Royce Global Value Trust Manager Commentary
article 06-30-2022

Royce Global Value Trust Manager Commentary

Both consumer and investor sentiment are near historic lows in the U.S.—and are at similarly depressed levels throughout much of the developed world. Perhaps counterintuitively, then, we have found that the most opportune times to invest are when fear is high and trailing returns are low.


Fund Performance

Royce Global Value Trust (RGT) fell 28.8% on an NAV (net asset value) basis and 32.0% on a market price basis for the year-to-date period ended 6/30/22 versus a decline of 22.3% for its unleveraged benchmark, the MSCI ACWI Small Cap Index, for the same period. It was the worst calendar first half for the MSCI ACWI Small Cap in the index’s history.

What Worked… And What Didn’t

Nine of the Fund’s 10 equity sectors detracted from performance in 2022’s first half, with the largest coming from Industrials, Information Technology, and Financials. Energy made a positive contribution (as did our cash holdings) while the smallest detractions came from Consumer Staples and Real Estate. Trading companies & distributors (Industrials), capital markets (Financials), and electronic equipment, instruments & components (Information Technology) detracted most at the industry level. Energy equipment & services (Energy) and entertainment (Communication Services) were the only two industries to make a positive contribution for the year-to-date period while the paper & forest products industry (Materials) was flat.

The portfolio’s top detractor at the position level was EVI Industries, a U.S. company that distributes commercial laundry and dry-cleaning equipment, industrial boilers, and related parts. While revenues have been relatively steady, the company’s earnings have declined for four consecutive quarters, leading investors away from its stock. Before detracting from 2022’s first-half results, Transcat was RGT’s top contributor for 2021. The company distributes test and measurement instruments and supplies accredited calibration services for use across a diverse range of industries. Its shares fell in February after analysts reduced estimates based on two developments: supply chain issues, which affected its hardware business, and Covid-related employee disruptions that contracted margins in its service segment. We think that both will prove to be temporary setbacks in what had been a secular growth story driven by market share gains in the laboratory instrument market—a highly regulated industry that drives repeatable, predictable revenue generation.

The Fund’s top contributor was LifeWorks, a Canadian company, which offers solutions for employee well-being. Its technology-enabled services include confidential counselling and therapy, employee engagement tools, health programs, and even outsourced design and administration of pension and benefit plans. The need for these services is vast, with nearly half of Americans, for example, expressing the need for mental health support and an increasing proportion at risk of anxiety disorders since the pandemic. We liked its provision of a low-cost but mission-critical solution to a diversified customer base. Its shares rose in mid-June when Telus, one of Canada’s three largest telecom firms, agreed to acquire the company at a significant premium. Headquartered in Calgary, Pason Systems provides instrumentation and data management systems for drilling rigs. Its shares rose 25% in the second half, outpacing the benchmark’s 20.7% gain in Energy. (Energy was the only sector in the MSCI ACWI Small Cap to make a positive contribution in the first half.) Pason’s revenues continued to rebound as drilling activity and rental rates rose for its electronic drilling rig system (EDR). Profitability on sales gains has also been high, as the company leverages its high fixed cost base of installed EDRs and extensive service technician network. Finally, Pason maintains a dominant market share in both the U.S. and Canada. We think the company should benefit from broader adoption of some of its newer, software-driven ancillary rig products aimed at improving drilling productivity.

RGT’s disadvantage versus the MSCI ACWI Small Cap in 2022’s first half was primarily driven by stock selection—sector allocation was only marginally negative. At the sector level, stock picks hurt relative results most in Industrials and Information Technology, while our low weighting in Energy also detracted. Conversely, stock selection was a strength in Materials while our much lower exposure to Consumer Discretionary was also additive, as were the Fund’s cash holdings.

Top Contributors to Performance Year-to-Date Through 6/30/221 (%)

Pason Systems0.15
AIA Engineering0.13
Assured Guaranty0.09
IMAX Corporation0.04

1 Includes dividends

Top Detractors from Performance Year-to-Date Through 6/30/222 (%)

EVI Industries-0.88
APi Group-0.73
Countryside Partnerships-0.72

2 Net of dividends

Current Positioning And Outlook

Equity markets across the globe are currently in what we would call a “sum of all fears” environment. War, inflation, slower growth, and rising rates are all understandably frightening investors. Both consumer and investor sentiment are near historic lows in the U.S.—and are at similarly depressed levels throughout much of the developed world. Perhaps counterintuitively, then, we have found that the most opportune times to invest are when fear is high and trailing returns are low. The annualized three-year return for the MSCI ACWI Small Cap at the end of June was 4.4%, well below its three-year monthly rolling average since inception of 8.3%. Equally important, subsequent three-year annualized returns from these levels have been attractive: They averaged 9.7% of the subsequent annualized three-year periods and were positive 97% of the time. Coming off a record negative first half during what appears to be a late stage of the bear market, we believe the current period looks like a solid entry point for prospective long-term returns for global small-cap stocks.

Average Annual Total Returns Through 06/30/22 (%)

RGT -21.48-32.01-27.374.104.694.07
XRGTX (NAV) -19.25-28.82-24.382.944.254.59

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, 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 most 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 mid-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 June 30, 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 June 30, 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 6/30/22, the percentage of Fund assets was as follows: LifeWorks was 1.4%, Pason Systems was 1.4%, AIA Engineering was 1.4%, Assured Guaranty was 0.0%, IMAX Corporation was 0.6%, EVI Industries was 1.3%, Transcat was 1.5%, APi Group was 1.5%, Countryside Partnerships was 1.7%, Marlowe was 1.6%.

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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