Royce Small-Cap Value Fund's 1Q16 Turnaround
article , video 05-20-2016

Royce Small-Cap Value Fund's 1Q16 Turnaround

Portfolio Manager Jay Kaplan on Royce Small Cap Value Fund's 1Q16 performance turnaround and where he's currently looking for value.


Royce Small-Cap Value Fund's Turnaround

The Small-Cap Value Fund had a very good first quarter. Some of the things that worked were some of the biggest industry weightings that we had. The technology sector was very, very good in the quarter; that was a very big weighting.

The consumer sector, where we've had a very large weighting for some time, really worked, particularly shoe companies and there were some weather-related things that were bad last year that turned around a little bit, early this year.

The third thing that worked in our favor was actually our absence in healthcare. The last couple of years we've talked about how not owning healthcare, particularly biotech stocks and pharma stocks really hurt us. This time around, not owning those has been a really big benefit. Those are the three things, I think, that really helped performance in the first quarter.

Small-Cap Value Fund Outlook for 2016

2016 should be a very interesting year; the Small Cap Value Fund is off to a great head-start, with the great first quarter that we had, but the first quarter was choppy.

I suspect, as we move through the year, choppiness and a little bit of scariness probably continues. The economy is growing; it's still growing but it's growing slowly and that has people a little scared.

The Fed is probably going to raise interest rates but maybe not as much as we thought or as soon as we thought, or as many times as we may have thought, "we", the market, and that's going to have people a little scared too. So there will be choppiness. There will volatility but I think something has changed.

We're in a market place now where the earners get rewarded and we own a collection of businesses that earn, so I think we'll be fine through 2016.

Where have you been finding value recently?

There are a few areas where I am finding value now.

In the consumer area I continue to find really good values. I've had a pretty good weighting in Consumer for quite some time. It's been mostly around apparel and shoes and it continues to be that. The names have changed over time but I've found pretty good value there.

Transportation is another area where I've been doing some interesting things. Over the last 12 months or so I've made many investments in trucking stocks. I think that could be very promising. We'll find out how that plays out.

For the first time in a long time I bought an airline stock, so I'm pretty excited about that. It's always good to find things that you really haven't done much of before.

Important Disclosure Information

Average Annual Total Returns as of 3/31/16 (%)

Small-Cap Value 9.38 9.38 -6.10 6.54 2.93 5.06 N/A 9.81 06/14/01
Russell 2000 -1.52 -1.52 -9.76 6.84 7.20 5.26 7.68 7.05 N/A
Annual Operating Expenses: 1.23%

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 30 days of purchase may be subject to a 1% redemption fee, payable to the Fund, which is not reflected in the performance shown above; if it were, performance would be lower. Current month-end performance may be higher or lower than performance quoted and may be obtained at Operating expenses reflect the Fund's total annual operating expenses for the Investment Class as of the Fund's most current prospectus and include management fees and other expenses.

All performance and risk information presented in this material prior to the date of commencement of Investment Class shares on 3/15/07 reflects Service Class results. Shares of the Fund's Service Class bear an annual distribution expense that is not borne by the Investment Class.

The Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. In addition, as of 03/31/16 the Fund invested a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than a more broadly diversified portfolio because a decline in the value of any of these stocks would cause the Fund’s overall value to decline to a greater degree. (Please see "Primary Risks for Fund Investors" in the prospectus.) The Fund may invest up to 25% of its net assets in foreign securities (measured at the time of investment), which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.)

The thoughts and opinions expressed in the video are solely those of the persons speaking as of April 12, 2016 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. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.)

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 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 performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index.



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