Royce Value Trust Manager Commentary
article 06-30-2022

Royce Value Trust Manager Commentary

The Fund held longer-term relative advantages over the Russell 2000. On an NAV basis, RVT beat the benchmark for the one-, three-, five-, 10-, 20-, 25-, 30-, 35-year, and since inception (11/26/86) periods ended 6/30/22—and on a market price basis for each of these spans except the 20-year period.


Fund Performance

Royce Value Trust (RVT) fell 24.4% on an NAV (net asset value) basis and 25.3% on a market price basis for the year-to-date period ended 6/30/22 versus respective declines of 23.4% and 19.0% for its primary small-cap benchmark, the unleveraged Russell 2000 Index, and the unleveraged S&P SmallCap 600 Index, for the same period. The Fund did, however, maintain its longer-term relative advantages over the Russell 2000. On an NAV basis, RVT beat the Russell 2000 for the one-, three-, five-, 10-, 20-, 25-, 30-, 35-year, and since inception (11/26/86) periods ended 6/30/22—and on a market price basis for each of these spans except the 20-year period, all under the management of Chuck Royce. The Fund’s average annual NAV total return since inception was 10.0%.

What Worked… And What Didn’t

Ten of the Fund’s 11 equity sectors finished 2022’s first half in the red, with Information Technology, Industrials, and Consumer Discretionary detracting most. Energy was the lone positive contributor while Utilities and Consumer Staples detracted least. At the industry level, semiconductors & semiconductor equipment, electronic equipment, instruments & components (both from Information Technology), and capital markets (Financials) detracted most. Only three industries made a positive contribution—which gives some idea of the first half’s widespread bearishness—oil, gas & consumable fuels (Energy), pharmaceuticals (Health Care), and containers & packaging (Materials).

The Fund’s top detractor at the position level was MKS Instruments, which makes equipment used to control and analyze gases in the semiconductor manufacturing process. Its shares fell more than 30% in the second quarter, reflecting in part the general sell-off in semiconductor capital equipment stocks, which is rooted in growing evidence that inflation has begun to blunt spending on discretionary items. MKS also faced ongoing delays in getting approval from China’s regulator for its proposed acquisition of Atotech, a global leader in electroplating chemicals used in the chip and printed circuit board manufacturing processes. Despite the recent pullback and rising near-term cyclical headwinds—which include a possible digestion phase for semiconductor capital equipment—we believe MKS’s leadership in critical semiconductor capital equipment components and its efforts to replicate its successful strategies in adjacent markets both position the company to benefit from long-term secular growth drivers, such as the proliferation of semiconductors, and increased miniaturization in microelectronics. AutoCanada, a North American automobile business that sells multiple brands and operates 50 franchised dealerships in Canada and Illinois, was a top contributor in 2021 before detracting in 2022’s first half. Although the company reported increased revenues for 1Q22, investors appeared to be concerned that a recession and/or further disruptions to global supply chains could lead demand to stall.

Antero Resources, an oil and natural gas company that explores for natural gas, natural gas liquids, and oil properties in the Appalachian Basin, was RVT’s top-contributing position in the first half. In February, the company announced that it had used free cash flow to reduce debt while offering an optimistic outlook, which it reiterated when 1Q22 results were reported in April. Meridian Bioscience is a profitable health care company that manufactures consumable reagents used in in-vitro diagnostic (IVD) tests and develops IVD tests and instruments. Following a 27% gain in 1Q22, its stock rose 17% in 2Q22 despite very little public company-specific news. The reason behind its rise was revealed on 7/7/22, when Meridian announced an agreement to be acquired by SD Biosensor, a South Korean healthcare company, and its private equity partner for $34 per share in cash—which was 32% higher than Meridian’s stock price at the time of the initial offer that was made privately a few months earlier.

Relative to the Russell 2000, the Fund’s narrow first-half disadvantage came from sector allocation, while stock selection was additive. On a sector basis, RVT’s substantially lower exposure to Energy, higher weighting in Information Technology, and much lower weighting in Utilities detracted most. Conversely, our lower allocation to Health Care (along with a lesser benefit from stock selection), savvy stock picks in and higher exposure to Materials, and our cash position all were additive versus the portfolio’s primary index.

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

Antero Resources0.20
Meridian Bioscience0.14
Mosaic Company (The)0.11
Dorian LPG0.10
Seneca Foods Cl. A0.07

1 Includes dividends

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

MKS Instruments-0.70
FARO Technologies-0.49
Quaker Chemical-0.40
Repay Holdings Cl. A-0.39

2 Net of dividends

Current Positioning And Outlook

We 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. 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 Russell 2000 at the end of June was 4.2% compared to its three-year monthly rolling average since inception of 10.9%. Subsequent returns from these levels have, historically, been attractive. Coming off a record negative first half during what appears to be a late stage of the bear market, the current period looks, to us, like a solid entry point for prospective long-term small-cap returns.

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

RVT -15.66-25.32-
XRVTX (NAV) -16.28-24.39-22.326.456.549.915.898.218.929.9010.04

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, 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: Antero Resources was 0.3%, Meridian Bioscience was 0.6%, Mosaic Company (The) was 0.0%, Dorian LPG was 0.4%, Seneca Foods Cl. A was 0.6%, MKS Instruments was 1.2%, AutoCanada was 0.8%, FARO Technologies was 0.6%, Quaker Chemical was 1.1%, Repay Holdings Cl. A was 0.1%.

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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