article , video 08-14-2014

2014's Market So Far

During the March 4, 2014 interim high for small-caps into the middle of May, the Russell 2000 declined roughly 9.1%. Chief Executive Officer Chuck Royce talks with President Chris Clark about what he saw during this period and how this correction affected the performance of The Royce Funds

TELL US
WHAT YOU
THINK

Chris Clark: Chuck, here we are midway through 2014. Why don't you give us your perspective on the investment performance of The Royce Funds.

Chuck Royce: We've had a very promising first half. Our year-over-year performance, 12-month performance for the end of June, virtually two-thirds of our Funds have beat the average in a very strong period, a plus 20% period.

Chris: Talk a little bit about the March 4 peak and then the ensuring decline—it was about 9.1% into the middle of May. It was a very interesting period for The Royce Funds because of the differentiated performance, but talk a little bit about what you saw in that time period and why we candidly did as well as we did.

Chuck: In a sense it was a classic, perfect market for us. The more speculative areas collapsed—biotech and the Internet area—and some of the higher multiple stocks did very poorly during that period. Those stocks were down 10%, 20%. Our more kind of vanilla stocks did perform very well, and it was the first time in a while that we performed the way we like to think we can perform.

Chris: 2013 was a very interesting year in that it was the first in over 20 where the Russell 2000 did not experience a decline of greater than 10%. We've already had three declines of around 8% thus far this year. Do you think that is more indicative of the pattern going forward, and is that just a more normal market that can candidly be beneficial to our discipline?

Chuck: Absolutely. I think it is a more normal market to have routine smaller corrections. The 5%-10% correction is a very normal pattern. I definitely see that happening in the context of more normal returns, more normal returns being 5%-12% returns. I think we're settling into that zone right now.

Royce Featured Funds Average Annual Total Returns as of Quarter-End 6/30/14 (%)

  Average Annual Total Returns Annual Expenses
Fund QTR* YTD* One-
Year
Three-
Year
Five-
Year
10-
Year
15-
Year
Since
Inception
Date Gross
Operating
Expenses
Net
Operating
Expenses
Pennsylvania Mutual 1.69 2.04 23.70 12.25 18.77 9.41 11.00 15.181 1/1/1900 0.93 0.93
Premier 5.47 7.33 27.08 11.63 18.57 11.07 12.07 12.73 12/31/1991 1.09 1.09
Micro-Cap 1.81 1.02 18.91 4.17 14.13 8.24 11.23 12.43 12/31/1991 1.56 1.56
Low-Priced Stock 6.83 9.03 24.64 2.08 13.69 7.38 10.66 11.82 12/15/1993 1.51 1.49
Total Return 2.18 2.74 20.87 13.34 18.28 8.72 10.19 11.57 12/15/1993 1.18 1.18
Heritage 2.40 2.90 18.49 8.57 16.91 9.43 11.24 13.78 12/27/1995 1.49 1.49
Opportunity -0.50 3.02 24.76 15.43 23.48 9.53 12.89 13.62 11/19/1996 1.17 1.17
Special Equity 0.93 0.16 15.27 13.21 16.16 8.61 11.23 10.03 5/1/1998 1.13 1.13
Value 2.35 3.41 21.81 8.08 16.02 10.08 N/A 11.57 6/14/2001 1.48 1.48
Value Plus 0.63 4.08 22.74 11.19 15.84 8.42 N/A 12.69 6/14/2001 1.49 1.49
100 2.58 2.79 21.66 10.01 16.64 10.39 N/A 11.70 6/30/2003 1.51 1.51
Dividend Value 3.18 3.35 21.85 12.97 19.38 10.34 N/A 10.24 5/3/2004 1.52 1.52
Global Value 6.45 11.04 23.93 0.86 13.76 N/A N/A 6.53 12/29/2006 1.84 1.70
International Smaller-Cos 4.24 6.59 21.02 4.04 13.15 N/A N/A 7.56 6/30/2008 2.08 1.70
Special Equity Multi-Cap 4.72 5.35 21.85 16.83 N/A N/A N/A 16.73 12/31/2010 1.46 1.24
Russell 2000 Index 2.05 3.19 23.64 14.57 20.21 8.70 8.01 N/A N/A N/A N/A
Russell Microcap Index -1.41 1.56 24.98 15.94 20.03 6.67 N/A 7.73 N/A N/A N/A
Russell 1000 Index 5.12 7.27 25.35 16.63 19.25 8.19 4.80 16.14 N/A N/A N/A
Russell Global Small Cap Index 3.31 5.72 23.60 9.22 15.93 9.02 8.13 5.14 N/A N/A N/A
Russell Global ex-U.S. Small Cap Index 4.20 7.54 23.86 6.52 13.88 9.67 8.48 5.36 N/A N/A N/A

*Not Annualized
1 For Pennsylvania Mutual, the average annual total return shown is for the 40-year period ended as of the date shown above rather than since the Fund's inception.

Important Performance and Expense Information

All performance information reflects past performance, is presented on a total return basis, reflects the reinvestment of distributions, and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate, so that shares may be worth more or less than their original cost when redeemed. Shares redeemed within 180 days of purchase may be subject to a 1% redemption fee payable to the Fund (2% for Royce Global Value and International Smaller-Companies Funds). Redemption fees are not reflected in the performance shown above; if they were, performance would be lower. Current month-end performance may be higher or lower than performance quoted and may be obtained here. All performance and expense information reflects results of the Fund's oldest share Class (Investment Class or Service Class, as the case may be). Gross operating expenses reflect each Fund's gross total annual operating expenses, including management fees, any 12b-1 distribution and service fees, other expenses, and any applicable acquired fund fees and expenses. Net operating expenses reflect contractual fee waivers and/or expense reimbursements. All expense information is reported as of the Fund's most current prospectus. Royce & Associates has contractually agreed to waive fees and/or reimburse operating expenses through April 30, 2015 to the extent necessary to maintain net annual operating expenses, (excluding brokerage commissions, taxes, interest, litigation expenses, acquired fund fees and expenses, and other expenses not borne in the ordinary course of business), to no more than 1.24% for the Service Class of Royce Special Equity Multi-Cap Fund, to no more than 1.49% for the Service Class of Royce Low-Priced Stock Fund, and to no more than 1.69% for the Service Class of Royce International Smaller-Companies Fund. Royce & Associates has contractually agreed to waive fees and/or reimburse operating expenses through April 30, 2024 to the extent necessary to maintain net annual operating expenses (excluding brokerage commissions, taxes, interest, litigation expenses, acquired fund fees and expenses, and other expenses not borne in the ordinary course of business) to no more than 1.99% for the Service Class of Royce International Smaller-Companies Fund. Acquired fund fees and expenses reflect the estimated amount of the fees and expenses incurred indirectly by any applicable Fund through its investments in mutual funds, hedge funds, private equity funds, and other investment companies. Shares of a Fund's Service, Consultant, R, and K Classes bear an annual distribution expense that is not borne by the Fund's Investment Class. Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group. The Russell 2000 Index is an unmanaged, capitalization-weighted index of domestic small-cap stocks that measures the performance of the 2,000 smallest publicly traded U.S. companies in the Russell 3000 Index. The Russell Microcap Index includes 1,000 of the smallest securities in the small-cap Russell 2000 Index. The Russell Global Small Cap Index is an unmanaged, capitalization-weighted index of global small-cap stocks. The Russell Global ex-U.S. Small Cap Index is an unmanaged, capitalization-weighted index of global small-cap stocks, excluding the United States. Index returns include net reinvested dividends and/or interest income. The Russell 1000 index is an unmanaged, capitalization-weighted index of domestic large-cap stocks. It measures the performance of the 1,000 largest publicly traded U.S. companies in the Russell 3000 index. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index.

Important Disclosure Information

The thoughts and opinions expressed in the video are solely those of the person speaking and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.

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. The Royce Funds invest primarily in securities of micro-cap, small-cap, and/or mid-cap companies, which may involve considerably more risk than investments in securities of larger-cap companies (see "Primary Risks for Fund Investors" in the respective prospectus).

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