Royce Value Trust Manager Commentary
article 12-31-2019

Royce Value Trust Manager Commentary

The Fund outperformed its indexes on an NAV (net asset value) and market price basis during 2019, as well as outpaced the Russell 2000 on an NAV and market price basis for the three-, five-, 20-, 25-, 30-year, and since inception (11/26/86) periods ended 12/31/19.

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Fund Performance

A robust 2019 gave Royce Value Trust (“RVT”) its third out of the last four calendar years of strong absolute and relative performance. RVT advanced 30.5% on an NAV (net asset value) basis and 35.2% based on market price in 2019, compared to respective gains of 25.5% and 22.7% for the Russell 2000 and S&P SmallCap 600 Indexes—its unleveraged small-cap benchmarks—for the same period. We were also pleased that on an NAV and market price basis, RVT outpaced the Russell 2000 for the three-, five-, 20-, 25-, 30-year, and since inception (11/26/86) periods ended 12/31/19.

What Worked… And What Didn’t

Nine of the Fund’s 11 equity sectors made a positive impact on 2019’s results, with Industrials and Information Technology making the biggest positive contributions to performance. Communication Services and Utilities were the only sectors that detracted in 2019. At the industry level, two areas made outsized positive impacts—semiconductors & semiconductor equipment (Information Technology) and machinery (Industrials)—while media (Communication Services) and leisure products (Consumer Discretionary) were the industry groups that detracted most.

Two Information Technology holdings were among RVT’s leading contributors, including the Fund’s top positive performer, Cirrus Logic, a leading producer of specialized audio and voice devices and solutions. Its shares rose by double digits in October on news of better-than-expected third-quarter results keyed by increased demand for its innovative products, which capped off a very strong year for its stock. MKS Instruments, which manufactures devices and instruments used in semiconductor production, sailed past (admittedly fairly low) third-quarter earnings estimates. It pleased us to see its advanced markets segment do well in 2019, and to see what looked like a bottom in the semiconductor capital equipment cycle. Ares Management is an asset manager that focuses on tradable credit, direct lending, private equity, and real estate. Investors became more optimistic about the company’s ability to sustain mid-teens, high margin earnings growth for an extended period. The company also converted to C-corp. status, which broadened ownership, supporting an increase in its valuation. HEICO Corporation is the largest designer, manufacturer, and distributor of generic replacement parts for airplane engines and components. Its shares reached their highest altitude in September, with organic growth fueled by increased demand for new product offerings in HEICO’s aftermarket replacement parts and specialty products lines.


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The biggest detractor at the position level was comScore, which provides digital marketing intelligence that helps its customers make business decisions and implement digital strategies. The firm faced accounting issues that led to two shakeups in upper management. The firm then announced in August that it was exploring strategic alternatives to maximize shareholder value, including the potential sale of the company, which informed our decision to hold our shares. Health and fitness company Nautilus suffered through two consecutive failed product launches that led to the departure of its CEO. We exited our position in July as we thought it would take at least a year for the firm to rebuild its product pipeline. Virtu Financial 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. We held our stake in construction company Infrastructure and Energy Alternatives after it suffered a second-quarter earnings miss that sent its shares tumbling.

The Fund’s 2019 advantage versus the Russell 2000 came primarily from stock selection, though sector allocation was also additive. This was the pattern for the portfolio’s biggest relative advantages at the sector level in Industrials and Information Technology. Conversely, ineffective stock selection hurt results in Real Estate while our cash position also hampered relative performance.


Top Contributors to Performance 20191 (%)

Cirrus Logic1.01
Ares Management Cl. A0.82
HEICO Corporation0.81
MKS Instruments0.76
CIRCOR International0.70

1 Includes dividends

Top Detractors from Performance 20192 (%)

comScore-0.50
Nautilus-0.39
Virtu Financial Cl. A-0.34
Infrastructure and Energy Alternatives-0.21
Pason Systems Inc.-0.21

2 Net of dividends

Current Positioning And Outlook

The backdrop looks quite favorable to us for solid to strong small-cap performance overall. We have previously cited four favorable factors in the current market environment—low inflation, modest valuations, moderate growth, and ample access to capital. Each of these remains present and suggests that small-cap returns can go higher. We see a global economy that’s showing signs of renewed life, an ISM Manufacturing Index that’s been incrementally rising (despite December’s setback), and, most important, valuations that range from reasonable to attractive among the many small-cap cyclical areas that we typically like best. We believe that the market is starting to pivot from rewarding those areas that have succeeded to those that have lagged, so our focus has been on those areas that either didn’t participate in 2019’s upswing or trailed significantly. More specifically, we have added several cyclical stocks in diverse industries, including several leading energy services companies.

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

QTR1 YTD1 1YR 3YR 5YR 10YR 15YR 20YR SINCE INCEPT. DATE
RVT 9.2435.2335.2311.989.4111.676.329.679.87 11/26/86
XRVTX (NAV) 9.7830.4630.4610.049.2011.007.699.2710.51 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.

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: Cirrus Logic was 1.5%, Ares Management Cl. A was 0.9%, HEICO Corporation was 1.4%, MKS Instruments was 1.7%, CIRCOR International was 0.4%, comScore was 0.2%, Nautilus was 0.0%, Virtu Financial Cl. A was 0.6%, Infrastructure and Energy Alternatives was 0.1%, Pason Systems 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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