Royce Small-Cap Trust Manager Commentary
article 02-21-2025

Royce Value Trust Manager Commentary

Royce Small-Cap Trust (RVT) advanced 12.6% on an NAV (net asset value) basis in 2024 and 18.1% on a market price basis versus respective gains of 11.5% and 8.6% for the Russell 2000 Index and the S&P SmallCap 600 Index for the same period.

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Fund Performance

Royce Small-Cap Trust (RVT) advanced 12.6% on an NAV (net asset value) basis in 2024 and 18.1% on a market price basis versus respective gains of 11.5% and 8.7% for its small-cap benchmark, the Russell 2000 Index, and the S&P SmallCap 600 Index, for the same period. The Fund also maintained its longer-term relative advantages over the Russell 2000, beating it on both an NAV and market price basis for the 3-, 5-, 10-, 15-, 25-, 30-, 35-year, and since inception (11/26/86) periods ended 12/31/24.

What Worked… and What Didn't

Seven of RVT’s 11 equity sectors finished 2024 in the black. Industrials and Financials made by far the biggest positive impact, followed by Information Technology, while the biggest detractors were Health Care, Communication Services, and Real Estate. At the industry level, construction & engineering (Industrials) made the biggest positive contribution, followed by two groups in Financials: capital markets and insurance. The biggest detractors came from three different sectors: specialty retail (Consumer Discretionary), health care equipment & supplies (Health Care), and diversified telecommunication services (Communication Services).

The Fund’s top contributor at the position level was IES Holdings, which designs and installs electrical and technology systems into numerous infrastructure segments. Through a thoughtful growth strategy focused on both internal and external opportunities, IES has been building scale in each of its four business segments, which has resulted in rapidly improving operating profitability. The company reported full fiscal year results in November that featured growing revenue while expanding operating margins in all of IES’s four operating segments. FTAI Aviation provides maintenance, repair, and exchange of CFM56 and V2500 aircraft engines, the workhorses of the global aircraft fleet, to smaller airlines globally. FTAI also leases used aircraft and spare engines to airlines. Key aspects of FTAI’s business model have been its ability to deliver a better mousetrap (lease/sale/exchange; faster repairs; no negative surprises), have lower costs than its competitors, and operate in an asset-light manner through partnerships with Lockheed Martin, Chrome Alloy, AAR, Pratt & Whitney, et al. Contributing to its notable performance in 2024 were the market’s recognition of the tight supply of aircraft engines, FTAI’s growth runway as it closed deals with Latam Airlines and Pratt & Whitney, a burgeoning cost advantage after FTAI purchased its management fee agreement and a key maintenance facility in Montreal, and FAA approval for critical aftermarket engine parts.

The Fund’s top detractor was Quaker Houghton, which produces, develops, and markets industrial chemical products, including heat treatment, metal forming, forging, and tin plating fluids, as well as cleaners, casting lubricants, greases, ground control agents, and metal rolling oils. We see Quaker Houghton as an attractive asset light business, with recurring revenues and strong customer loyalty. After a strong performance in 2023, the stock fell as the company faced more difficult sales growth comparisons as it lapped strategic price increases and volumes varied by geographic region, reflecting slower global industrial growth. Quaker Houghton recently promoted to CEO a respected, internal “rising star” who has overseen global growth initiatives and the merger integration of Houghton. We believe much of his focus is on reemphasizing the company’s “customer intimacy” sales process to accelerate new product growth and geographic expansion (e.g., to India), as well as more effectively capitalizing on cross-selling opportunities across the company’s customer base. Enovis Corporation is an orthopedic-focused, medical technology company with leading a global market share in Prevention & Recovery (braces and other rehabilitation products) and a growing Reconstruction segment (e.g., surgical implants for extremities). The stock has been under pressure, however, since Enovis closed its acquisition of Lima in 2024, the company’s largest-ever deal. The strategic fit and valuation of the deal made sense to us, but the stock was hurt by near-term concerns about integration and sales dis-synergies, especially with the elevation of new leadership in the Reconstruction segment. Yet management actually delivered results consistent with what it had outlined and entered 2025 with most of these headwinds behind it.


Top Contributors to Performance For 20241

IES Holdings
FTAI Aviation
Impinj
Alamos Gold Cl. A
PAR Technology

1 Includes dividends

Top Detractors from Performance For 20242

Quaker Houghton
Enovis Corporation
Azenta
Globalstar
Ziff Davis

2 Net of dividends

Current Positioning And Outlook

We remain constructive about the prospects for the Fund. The highly promising earnings prospects for small-cap as a whole—the consensus for earnings per share growth in 2025 is 44% as of this writing—are a major factor in our thinking. Our conviction becomes even stronger when combined with small-cap’s far more attractive valuations compared to large-cap. Using our preferred index valuation metric of enterprise value over earnings before interest and taxes—or EV/EBIT—we see that the Russell 2000 finished 2024 still near its lowest levels relative to the Russell 1000 in 25 years. To us, this combination signals an ongoing opportunity for active small-cap managers to capture robust earnings growth at attractive—highly attractive in many cases—prices. We remain confident in the long-term case for small-cap leadership or risk-averse and earnings-focused active management in our asset class.

Average Annual Total Returns Through 12/31/24 (%)

QTR1 YTD1 1YR 3YR 5YR 10YR 15YR 20YR 25YR 35YR SINCE INCEPT.
(11/26/86)
RVT 3.5518.1318.131.2910.499.9511.287.359.8310.469.95
XRVTX (NAV) 0.5812.6412.642.579.549.3710.518.159.3210.4110.38

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 www.royceinvest.com. 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 December 31, 2024, 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 December 31, 2024 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 12/31/24, the percentage of Fund assets was as follows: IES Holdings was 1.4%, FTAI Aviation was 0.7%, Impinj was 1.0%, Alamos Gold Cl. A was 0.9%, PAR Technology was 1.4%, Quaker Houghton was 0.8%, Enovis Corporation was 1.1%, Azenta was 0.5%, Globalstar was 0.0%, Ziff Davis was 0.9%.


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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