Royce Global Value Trust Manager Commentary | Royce Funds
article 06-30-2015

Royce Global Value Trust Manager Commentary

At the end of the semiannual period Global Value Trust had substantial overweights in Industrials and Materials while also having greater exposure than its benchmark to Consumer Discretionary and Financials.


Fund Performance

Royce Global Value Trust (NYSE: RGT) gained 5.6% on an NAV (net asset value) basis and 3.4% on a market price basis for the year-to-date period ended June 30, 2015, lagging its benchmark, the Russell Global Small Cap Index, which advanced 6.4% for the same period. For most U.S. stocks, 2015 started on a discouraging note while non-U.S. equities had more mixed results. We were disappointed to see the Fund shed more value than the benchmark in January, lag in the bullish February, in which results were driven largely by U.S. and European equities, and fall back into the red in March. In the first quarter, Global Value Trust was up 0.6% on an NAV basis and 0.1% on a market price basis versus 3.9% for the index.

The Fund's fortunes shifted in the opening month of the second quarter, when it held a generous lead over the global small-cap index on an NAV basis (+5.7% versus +2.3%). Unfortunately, this advantage did not last, and the Fund fell behind during May, when returns were lower though positive, and June, which turned decidedly bearish late in the month thanks to the Greek default and the quickening pace of decline for Chinese stocks. Global Value Trust, however, hung on to its relative edge thanks to its terrific April. For the second quarter, the Fund rose 4.9% on an NAV basis and 3.2% on a market price basis, outpacing the benchmark, which advanced 2.4% for the same period. While the Fund's initial results have been underwhelming on both an absolute and relative basis, we remain confident that our disciplined, bottom-up approach can be successful.

What Worked... And What Didn't

Of the Fund's eight equity sectors, Financials and Industrials— followed by Consumer Discretionary—led performance in the semiannual period. We were pleased that the first of these groups also achieved better results than the sector did within the portfolio's benchmark while the second had a modestly negative impact relative to the benchmark. Three other sectors—Information Technology, Materials, and Health Care—had a more pronounced adverse effect on relative results. The first two were the largest detractors on an absolute basis as well. The Fund's two biggest net losses at the position level came from Information Technology and are based in Germany. Aixtron engineers and manufactures metal organic chemical vapor deposition (MOVD) systems used to produce compound semiconductor layer structures for use in LED, laser, solar cell, and other applications. Its stock has been mostly trending downward over the last couple of years and began to fall more steadily late in 2014 and into 2015 as growth in revenues and earnings remained poor. We sold our position in mid-March. LPKF Laser & Electronics develops specialized mechanical engineering products for electronics production, the automotive industry, and in the manufacture of solar cells. After a disappointing 2014, its shares rallied briefly in February only to begin falling again in March after a disappointing first-quarter report led to a wave of selling. We reduced our position in the first half.

At the country level, holdings in the U.S. and Brazil had the largest negative impact on results in the first half. Net losses were somewhat mitigated, however, by holdings in Japan, the U.K., and Hong Kong. The advantage for the third of those nations was largely due to a position in the capital markets industry. Also a top-10 position at the end of June, Value Partners Group is a Hong Kong-based asset manager with a value orientation similar to our own. Its shares benefited from the meteoric rise in the Hong Kong and Shanghai markets in early May before cooling off with the bear market for Chinese stocks in June. We were pleased to see growth in its assets under management and improved performance and management fees, all of which helped its earnings. We trimmed our position before the correction. London-based Clarkson was the Fund's biggest position at the end of June and second-largest contributor to performance in the first six months of 2015. 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. Strong results for fiscal 2014, which were well ahead of market expectations, and a double-digit growth outlook helped drive performance. The company's entrance into the FTSE 250 index on the London Stock Exchange in mid-April, a move which mandates that U.K. index funds invest in the stock, also played a part.

Top Contributors to Performance
Year-to-Date Through 6/30/15 (%)1

Value Partners Group 0.80
Clarkson 0.64
Relo Holdings 0.49
Pico Far East Holdings 0.41
Trancom 0.31
1 Includes dividends

Top Detractors from Performance
Year-to-Date Through 6/30/15 (%)2

Aixtron ADR -0.22
LPKF Laser & Electronics -0.20
New World Department Store China -0.19
Daphne International Holdings -0.19
RHJ International -0.19
2 Net of dividends

Current Positioning and Outlook

As the global economy continues to recover, we continue to look for opportunities in several sectors and regions. At the end of the semiannual period Global Value Trust had substantial overweights in Industrials and Materials while also having greater exposure than its benchmark to Consumer Discretionary and Financials. At the country level the portfolio had far less exposure to the U.S. while having significantly greater exposure to the U.K., Canada, France, Hong Kong, Switzerland, Germany, and Brazil.

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

RGT 3.23 3.36 -10.03 -3.37 10/17/2013
XRGTX 4.94 5.62 -6.18 1.04 10/17/2013
Russell Global SC 2.39 6.37 0.34 5.51 N/A

* Not Annualized

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

Important Performance, Expense, and Disclosure Information

All performance information reflects past performance, is presented on a total return basis, 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 most recent month-end may be obtained here. 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- and micro-cap companies, which may involve considerably more risk than investments in securities of 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. Regarding the "Top Contributors" and "Top Detractors" tables, the sum of all contributors to, and all detractors from, performance for all securities in the portfolio would approximate the Fund’s year-to-date performance for 2015.

The thoughts expressed in this piece concerning recent market movements and future prospects for small company stocks are solely the opinion of Royce at June 30, 2015, 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 June 30, 2015 and are subject to change at any time without notice. There can be no assurance that securities mentioned above will be included in any Royce-managed portfolio in the future.

The Fund is a closed-end registered investment company whose shares of common stock may trade at a discount to their net asset value. Shares of the Fund's common stock are also subject to the market risks of investing in the underlying portoflio securities held by the Fund. This Fund is a closed-end fund whose shares of common stock trade on the NYSE. Royce Fund Services, Inc. ("RFS") is a member of FINRA and has filed this material with FINRA on behalf of the Fund. RFS does not serve as a distributor or as an underwriter to the Fund. 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 Global Small Cap Index is an unmanaged, capitalization-weighted index of global small-cap stocks. Index returns include net reinvested dividends and/or interest income. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index.



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