Fund Performance

Royce International Premier Fund was down -0.2% for the year-to-date period ended 6/30/26 compared to a 9.1% gain for its non-U.S. small-cap benchmark, the MSCI AWCI ex-USA Small Cap Index, for the same period.

What Worked… And What Didn’t

Five of the portfolio’s nine equity sectors detracted from year-to-date performance. The sectors making the biggest negative impacts were Communication Services, Information Technology, and Health Care while Industrials, Energy, and Materials had the largest positive effects. At the industry level, software (Information Technology), interactive media & services (Communication Services), and IT services (Information Technology) detracted most for the year-to-date period, while electrical equipment (Industrials), electronic equipment, instruments & components (Information Technology), and trading companies & distributors (Industrials) were the largest contributors. At the country level, Sweden, Germany, and Australia detracted most for the year-to-date period, while Singapore, the United Kingdom, and Italy were the largest contributors.

The portfolio’s top detractor at the position level in the first half of 2026 was CTS Eventim AG & Co. Listed in Germany, CTS Eventim is known as the “Ticketmaster of Europe” with 25% market share across the continent and 60-80% share in German-speaking regions. The company sells more than 250 million tickets for 200,000 events annually across 26 countries through its industry-leading distribution network spanning online storefronts to box offices to call centers. In addition, the company organizes and operates 6,000 festivals, tours, and concerts annually as a promoter, effectively making it a vertically integrated live entertainment company. CTS Eventim benefits from a powerful network effect: consumers flock to the ticketing platform with the broadest content scope offering the best match for their tastes while artists and promoters sell tickets through the platform with the greatest reach that can most quickly sell out events. We believe the company has a long runway for growth as the live entertainment industry continues to expand worldwide due to structural drivers, including ongoing consolidation of the ticketing and promoter industries, globalization of fanbases due to social media, and artists increasingly relying on live events for income generation.

Its shares have been weakened this year primarily due to multiple compression. The selloff was triggered by cautious fiscal 2026 guidance, which called for broadly flat earnings growth, amplified by concerns that CTS Eventim is evolving from an asset-light ticketing platform toward also being a venue owner. Management, however, maintains that it intends to preserve an asset-light model through partnerships with third-party venue owners. Additional concerns include Ticketmaster-owner Live Nation’s expansion across Europe, although we believe the competitive threat is overstated as CTS Eventim remains the dominant ticketing partner for many local promoters and controls access to much of the region’s ticket inventory. This is evidenced by Live Nation itself frequently subcontracting CTS Eventim to distribute tickets for European events. Finally, AI has also emerged as a perceived risk, but we view this as largely a narrative concern since CTS Eventim’s control of ticket inventory through promoter relationships and its vertically integration ecosystem should remain intact. As a result, the shares now trade at historically depressed valuations, near levels last seen during 2008-09’s Great Financial Crisis and at a roughly 60% discount to Live Nation, which we believe is unjustified.

Business Engineering (“B-EN-G”) is a leading Japanese enterprise software company undergoing a strategic transition from system integration to a higher-margin, higher-quality software model centered on ‘mcframe,’ its in-house ERP platform purpose-built for Japanese manufacturing. Historically, B-EN-G provided system integration services, serving as Japan’s first SAP ERP integration partner in 1991. This heritage laid the foundation for mcframe, which has since become the de facto standard for domestic factory operations, supporting end-to-end manufacturing workflows from production scheduling to inventory and quality control. Barriers to entry are high, supported by deep manufacturing knowhow, long implementation cycles, and entrenched customer relationships exceeding 10 years. Approximately 70-85% of revenues come from highly predictable sources including multi-year development work, subscription fees, and ongoing support.

The company released its Fiscal year March 2026-27 outlook in May, which confirmed that its earnings cycle is entering troughs from its system integration project cycle peaking. That said, the demand environment remains brisk for its production management ERP software mcframe, while B-EN-G’s competitive positioning is strengthening as large system integrators have decided to replace their legacy products with mcframe. Given that the company has a history of guiding conservatively, we are not worried by the headlines. We think this is an exceptional niche software business that can sustainably compound earnings at mid-teens. With the shares trading on exceptionally cheap 14% forward earnings yield, we think it offers an exceptional risk/reward profile.

Headquartered in Australia, Cochlear is the global leader in cochlear implants, with a roughly 60% market share, offering a life-changing solution for severe hearing loss by directly stimulating the auditory nerve rather than amplifying sound. The product delivers strong outcomes for patients and compelling economics for healthcare systems (10x+ ROI), underpinning durable demand. The model is highly attractive: once implanted, the device creates a lifelong customer relationship with recurring high-margin upgrade and services revenue. Despite this, penetration remains very low, at less than 5% of about 60 million eligible patients, leaving a long runway for growth. Cochlear’s attractive economics, including ROIC typically more than 30%, around 10% long-term growth, and strong management make it a high-quality compounder leveraged to aging demographics and rising awareness.

Cochlear released a materially weaker update than expected in April, with fiscal 2026 net profit cut by roughly 25-30% and organic sales growth slowing to 2-6% in the second half. Weakness was most pronounced in lower demand for Cochlear’s core developed market implant, especially among seniors and other adults, which has been deferred as a result of cost of living pressures and hospital capacity constraints. The shares fell by more than 40% as the market was less willing to ascribe the “quality premium” that had long reflected the company’s historical resiliency. Despite the disappointing update, our investment thesis remains intact. Cochlear is still the technology leader with stable market share, strong ecosystem advantages, and a differentiated innovation pipeline that should support a multi-year upgrade cycle. Moreover, management did not respond to the slackened demand by pulling back on its core playbook; rather, they are reshaping the cost base to fund additional growth investment while reiterating long-term growth aspirations. Ultimately, while the update revealed greater vulnerability to cyclical pressures than market participants had become accustomed to, we believe the share price reaction was overblown: the company now trades at close to 15x next 12 months EV/EBIT (enterprise value over earnings before interest & taxes), the lowest level over the past decade and at a more than 50% discount to 10-year averages. While an earnings recovery may be non-linear, we believe the stock offers an attractive risk/reward over the intermediate term.

OBIC Business Consultants (OBC) is a Japanese accounting software company with a leading market share among SMEs (businesses with 20-1,000 employees). We like the company because it provides a clear benefit of enabling SMEs to digitize and efficiently conduct a mission critical accounting process, to a highly diversified customer base of approximately 100,000 customers, who remain loyal due to the integration of the software into their customers’ day-to-day business operations. Roughly 52% of its customers have used the product for more than seven years, illustrating why its annual customer revenue churn rate has remained stable and low at 0.6%. The digitization of business processes remains a long-term structural growth opportunity in Japan, with about 50% of OBC’s target customers still utilizing Microsoft Excel or completely outsourcing the process to tax accountants. The compelling value proposition of delivering accounting services through the cloud is likely to entice more addressable customers to adopt OBC’s products, as its cloud solution enables customers to forgo some of the IT hardware investment that has historically served as a costly bottleneck for SMEs to purchase on-premise software

Shares in OBIC Business Consultants have been dragged down by global headlines associated with the disruptive impact of generative AI applications on incumbent software vendors. At its recent current valuation, we think the market is underappreciating two sources of earnings growth inflection for OBC: first, OBC is beginning to roll out AI features to its product line-up that should help support the ongoing conversion of on-premise customers to the cloud and increase ARPU via up-selling of AI Agent solutions. We note that the proliferation of AI has heightened cybersecurity concerns among small business owners, which should further support migration to the cloud. Second, OBIC’s cloud product sales cycle is bottoming out, so sales growth should begin to accelerate again over the next three years. Acceleration of earnings growth and an evidence of the company’s ability to monetize on AI features should support re-rating in the shares. As such we remain holders in the shares as the risk-reward profile looks attractive here.

Hemnet Group is Sweden’s dominant online portal for residential real estate, with roughly eight out of every 10 homes sold advertised on its platform. As Sweden’s clear market leader, Hemnet benefits from powerful network effects: homebuyers search where the most listings are available, while sellers list where the largest audience of potential buyers can be reached. The company monetizes primarily through sellers via tiered listing packages and premium visibility products, with listing fees representing only a small fraction of a home’s value, supporting pricing power and an asset-light business model that generates operating and free cash flow margins of 40%. We believe Hemnet has a long runway for growth as it continues to increase monetization, with listing fees of approximately 30 basis points, which is still well below comparable international markets such as Australia where fees are over 100 basis points, while the mission-critical nature of selling what is often a homeowner’s largest asset supports continued adoption of higher-value listing packages over time.

The stock was down in the first half of 2026 as investors are increasingly questioning the durability of the company’s network effects, fearing that slowing listing volumes reflect structural market share losses to competitors rather than a cyclical housing downturn. The rollout of its new “Sell First, Pay Later” offering, designed to encourage sellers to list on Hemnet earlier in the sales process, has further clouded near-term earnings by delaying revenue recognition. We believe the market is discounting an overly pessimistic outcome by extrapolating the currently depressed housing market into a permanent impairment of the business. Since 2021, Hemnet has more than tripled average revenue per listing while aggressively buying back shares, meaning that any normalization in listing volumes should drive disproportionately higher earnings per share through higher monetization, operating leverage, and a shrinking share count. Importantly, we believe the investment case does not require a full recovery in market share. Even if competitors permanently retain some of their recent gains, Hemnet should remain Sweden’s dominant property portal, with ample scope to increase monetization per listing, supporting attractive long-term earnings growth under a more balanced competitive landscape. The shares currently trade at just 12x current year EV/EBITDA (enterprise value over earnings before interest, taxes, depreciation & amortization), which is roughly 65% below their historical average and below a comparable market leader, REA Group, in Australia at 18x.

The Fund’s top contributor was XP Power, which is headquartered in Singapore and listed in the U.K., designs, manufactures, and sells power control systems that convert the AC derived from the main electricity supply to DC, which is required for electronic equipment to operate. Its solutions typically represent just 1-2% of its customers’ bill of materials but are mission-critical and designed into its customers’ end-products. Combined with a technical engineer-to-engineer sales process, this results in a high degree of customer stickiness, with relationships often stretching well beyond a decade. XP Power also benefits from exposure to structurally growing end-markets including industrial technologies, healthcare devices, and semiconductor manufacturing equipment. Its shares rose following a strong first-quarter update, with order intake up 48%—well ahead of expectations—and a book-to-bill of 1.5x (the highest since 2022), signaling a clear inflection to demand recovery away from the destocking headwinds of the past few years. The strength was driven by semiconductors, XP Power’s largest end market, reinforcing the view that the cycle is turning. We see valuation as attractive off depressed earnings, with additional support from prior takeover interest, most notably Advanced Energy’s bid in June 2024 bid at roughly 11% above current prices.

Based in Japan, Maruwa manufactures niche ceramic packaging materials found inside various high-end electronics like EVs, data center servers, and 5G base stations. Electronics manufacturers rely on Maruwa’s high performance ceramics to transfer away the heat emitted from the semiconductor chips as a byproduct of normal operation. Maruwa provides the enduring benefit of ensuring that its end-customers’ products can function without the risk of power failure. This benefit is provided to a highly diversified customer-base, where the top customer accounts for less than 1% of total sales, and the products are low cost, mission critical components. Once adopted, Maruwa can expect to generate revenue for the entirety of the products’ lifespan because they are designed into the customers’ product(s). The company’s long-term secular growth opportunities are supported by the broad electrification trend, which will increasingly require bespoke solutions to manage the thermal energy released as more and more powerful semiconductor chips get packed into a wide range of products that operate on higher voltage, including EVs, data centers, wind turbines, and industrial motors.

Incremental news flow in April of 2026 confirmed strong growth momentum in its optical transceiver business. For example, Applied Optoelectronics, a major manufacturer of 800G and 1.6T optical transceivers, announced a large capacity expansion and accelerated order taking from a major hyper-scaler customer for its 800G transceivers, totaling $124 million since March, with the expectation that this figure should double. Meanwhile, stronger than expected CapEx guidance from Taiwan Semiconductor confirmed that Maruwa’s semiconductor business should rebound sharply in fiscal year March 2026-27. We think the share price rally means that the market has begun to price in our view that Maruwa’s earnings growth can materially accelerate over the coming year. We remain a long-term holder in its shares.

Dexerials is another Japanese company. It manufactures ultra-niche specialty chemical materials used inside a range of electronics products and optical semiconductor devices that convert light into electricity inside an optical transceiver. Dexerials’s products play a vital role in addressing technological challenges, such as accelerating the speed of data transmission in a data center, preventing lithium ion batteries from exploding, or to attach camera modules inside a smartphone with micro-precision. These products are engineered directly into customers’ designs, which creates sticky relationships, pricing power, and consistently high returns on invested capital of approximately 40%. Its engineers work side-by-side with leading OEMs on future product roadmaps, so Dexerials’s products are continually designed into the next generation of hardware rather than fighting for spot orders. We are drawn to this quality flywheel: dominant shares in core categories, proprietary processes built over decades, and a design-in model that is very hard to dislodge.

The material re-rating of the stock owes a lot to the updated medium term strategy announced during May of 2026, when the company doubled its fiscal 2028 sales target for its photonics business, with the business now expected to grow at a more than 47% compound annualized growth rate over the next three years. The briefing also confirmed Dexerials’s optical semiconductor business as a material chokepoint in the buildout of AI infrastructure, which in turn accelerates the company’s transition away from a value-added material supplier to the smartphone industry. Management confirmed that it has secured a design win for the next generation Co-Packaged Optics devices and is in the sampling process for silicon photonics-enabled devices, suggesting that Dexerials is a quiet enabler of advancement in data center telecommunication architecture. Group-level earnings are now expected to grow by +17% compound annualized growth rate over the next three years, double the pace previously guided. The fiscal 2028 ROE (return on equity) target is now 31%, up from 25% and 27% today. Given that the company has not reflected all of its customer inquiries, we think the medium-term guidance is still conservative. Dexerials trades on 5% forward earnings yield, while its American optical transceiver customers trade on 2% or less. We remain happy shareholders.

Listed in the U.K., Ashtead Technology Holdings is the leading independent provider of rental equipment to the offshore oil & gas and wind industries. A fleet of roughly 20,000 items supports vessel operators across the full project life cycle, from site characterization and construction through operations, maintenance, and decommissioning. All of this is complemented by value-added services such as system design, training, technical support, testing, and calibration. Ashtead’s equipment and services fill critical gaps in customers’ in-house fleets and help minimize costly vessel downtime, which makes its offerings highly valuable despite representing less than 1% of customer charge-out rates. Its customers tend to prioritize quality, reliability, and availability over price. That has supported consistent price increases, strong retention, and longstanding customer relationships. The company also benefits from a large long-term growth opportunity. Around 60% of subsea equipment is still owned by customers, but a shift to rentals is increasing as operators reduce CapEx and internal headcount. Despite being the market leader, Ashtead still has a less than 10% market share, leaving significant runway for further consolidation and share gains. It should also benefit from continued growth in offshore wind and a broader push toward energy diversification and security.

Ashtead’s share price rallied strongly in January, after the company published a strong trading update for fiscal 2025. Investors were particularly pleased with accelerated organic growth (with second half revenues 5% higher than in the first half), above-consensus EBITA (earnings before interest, taxes & amortization) margins toward the top end of the group’s medium-term target on the back of strong pricing and utilization and a reduction in net debt. While the ongoing conflict in the Middle East creates uncertainties that translate into near-term volatility, Ashtead’s shares still look cheap on just a 9x P/E, and we continue to see risk skewed to the upside.

Also listed in the U.K., Diploma is a decentralized collection of specialist value-added distribution businesses that supply low-cost but mission-critical products and services across Controls, Seals, and Life Sciences, for aerospace fasteners, heavy-equipment seals, and diagnostic consumables. What makes the model attractive to us is the market structure: these are fragmented niches where customers care far more about uptime, reliability, technical support, and speed than about shaving a few pennies off price. That gives Diploma durable customer relationships, repeat demand, and pricing power, while its asset-light model and disciplined bolt-on M&A engine let it recycle cash into more high-return growth. The result is a business with unusual resilience, multiple growth legs, and a very long runway to keep compounding through geographic expansion, product extension, structurally growing end markets, and acquisitions.

Diploma’s strong share price move was set in motion in March 2026, when the company published a trading update that significantly upgraded earnings expectations. Management said trading remained “very strong,” lifted fiscal 2026 organic growth guidance from 6% to 9%, and raised operating margin guidance from approximately 22.5% to 25%, implying a roughly 13% upgrade to consensus operating profit. The update also pointed to broad-based strength: Peerless, its aerospace fasteners business, continued to benefit from favorable aerospace demand and supply dynamics; other Controls businesses continued to execute across numerous verticals including energy, defense, aerospace, and data centers; North American Seals was growing well; and Life Sciences was delivering positive momentum in healthcare and diagnostics. In May, the company further upgraded organic growth forecasts from 9% to 12%, while also raising growth expectations via acquisitions, driving total expected operating growth of 30% for the year. The combination of faster growth, much better margins, and evidence that the momentum was diversified and not just a one-off led the shares to record highs

The Fund’s disadvantage versus the MSCI ACWI ex USA Small Cap benchmark in 2026’s first half was attributable to stock selection—our sector allocation decisions were additive. At the sector level, stock selection in Information Technology detracted the most by far, followed by stock selection and, to a lesser extent, an overweight in Communication Services and stock selection in Financials. Conversely, stock selection in Industrials (along with a smaller contribution from our larger weighting, stock selection and a lower weighting in Consumer Discretionary, and a substantially lower exposure to Real Estate contributed most to relative results in the first half of 2026.

Current Positioning and Outlook

The second quarter of 2026 brought a sharp rebound in international small-cap equities, despite being marked by the continued conflict in the Middle East and disruption around the Strait of Hormuz, which kept energy prices elevated and added to macro uncertainty. Concurrently, continued investment in AI infrastructure and tightening memory supply fueled a powerful rally across semiconductor, memory, and AI infrastructure companies. Against this backdrop, the Fund’s structural underweights to cyclical sectors and limited exposure to the AI infrastructure supply chain were the most meaningful drivers of modest relative underperformance despite strong absolute returns.

Importantly, portfolio fundamentals remained robust and valuations attractive, as evidenced by continued strategic interest in our holdings. For example, EQT’s acquisition of Intertek marked the 15th consecutive quarter in which a portfolio company attracted M&A interest. Intertek exemplifies our long-term investment approach. We invested in the company in 2022 when macro and market headwinds had obscured the intrinsic value of what we saw as an otherwise high-quality business. While the market remained skeptical, the company continued to compound value through earnings growth, improving returns on invested capital, and strong cash generation. Our long-term investment horizon enabled us to look through this period of market dislocation, ultimately exiting the position at a nearly 40% premium to our initial purchase price.

More broadly, our companies continued to execute well operationally, with approximately three quarters of our holdings that reported during the quarter meeting or beating consensus expectations while continuing to generate attractive returns on capital, maintain conservatively financed balance sheets, and strengthen their competitive positions despite a challenging macro environment. We believe this combination of durable fundamentals, attractive valuations, and continued strategic interest positions the portfolio well to generate compelling long-term returns.

Average Annual Total Returns Through 06/30/26 (%)

Annual Operating Expenses: Gross 1.73 Net 1.44

¹ Not annualized.

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