined focus on high-quality and value should be supportive for attractive returns, particularly relative to its benchmark.

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Fund Performance

Royce Value Trust (RVT) rose 20.0% on an NAV (net asset value) basis and 32.9% on a market price basis in 2021 versus respective gains of 14.8% and 26.7% for its unleveraged small-cap benchmarks, the Russell 2000 and the S&P SmallCap 600 Indexes, for the same period. On both an NAV and market price basis, RVT beat the Russell 2000 for the 3-, 5-, 10-, 20-, 25-, 30-, 35-year, and since inception (11/26/86) periods ended 12/31/21, all under the management of Chuck Royce. The Fund's average annual NAV total return for the since inception period ended 12/31/21 was 11.1%.

What Worked… And What Didn't

Nine of the portfolio's 11 equity sectors made a positive impact on calendar-year performance, led by Industrials, Information Technology, and Consumer Discretionary. The only negative impacts came from Health Care and Communication Services while Utilities, the portfolio's smallest sector weighting, made the smallest contribution. At the industry level, semiconductors & semiconductor equipment (Information Technology), machinery (Industrials), and specialty retail (Consumer Discretionary) contributed most in 2021 while health care equipment & supplies (Health Care), software (Information Technology), and diversified telecommunication services (Communication Services) were the largest detractors.

At the position level, the Fund's top contributor was AutoCanada, a North American automobile business that sells multiple brands and operates 50 franchised dealerships in Canada and Illinois. In early May, the company reported record-setting revenue and earnings along with a ninth consecutive quarter of outracing the Canadian new vehicle retail market. In November, AutoCanada announced record third-quarter revenue driven by strong performance in its used vehicle, F&I (Finance & Insurance), and U.S. operations, along with an improved outlook for ongoing demand. The next top contributor was SiTime Corporation, which supplies timing semiconductors. The company saw accelerating growth and expanding margins on new product launches in 2021 while it also doubled its addressable market over the past two years. SiTime's all-silicon MEMs (Microelectromechanical systems) timing solutions continue to replace legacy quartz-based timing solutions in new market verticals and are in the early stages of market penetration.

Bandwidth, a cloud-based voice and text communications solutions provider, was RVT's top-detracting position. The company's valuation multiples contracted even as it sustained strong, though decelerating, revenue growth that followed outsized pandemic-related growth. Bandwidth has also been integrating the acquisition of global competitor Voxbone, which should expand its addressable market and improve both its customer value proposition and competitive positioning. In September, Bandwidth experienced a DDoS (distributed denial of service) malware attack that disrupted operations and affected customer relationships. Its shares were most pressured, however, by concerns about the sustainability of its growth and how it would respond to new forms of competition. The Fund's second-biggest detractor was Upland Software, which provides cloud-based enterprise work management software. Its shares fell on mixed revenue performance following outsized presidential election-related growth in 2020 and disappointing execution of the transition of its go-to-market strategy. Profit margins contracted as the company sustained elevated investments in advance of an improvement in revenue productivity. Although we still appreciate much about its strategic allocation of capital, these factors led us to substantially reduce our position in the fourth quarter.

The portfolio's advantage over the Russell 2000 resulted from sector allocation in 2021, with our significant underweight in Health Care helping most on the sector level as it was the biggest detractor within the Russell 2000. We also benefited from effective stock selection in Consumer Discretionary as well as a combination of our higher exposure and savvy stock selection in Industrials. Conversely, stock picking detracted from relative results in Energy-which was strong within the Russell 2000- as well as in Materials and Financials in 2021.


Top Contributors to Performance 20211 (%)

AutoCanada0.95
SiTime Corporation0.77
Kadant0.55
KBR0.52
Mosaic Company (The)0.52

1 Includes dividends

Top Detractors from Performance 20212 (%)

Bandwidth Cl. A-0.59
Upland Software-0.53
SmileDirectClub Cl. A-0.51
Repay Holdings Cl. A-0.25
CIRCOR International-0.23

2 Net of dividends

Current Positioning And Outlook

Our outlook is very positive for small-cap value but more nuanced for small-cap as a whole. The Russell 2000 enjoyed a third consecutive year of double-digit positive returns in 2021, which is rare for any equity index. It's happened only twice before since the inception of the Russell 2000 in 1979-from 1991-1993 and 1995-1997. In each instance, a fourth year of double-digit positive performance failed to materialize. We always place a lot of weight on history, and this pattern, along with a less accommodative Fed, makes us think that performance for the Russell 2000 will be more muted in 2022. History also tells us, however, that small-cap value and cyclicals do well, particularly on a relative basis, during periods of improving economic growth-which is consistent with the encouraging signs we've been seeing on a company-by-company basis. We also are optimistic about the relative performance outlook for high quality stocks-which we primarily define as companies with high returns on invested capital and stable returns on assets. We think the Fund's combined focus on high-quality and value should be supportive for attractive returns, particularly relative to its benchmark.

Average Annual Total Returns Through 12/31/21 (%)

QTR1 YTD1 1YR 3YR 5YR 10YR 20YR 30YR SINCE INCEPT. DATE
RVT 13.4132.9132.9128.9217.3414.737.7710.0710.73 11/26/86
XRVTX (NAV) 5.8319.9719.9724.0114.2613.488.569.7311.07 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, 2021, 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, 2021 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 12/31/21, the percentage of Fund assets was as follows: AutoCanada was 1.5%, SiTime Corporation was 0.8%, Kadant was 1.3%, KBR was 1.4%, Mosaic Company (The) was 1.3%, Bandwidth Cl. A was 0.1%, Upland Software was 0.1%, SmileDirectClub Cl. A was 0.0%, Repay Holdings Cl. A was 0.9%, CIRCOR International was 0.4%, Voxbone 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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