Fund Performance

Royce Micro-Cap Fund trailed the Russell Microcap Index for the year-to-date period ended 6/30/25, down -1.4% versus -1.1% while beating the Russell 2000 Index, which fell -1.8% for the same period. The Fund outperformed the micro-cap index for the 3-, 5-, 10-, 20-, and 25-year periods ended 6/30/25.

What Worked… and What Didn’t

Six of the portfolio’s 10 equity sectors made a negative impact on year-to-date period performance. The sectors making the largest detractions came from Health Care, Consumer Discretionary and Energy while the largest positive impacts came from Industrials, Financials and Consumer Staples. At the industry level, life sciences tools & services (Health Care), semiconductors & semiconductor equipment (Information Technology), and professional services (Industrials) detracted most for the year-to-date period, while electronic equipment, instruments & components (Information Technology), construction & engineering (Industrials), and capital markets (Financials) were the largest contributors.

The position that detracted most in 2025’s first half was American Outdoor Brands, which provides outdoor products and accessories for hunting, fishing, camping, shooting, personal security, and defense. Despite trade tensions impacting retailer order patterns and placing incremental pressure on its supply chain, the company saw encouraging trends for its products in the fourth fiscal quarter. While tariffs and elevated freight costs are expected to weight on margins for the remainder of the year, American Outdoor continues to drive growth by reinvigorating sleepier outdoor categories with product innovation.

Ichor Holdings provides fluid delivery subsystems to semiconductor equipment manufacturers. The stock was negatively affected by the unexpectedly severe and capricious tariff announcements given its position in a cyclical industry that is at the forefront of some of the more contentious trade issues. We ultimately believe these tariff issues will be resolved in a manageable manner and see Ichor as well positioned to benefit from the ongoing need for semiconductors.

Powerfleet provides fleet management services for logistics industrial and vehicle applications. The company has been seeing some weakness in sales associated with macroeconomic concerns. While its pipeline and backlog remain solid, the company has been seeing order push-ups and an extended sales cycle. Rooted in our conviction that the company’s 2024 merger with Mix Telematics has provided meaningful scale benefits that Powerfleet will harvest over the next several years, we maintained a position despite near-term tariff concerns.

Another top detractor, Liquidity Services enables thousands of business and government sellers to manage, value, and sell surplus assets through its online auction marketplaces, search engines, asset management software, and related services. The company remains well-positioned to benefit from government efficiency mandates, facilitating the disposition of surplus property and real estate for governments through online auction portals including GovDeals and Bid4Assets. Further, we expect Liquidity Services to benefit from the volatile supply chain environment by offering businesses alternate channels to sell excess, returned, and overstocked inventory through marketplaces and direct-to-consumer properties including Liquidation.com and AllSurplus Deals. Despite uneven operating results, including unfavorable business mix that impacted share performance during the fiscal second quarter, debt-free Liquidity Services continued to add sizable high-quality local government sellers while sustaining free cash flow and double-digit revenue growth.

Harvard Bioscience develops, manufactures, and sells life science instruments and related services that enable fundamental advances in preclinical and clinical research and development of therapeutics. The company’s products support critical workflows in organ function, cellular physiology, and fluidics for academic, biotech, and pharmaceutical laboratories. Operating at elevated leverage levels, Harvard Bioscience remained unprofitable in the first quarter as it contended with tariff-impacted revenue from China and more than 20% exposure to academic and government entities disrupted by the sizable curtailment of the National Institutes of Health spending. We exited the position in the second quarter.

The Fund’s top contributor at the position level was nLIGHT, which builds highpower semiconductor and fiberlaser systems for industrial metal processing and, increasingly, directedenergy weapons. First-quarter revenue grew 16% year-over-year while Aerospace & Defense sales jumped more than 150%, reflecting rampups on the U.S. Army’s HELSI/DE MSHORAD programs and a growing pipeline of highenergy laser components. Management guided to sequential Aerospace & Defense growth and better mixdriven gross margins, and analysts highlighted the move as the “first clear proofpoint” that nLIGHT’s multiyear defense designwins are translating into volume shipments. With few pureplay directedenergy suppliers listed, investors are paying up for nLIGHT’s unique exposure to Pentagon laser budgets and AIdriven industrial automation, driving multiple expansion on top of improving fundamentals.

The Fund’s top contributor was aerospace & defense supplier Astronics Corporation, whose shares outperformed strongly year to date driven by strong industry fundamentals and improvement in the company’s performance. Record new bookings, a backlog driven by tailwinds in demand for new aircraft in the commercial aerospace market, and increased defense spending globally have all set the stage for better-than-expected earnings growth at Astronics. The company’s turnaround efforts drove a significant increase in margins while earnings (and Wall Street’s) estimates have risen accordingly. Astronics remains undervalued relative to peers, and we believe the shares still offer favorable return potential despite recent strong share price performance. There have also been favorable developments in several outstanding legal challenges the company has faced, the final resolution of which would remove a significant overhang on the stock.

FARO Technologies is a three-dimensional measurement, imaging, and realization solutions provider in the manufacturing, architecture, engineering and construction, operations and maintenance and public safety analytics markets. FARO delivers value to core operating processes from component and assembly inspection to surveying and large structure documentation. The company had an encouraging start to its fiscal first quarter, controlling expenses while delivering revenue within expectations. In early May, the company agreed to be acquired by AMETEK for $44 per share in cash, valuing the company at an enterprise value of approximately $920 million. We sold the last of our shares in June.

Headquartered in Canada, Sprott is a global alternative asset manager specializing in precious metals and real assets. The company operates a diversified platform of exchange-listed products, private equity funds, and lending strategies focused on gold, uranium, and energy transition metals. Sprott’s shares advanced in the first half of 2025 as gold prices broke out to record highs amid elevated geopolitical risk, central bank buying, and a weaker U.S. dollar. The company’s suite of physical bullion trusts and energy transition ETFs saw substantial inflows, driving strong growth in assets under management and recurring fee revenue. The firm also benefited from robust performance in its private strategies, particularly in uranium and critical minerals lending. Management continues to scale its global distribution, with new mandates secured across Europe and Asia. With strong operating leverage, a clean balance sheet, and secular tailwinds behind the resource transition, Sprott remains well positioned to compound earnings across commodity cycles.

Limbach Holdings partners with building owners and facilities managers to manage mission-critical mechanical, electrical, and plumbing infrastructure. Customers find value in the company’s engineering expertise, field installation skills, and ability to provide custom solutions across the building infrastructure’s lifecycle. Operating in twenty locations across the Eastern and Midwestern U.S., Limbach focuses on six vertical end-markets: healthcare, industrial and manufacturing, data centers, life sciences, higher education, and cultural and entertainment. During the second quarter, the company continued to see fundamental momentum for integrated facility planning and management, as well as operational execution driving its higher value Owner Direct Relationship mix at better margins. We see the company benefiting from reshoring and reindustrialization for years to come.

The Fund’s slight disadvantage versus its benchmark was attributable to stock selection in the year-to-date period. At the sector level, stock selection in Energy, stock selection and an overweight in Consumer Discretionary, and stock selection in Financials made the most significant negative impact versus the Russell Microcap. Conversely, our lower exposure to the slumping Health Care sector, along with stock selection in Industrials and Communication Services, contributed most to relative results.

Current Positioning and Outlook

The first half of 2025 is perhaps best characterized by the Grateful Dead: What a long, strange trip it’s been. After spooking the markets around tariffs on the back of Liberation Day, cooler heads in the Trump Administration appear to have helped dial back the most onerous and capricious of these levies. While a lot of uncertainty remains, there at least appears to be increased rationality around what the tariff regime will ultimately entail. This increased level of certainty helped micro-cap stocks claw back most of the -28.7% drawdown from 11/25/24-4/8/25 to finish the first half with a small loss of -1.1%. Nevertheless, we expect much of the underlying uncertainty around the impact on economic growth, Fed policy, and the inflation associated with tariffs to remain in the near term, along with heightened levels of geopolitical uncertainty.

That said, more rationality around potential tariffs has allowed the market to focus on some of the more growth friendly aspects of the current administration’s policies, including tax cuts from the recently passed federal budget. We have also begun to see the early signs of a more favorable regulatory environment in an increased pace of M&A activity, both in terms of portfolio companies being acquired, as well as portfolio companies with strong capital positions making strategic acquisitions. During the quarter, we increased our allocations to financial services and healthcare companies in anticipation that these are two areas that will broadly benefit from a lighter regulatory burden. Aside from the short-term volatility, we remain constructive that the thematic drivers underlying the portfolio will persist long after recent volatility subsides. Reindustrialization, electrification, and the benefits of artificial intelligence each remain at an early stage. We continue to see many businesses with attractive competitive positions and durable growth opportunities that are well-positioned to navigate this turbulent environment. As the uncertainty persists, we are seeing an expanding landscape of idiosyncratic situations at undemanding valuations that pave the way for promising long-term returns.

Average Annual Total Returns Through 06/30/25 (%)

Annual Operating Expenses: 1.23

¹ Not annualized.

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