The mutual fund we manage in our Small-Cap Opportunistic Value Strategy, Royce Small-Cap Opportunity Fund, uses an opportunistic approach to invest in companies are categorized into themes: Turnarounds, Unrecognized Asset Values, Undervalued Growth, and Interrupted Earnings. The management team identifies a catalyst for future earnings growth in the form of new management, more favorable business cycle, product innovation, and/or margin improvement. What follows is a look at 4 key positions in the Fund.

Dauch Corporation (NYSE: DCH) is a global Tier-1 auto supplier focused on driveline (axles, sideshafts, half-shafts, propshafts, driveshafts, AWD systems, and differentials) and metal forming parts (forged and powder-metal components used in engines, transmissions, and safety-critical applications). The February 2026 acquisition of Dowlais materially changed the company’s profile from a North America-centric, GM-heavy supplier into a broader, more global platform with meaningful exposure to European and Asian OEMs (original equipment manufacturers).

Dauch is a turnaround candidate because its earnings power currently appears obscured by integration noise resulting from the acquisition. However, we see self-help levers that are unusually concrete and front loaded. The company has guided to $300 million of run-rate cost synergies over three years (primarily purchasing scale, corporate/SG&A (Selling, General, and Administrative expense) rationalization, and operating system/footprint actions). Importantly, management is already reporting early traction on synergy run-rate progress only months after the acquisition was closed, which reduces the risk and shifts the debate toward execution cadence.

We think that the market has so far misunderstood the attractive cross border structure of the deal. Dowlais was a London-listed stock, with a different investor base and reporting frequency than legacy Dauch. The merger effectively created a transatlantic shareholder mix that can drive mandate-driven selling and buying, along with noisy price discovery, especially as investors reconcile International Financial Reporting Standards history into the U.S. GAAP and adjust to dual-market trading dynamics. In our view, that technical overhang has contributed to the gap between improving fundamentals and the stock’s performance.

The second leg of the turnaround involves cash, with 2026 looking deliberately ugly thanks to one-time integration and restructuring cash costs, purchase accounting, and elevated interest expense all compressing GAAP optics. But we see these headwinds as transient; management expects acquisition cash costs to be largely limited to 2026, with restructuring cash stepping down meaningfully thereafter, and integration cash fading later. That sets up a potential free cash flow inflection point in 2027–28 as synergies mature and temporary costs roll off.

Dauch Corporation (NYSE: DCH)
12/31/25-5/15/26

Past performance is no guarantee of future results.

Finally, management is already acting like an owner by selling non-core assets, signaling rationalization of its powder metallurgy footprint, and catching up with investments in areas where prior owners underinvested. As leverage moves toward management’s stated threshold, capital return becomes an additional intermediate-term catalyst. The key risks are classic turnaround ones—auto production volatility (especially truck/SUV cycles), integration complexity across a much larger footprint, and tariff/trade uncertainty that can create timing gaps in customer recoveries. But the asymmetry is attractive: the market is still anchoring to messy GAAP results while the path to cleaner earnings and cash generation is becoming visible—at least to us.

Robert Half International (NYSE: RHI), which fits our “Interrupted Earnings” theme, is one of the world’s largest staffing services businesses. The company provides specialized temporary and permanent placement services under the Robert Half brand, primarily focused on the finance and accounting professions. Robert Half also provides business consulting services under the Protiviti brand. Protiviti’s primary focuses on internal audit, risk, and compliance; digital transformation; and legal and business performance improvement.

For the past three years Robert Half has faced declining demand for its staffing services, driven by two factors: Normalization following a hiring binge by its clients during the COVID years and the economic uncertainty faced by its current clients. Protiviti is also going through a period of depressed demand because of significantly lower audit intensity around money laundering activities under the Trump administration. This cyclically low demand has resulted in operating de-leverage and lower than normal margins for. Besides these cyclical demand pressures, Robert Half is also suffering from a perceived risk to its dividend and worries around the existential threat from AI to demand for staffing.

We became investors at what we think are very attractive multiples of what we believe are trough earnings. The demand issues appear temporary and mirror past macroeconomic cycles. We are already seeing signs of stabilization and believe there is a credible path back to mid-cycle earnings from both demand recovery and the company’s cost restructuring actions. Based on this long-term view, the worries around the dividend look overstated to us. Even at these trough earnings levels, and before any benefits accrue from ongoing cost restructuring, Robert Half is producing enough cash flow to cover its dividends. We also believe that management will continue to aggressively right size the company’s cost structure if the demand environment continues to be depressed for longer than they currently anticipate. It is important to note that Rober Half has a very long-tenured management team that enjoys significant credibility in the market for successfully managing through past cyclical troughs.

Robert Half International (NYSE: RHI)
12/31/25-5/15/26

Past performance is no guarantee of future results.

Lastly, we think that Rober Half’s current valuation offers an ample margin of safety relative to tail risk from AI. While it is difficult to handicap AI’s risk to the labor force, it is worth noting that the current management team has managed the business effectively through several technological shifts, including the emergence of the Internet and online job boards as well as through macroeconomic shocks like the dotcom bubble, the Great Financial Crisis, and covid, all of which significantly disrupted both the company’s talent base and how its services were delivered. On the Protiviti side, if AI emerges as a huge threat to the business model, it is logical to expect that Rober Half, as the scale player, would emerge as a consolidator of smaller consulting practices and be able to invest in the technology needed to adapt to the changing landscape.

Victory Capital Holdings (Nasdaq: VCTR) is a diversified global investment management firm with offerings spanning public equities, fixed income, and macroeconomic strategies. We first became investors in late 2024 pending its acquisition of Amundi Capital’s U.S. assets (aka Pioneer Funds)—a deal that was set to catapult Victory Capital from roughly $175 billion in assets under management (AUM) to nearly $300 billion in AUM. At that time, Victory Capital already had an impressive track record of acquiring smaller asset managers and scaling them by integrating them into its centralized distribution platform and by providing a long-term home for superior investment talent. When we first invested, we believed that its shares were deeply undervalued. We felt that its valuation did not appropriately reflect its capital allocation track record and the magnitude of the cost and revenue synergies that it was set to reap from the Amundi acquisition.

Over the past several quarters, after the completing the Amundi acquisition, Victory Capital has been ahead of its guided integration timeline and has outperformed investor expectations around synergy capture from the transaction. The portfolio has so far been adequately rewarded for identifying the merits of the Amundi transaction earlier than the market, as evidenced by Victory Capital’s share price performance since 3Q24.

Victory Capital Holdings (Nasdaq: VCTR)
12/31/25-5/15/26

Past performance is no guarantee of future results.

Despite the meaningful appreciation, we think that the shares remain undervalued and trade at a discount to asset management peers with what we think are much lower growth profiles. We also believe that Victory Capital, with its enlarged scale and proven acquisition playbook, is even more attractive to investment talent and a much stronger acquirer of asset managers—an industry that is set for meaningful consolidation over the next several years.

Walker & Dunlop (NYSE: WD) is one of the largest commercial real estate finance platforms in the U.S., with a market-leading position in multifamily lending, debt brokerage, property sales, and loan servicing. The company helps apartment owners and institutional real estate investors finance, refinance, buy, and sell properties through Fannie Mae, Freddie Mac, HUD, banks, life insurers, and other capital providers. A key part of the model is that when Walker & Dunlop originates agency loans, it often retains the servicing rights, creating a durable stream of recurring fee income over the life of the loan.

We see Walker & Dunlop as an earnings recovery story. The company’s earnings were sharply depressed during the commercial real estate downturn as higher interest rates, weaker transaction activity, and limited buyer/seller price discovery reduced financing and sales volumes. We believe those pressures are cyclical rather than structural. In fact, we are already seeing signs of recovery: in the most recent quarter, Walker & Dunlop’s total transaction volume increased 94% year-over-year, driven by a rebound in debt financing activity, while its servicing portfolio continued to grow and generate stable cash flow.

The recovery is still early. Much of the recent strength has come from refinancing rather than property sales, as owners remain reluctant to sell at current valuations. But that is also part of the opportunity. A large maturity wall, improving capital availability, and the use of shorter-term loans should create repeat financing activity over the next several years. And if property sales begin to normalize, Walker & Dunlop should benefit from both higher transaction volumes and operating leverage across a platform that has already absorbed significant fixed costs.

There are risks, of course. The company is still working through loan repurchase and indemnification issues tied to prior borrower fraud, and fee margins have been pressured by a mix shift toward brokered and large-agency transactions. However, we believe the market is overly focused on these near-term issues and underappreciates the earnings power of the franchise in a normalized commercial real estate capital markets environment.

Walker & Dunlop (NYSE: WD)
12/31/25-5/15/26

Past performance is no guarantee of future results.

With a scaled multifamily brand, recurring servicing revenue, improving transaction activity, and meaningful earnings leverage as volumes recover, Walker & Dunlop fits our interrupted earnings framework: A high-quality franchise whose current earnings remain well below normalized levels, with multiple paths to recovery as the commercial real estate cycle improves.

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