Fund Performance

We were pleased to see Royce Global Value Fund mount a comeback of sorts in the first half with a strong absolute and relative performance. The Fund gained 7.7% for the year-to-date period ended June 30, 2015, outpacing its benchmark, the Russell Global Small Cap Index, which gained 6.4% for the same period. While domestic equities began the year with a downturn in January, their non-U.S. counterparts had more varied results. We were pleased to see the Fund lose less than its benchmark during this challenging month (-1.0% versus -1.5%). The rest of the first quarter was similarly mixed, but along more varied lines. Most stocks across the globe did well in February, with the U.S. and Europe showing the most strength regionally. March then saw some interestingly selective pullbacks in U.S. large-caps (the S&P 500, Russell 1000, and Nasdaq were each underwater for the month) and a number of European small-caps. The upshot was a solidly positive opening quarter for the Fund, in which it advanced 2.4%, lagging the index's 3.9% return.

While domestic small-caps struggled in April, signs of an economic recovery in Europe were a boon to many non-U.S. small-caps. Their stateside cousins then rallied in May, which was more globally bullish though less robust outside the U.S. The overall pace of returns continued to cool globally in June, especially later in the month when the Greek default and China's precipitously plummeting stock market made markets more volatile and, in some cases, downright bearish. Despite these headwinds, Global Value increased 5.2% for the quarter, well ahead of its benchmark's 2.4% advance. The Fund also owned a slight performance advantage over the Russell Global Small Cap for the since inception (12/29/06) period ended June 30, 2015.

What Worked... And What Didn't

All of the Fund's nine equity sectors contributed to performance in the first half, with particularly strong net gains coming from Industrials and Financials. We were also pleased that these two sectors outpaced the net gains from these areas within the benchmark. As was the case with many of Royce's domestic portfolios, Health Care contributed within the portfolio while also having a negative impact versus the benchmark. This was almost entirely a result of the Fund's very low exposure to U.S. market-leading biotech stocks and, to a lesser degree, pharmaceuticals companies. At the country level the largest contributors were the U.K., Hong Kong, and Japan. Net losses at the country level were far more modest, with Brazil, Singapore, and Sweden detracting most from the Fund's first-half results.

Leading all of the portfolio's positions by an impressive margin was top-10 holding Value Partners Group. A Hong Kong-based asset manager with a value orientation that naturally appeals to us, its shares often closely parallel movements in the Hong Kong and Shanghai markets. Each climbed precipitously into May before cooling off with the bear market for Chinese stocks. We were pleased to see growth in its assets under management and improved performance and management fees, all of which helped its earnings. London-based Clarkson was the Fund's second-biggest position at the end of June and second-largest contributor to performance in the first six months of 2015. Clarkson is an investment holding company whose subsidiaries provide integrated shipping services worldwide. Its stock began to rise in February and did well through the remainder of 2015's first half, reaching new highs at the end of June. Strong results for fiscal 2014, which were well ahead of market expectations, and a double-digit growth outlook helped drive performance. Clarkson's entrance into the FTSE 250 index on the London Stock Exchange in mid-April, a move that required U.K. index funds to invest in the stock, also played a part.

The Fund's most significant detractor was retailer New World Department Store China, which is headquartered in Hong Kong and runs stores on the mainland. Its stock plunged late in June, hurt by the bear market in China and the decision by Chinese authorities to tighten restrictions on margin lending. Liking the company's management, generous dividend policy, and position as a major retail presence in a vital and growing consumer market, we held onto a sizable position at the end of June. Anixter International, which makes specialized wiring systems and distributes cables and electrical and electronic wire products, reduced the organic growth outlook for fiscal 2015 for two of its core distribution businesses—enterprise cabling and security solutions and electronic wire and cable—primarily due to mounting competition in cabling and security and slower U.S. industrial production keyed by the stronger dollar and lower energy-related capital spending. Slumping copper prices have also hurt its business. We held shares at the end of June.

Current Positioning and Outlook

The portfolio's largest weightings by country at the end of the first half were the U.S., Japan, and the U.K. As the global economy continues to recover, we are looking for opportunities in several sectors. At the end of June, the Fund was overweight in Consumer Discretionary and Industrials, positioned for a market that more consistently rewards profitable businesses.

Average Annual Total Returns as of Quarter-End 6/30/15 (%)

Current month-end performance may be obtained at our Prices and Performance page.

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