Royce Global Value Trust Manager Commentary
article 06-30-2020

Royce Global Value Trust Manager Commentary

The Fund significantly outperformed its benchmark on both an NAV (net asset value) and market price basis, while also holding its advantage for the one-, three-, five-year, and since inception (10/17/13) periods ended 6/30/20.

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Fund Performance

Royce Global Value Trust (“RGT”) fell 6.9% on an NAV (net asset value) basis and declined 1.0% based on market price for the year-to-date period ended 6/30/20, losing significantly less than its unleveraged benchmark, the MSCI ACWI Small Cap Index, which declined 12.8% for the same period. The Fund also outpaced the MSCI ACWI Small Cap Index on both a NAV and market price basis for the one-, three-, five-year, and since inception (10/17/13) periods ended 6/30/20.

What Worked… And What Didn't

Five of the 10 equity sectors in which the portfolio held investments finished 2020’s first half with losses. Industrials, RGT’s largest weighting, detracted most by a wide margin, followed by Energy and Consumer Discretionary. Conversely, Health Care contributed most to performance. Information Technology and Financials were also additive, rounding out the top three. Energy equipment & services (Energy) made the largest negative impact at the industry level, followed by professional services and machinery, both in Industrials. Capital markets (Financials) made an outsized positive impact at the industry level while metals & mining (Materials) and health care equipment & supplies (Health Care) also contributed.

Canada-based Computer Modelling Group, which is a software company that produces reservoir simulation software for the oil and gas industry, detracted most at the position level in 2020’s first half. Like many businesses with exposure to the energy industry, its stock fell mostly as a result of turmoil in the oil and gas markets. Surmising that current energy oversupply conditions may persist, we exited our position in RGT’s portfolio. Texas-based Kirby Corporation, which is a tank barge operator that transports bulk liquid products across the U.S., also hindered performance as revenue for the marine transportation business declined substantially in the first quarter of 2020. Citing the COVID-19-driven global recession, its potential impact on future demand, and highly volatile industry conditions, Kirby also withdrew full-year earnings guidance in May. Assured Guaranty, which provides municipal bond insurance and financial guarantees for infrastructure and structured financings, was the third-largest detractor as its large exposure to cities and states facing various fiscal stresses appeared to discourage investors.


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Descartes Systems Group, which is a Canada-based technology company specializing in supply chain management and logistics software, as well as cloud-based services for logistics businesses, was the top performing position in 2020’s first half. The company reported fiscal fourth-quarter and full-year results in March that showed increases in revenue and earnings. Its growth has been driven by its Global Logistics Network (GLN) product, which is helping companies overcome supply chain issues wrought by the pandemic. Tel Aviv Stock Exchange was also additive to performance. In late May of 2020, the company reported robust growth in revenue and net profits. The exchange has remained fully operational throughout the pandemic and saw a substantial increase in trading volume as well as higher revenue from listing fees and increases in annual levies. Global investment management specialist Sprott consolidated its operations to focus solely on hard assets and found itself well positioned to benefit from the recent appreciation in gold prices.

Relative to the MSCI ACWI Small Cap Index, the Fund benefited from both stock selection and sector allocation, with the former having by far the higher impact. Financials was the top relative performing sector by a wide margin due to our savvy stock selection. Real Estate followed as a result of our lower weighting and, to a lesser degree, stock picks. The Fund’s cash position was also additive to relative performance. Conversely, our lower exposure to Health Care hindered performance, while ineffective stock picks hurt results in both Consumer Discretionary and, on a very modest level, Communication Services.


Top Contributors to Performance Year-to-Date Through 6/30/201 (%)

Descartes Systems Group (The)0.84
Tel Aviv Stock Exchange0.75
Sprott0.69
Alamos Gold Cl. A0.67
Virtu Financial Cl. A0.50

1 Includes dividends

Top Detractors from Performance Year-to-Date Through 6/30/202 (%)

Computer Modelling Group-0.53
Kirby Corporation-0.51
Assured Guaranty-0.48
Tegma Gestao Logistica-0.46
Pason Systems-0.44

2 Net of dividends

Current Positioning And Outlook

Though uncertainty and volatility will remain elevated until investors can better quantify the full economic impact of the coronavirus, the depth of various recessions, and the extent of structural economic damage, the global nature of the problem seems likely to receive a boost from an ongoing coordinated international response to rebuild confidence. Central banks appear willing to increase accommodation to ease any future economic disruptions even as fiscal policy takes center stage. Thus, despite near-term concerns, the building blocks are in place for an economic recovery that will benefit the more economically sensitive parts of the overall economy as supply-side shocks eventually wane and pent-up demand is released. As long-term investors, our goal is to take advantage of the volatility, as it always is during market dislocations. We continue to believe that the current backdrop should favor companies with sustainable business models, positive cash flows, and/or the potential for earnings strength and profitability. We are confident that the small-cap businesses we own, particularly those with low debt, solid cash flows, and capable management teams, are more likely to weather a more volatile and potentially lower-return environment than their weaker peers.

Average Annual Total Returns Through 06/30/20 (%)

QTR1 YTD1 1YR 3YR 5YR SINCE INCEPT. DATE
RGT 43.91-1.0310.217.107.954.95 10/17/13
XRGTX (NAV) 29.05-6.912.464.976.415.02 10/17/13

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 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 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, 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 June 30, 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 6/30/20, the percentage of Fund assets was as follows: Descartes Systems Group (The) was 1.8%, Tel Aviv Stock Exchange was 2.8%, Sprott was 1.5%, Alamos Gold Cl. A was 1.3%, Virtu Financial Cl. A was 0.0%, Computer Modelling Group was 0.0%, Kirby Corporation was 0.8%, Assured Guaranty was 0.4%, Tegma Gestao Logistica was 0.0%, Pason Systems was 0.4%


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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