Royce Value Trust Manager Commentary
article 06-30-2021

Royce Value Trust Manager Commentary

The Fund 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 6/30/21.


Fund Performance

For the year-to-date period ended 6/30/21, Royce Value Trust (RVT) rose 16.8% on a net asset value (NAV) basis and 21.2% based on market price versus respective gains of 17.5% and 23.6% for its unleveraged small-cap benchmarks, the Russell 2000 and S&P SmallCap 600 Indexes, for the same period. While not the relative NAV result we were hoping for, we were nonetheless pleased with first-half results on an absolute scale. We were also pleased that RVT beat 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 6/30/21, all under the management of Chuck Royce.

What Worked… And What Didn’t

For the year-to-date period ended 6/30/21, nine of the 11 equity sectors in which the Fund held investments made positive contributions to performance, with the largest coming from Industrials, Consumer Discretionary, and Information Technology. Health Care made a modest negative impact, Utilities was essentially flat, and Communication Services had the smallest positive impact. At the industry level, the top contributors were specialty retail (Consumer Discretionary) and two groups from Information Technology: semiconductors & semiconductor equipment stocks and electronic equipment, instruments & components companies. Each of the three biggest detracting industries came from the lagging Health Care sector: health care equipment & supplies, biotechnology, and health care technology.

RVT’s top contributor at the position level was AutoCanada, a North American automobile business that sells multiple brands and operates 50 franchised dealerships in Canada, as well as a group in Illinois. In early May, the company reported record-setting revenue and earnings along with a ninth consecutive quarter of outracing the Canadian new vehicle retail market, though AutoCanada’s used vehicle and F&I (Finance & Insurance) segments were the key drivers behind 1Q21’s improved earnings. The second top contributor in 2021’s first half was Scientific Games, which develops, manufactures, and distributes a host of gaming, lottery, sports betting, and other information-based products and services. It beat earnings expectations for its fiscal first quarter of 2021 and has seen improvement for its newer product launches. We also like that it’s paid down debt and has products and services that we think could potentially be profitably spun off.

The top detractor at the position level was SmileDirectClub, which designs and manufactures dental equipment such as invisible aligners and braces that straighten teeth. The company has had success expanding beyond the U.S. while profitably growing its domestic business. However, SmileDirectClub also suffered a cybersecurity-driven manufacturing interruption shortly after reporting results, which depressed its previously sunny near-term outlook. Liking its long-term prospects, we chose to build our position while others were selling. GCM Grosvenor is an investment management company focused on private equity, infrastructure investments, real estate, credit finance, and absolute return. Its shares fell after the company reported fiscal first-quarter results in mid-May that showed better-than-expected revenues but earnings that seemed to fall short of other investors’ expectations. We added shares through most of the first half.

Relative to the Russell 2000 for the year-to-date period, underperformance came entirely from stock selection as sector allocation decisions had a solid positive effect, though not large enough to give RVT a relative edge. Hurting relative results most at the sector level was ineffective stock selection in both Energy and Materials—the positive effects of our overweights in each of these resurgent sectors somewhat mitigated the negative effect. Stock picks also hurt in Communication Services where, we should note, meme stocks dominated small-cap results in 2021’s first half. Conversely, our significantly lower weighting in Health Care, along with stock selection in Industrials and an almost total lack of exposure to lagging Utilities, helped relative results.

Top Contributors to Performance Year-to-Date Through 6/30/211 (%)

Scientific Games0.49
MKS Instruments0.42
FLIR Systems0.40

1 Includes dividends

Top Detractors from Performance Year-to-Date Through 6/30/212 (%)

SmileDirectClub Cl. A-0.24
GCM Grosvenor Cl. A-0.17
Haemonetics Corporation-0.17
Upland Software-0.14
CIRCOR International-0.14

2 Net of dividends

Current Positioning And Outlook

Many cyclical sectors began to lag the Russell 2000 in mid-May as the yield curve flattened with the decline in the 10-year Treasury yield. These short-term shifts have not altered our constructive stance on the Fund’s economically sensitive holdings, however. We remain confident that cyclical small caps are poised for a strong run in the coming years, a confidence underscored by current expectations for strong nominal GDP growth in the U.S. this year and next coupled with an accommodative Fed and attractive relative valuations. Equally important, we remain excited about the opportunities in small caps, an asset class with a large number of diverse and interesting companies and evolving industries. We have recently been most focused on identifying those businesses that were able to use the difficulties wrought by the pandemic and ensuing recession to get stronger. We’ve been finding these kinds of businesses selling at what we think are attractive valuations largely in Industrials, Information Technology, and Financials. We believe that we are embarking on the leg of the cycle when company results, rather than valuation expansion, typically begin to drive most of the stock price movement—an environment that we believe suits our skill sets well.

Average Annual Total Returns Through 06/30/21 (%)

RVT 6.4621.1661.4215.3119.1211.858.429.6710.59 11/26/86
XRVTX (NAV) 4.7316.7756.2215.6117.3211.398.999.5711.16 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 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.

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, 2021, 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, 2021 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 6/30/21, the percentage of Fund assets was as follows: AutoCanada was 1.8%, Scientific Games was 0.8%, MKS Instruments was 2.3%, FLIR Systems was 0.0%, Upwork was 0.8%, SmileDirectClub Cl. A was 0.6%, GCM Grosvenor Cl. A was 0.7%, Haemonetics Corporation was 0.2%, Upland Software was 1.5%, CIRCOR International was 0.6%

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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