article 02-24-2016

Royce Global Value Trust Manager Commentary

Our own research and regular meetings with management teams have made us comfortable with a contrarian, pro-cyclical bias for the portfolio. Moreover, we suspect that the protracted leadership of growth over value stocks is likely to reverse in 2016 and believe that companies with better balance sheets will do well in an environment of elevated corporate bond spreads.

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Fund Performance

Royce Global Value Trust (NYSE: RGT) fell 3.4% on an NAV (net asset value) basis and lost 6.1% on a market price basis in 2015, lagging its unleveraged benchmark, the Russell Global Small Cap Index, which declined 1.8% for the same period. The Fund struggled through much of the year. For the year-to-date period ended June 30, 2015, RGT gained 5.6% on an NAV basis and 3.4% on a market price basis versus a gain of 6.4% for the Russell Global Small Cap for the same period.

Stocks then suffered a sweeping correction in the third quarter, with many global and domestic indexes enduring double-digit losses. The Fund underperformed in the third quarter, down 12.4% on an NAV basis and 15.6% on a market price basis versus a decline of 11.6% for the Russell Global Small Cap Index. During the fourth quarter, RGT participated fully when stocks first rebounded in October, slipped behind its benchmark in November, and held its value better when markets turned down again in December. For the fourth quarter as a whole, the Fund increased 4.3% based on NAV and advanced 7.7% based on market price while the Russell Global Small Cap rose 4.4%.

What Worked... And What Didn't

In many cases, the most important factor for many holdings was what did not happen—economies across the globe failed to accelerate with the kind of speed that would drive investors toward the more cyclical areas where we have been most actively investing.

This effect was particularly noticeable for holdings in Materials, Information Technology, and Energy—three economically sensitive sectors that also posted the most significant net losses in 2015. A certain pace of growth must be present to key more robust performance for many cyclical businesses, and we simply did not see enough of it in 2015. Against this backdrop, we continued to focus on companies that in our analyses showed a combination of attractive valuation, balance sheet strength, and/or promising growth prospects.

Net losses for the Information Technology sector were spread across a number of positions and industry groups. The largest net losses for the latter came from software, electronic equipment, instruments & components, and semiconductors & semiconductor equipment companies. However, the portfolio's most significant detractor at the industry level was the metals & mining group. On the positive side, Health Care made a notable positive contribution, driven by strong net gains in the health care equipment & supplies group.

At the position level, New World Department Store China posted the largest net losses, its sales slowed by the decelerating economy on the mainland. We held a small position at year-end. Dundee Corporation is a holding company based in Toronto that is involved in investment advisory, corporate finance, energy, resources, agriculture, real estate, and infrastructure. The company also holds investment portfolios in these areas. Its stock was hurt by significant exposure to the weakened commodity markets in 2015. Liking its long-term prospects, we built our stake in 2015.

"We expect reversals in a number of trends that should benefit many portfolio holdings over the next few years… We also expect the combined effects of these reversals to put the market's focus squarely on the attributes we emphasize, which we think are overdue for recovery."

We acted similarly, though on a larger scale, with top-10 holding Genworth MI Canada. Shares of this residential mortgage insurer often move with energy prices, and ongoing concerns about mortgage losses in the energy-dominated western Canada continued to push its price down. True to our contrarian nature, we suspect the bulk of those losses have already been priced in.

RGT's top contributor was Japan's Relo Holdings, which provides corporate fringe benefit outsourcing services, including maintenance and management services for expatriates' homes. We like its niche business, history of raising dividends, and steady company growth throughout 2015. We took gains at various times through the year.

Italy's De'Longhi owns a collection of consumer brands in the domestic appliance market, such as coffee makers, food processors, electric ovens, kettles, toasters, and more. Growing revenues and expanding margins, driven in part by the increasing popularity of its home espresso machines, helped draw investors to its shares. We held a good-sized position at year-end.

On a relative basis, the Fund was hurt most by Information Technology, mostly by ineffective stock selection in the software and semiconductors & semiconductor equipment industries. Conversely, stock selection was a strength both in Industrials and Health Care versus the Russell Global Small Cap.


Top Contributors to Performance
For 2015(%)1

Relo Holdings  0.70
De'Longhi  0.58
Santen Pharmaceutical  0.45
Value Partners Group  0.41
VZ Holding 0.38
1 Includes dividends

Top Detractors from Performance
For 2015 (%)2

New World Department Store China -0.68
Dundee Corporation Cl. A  -0.55
Genworth MI Canada -0.47
Stallergenes -0.40
Coronation Fund Managers -0.34
2 Net of dividends

Current Positioning and Outlook

We expect reversals in a number of trends that should benefit many portfolio holdings over the next few years. Our own research and regular meetings with confident management teams have made us comfortable with a contrarian, pro-cyclical bias for the portfolio. Moreover, we suspect that the protracted leadership of growth over value stocks is likely to reverse in 2016 and believe that companies with better balance sheets will do well in an environment of elevated corporate bond spreads. We also expect the combined effects of these reversals to put the market's focus squarely on the attributes we emphasize, which we think are overdue for recovery.

Average Annual Total Returns Through 12/31/15 (%)

  QTR* 1 YR SINCE INCEPT. DATE
Royce Global Value Trust NAV 4.34 -3.44 -3.21 10/17/2013
Russell Global Small Cap 4.42 -1.78 0.52 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 December 31, 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 December 31, 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.

As of 12/31/15, New World Department Store China was 0.4% of the Fund’s net assets, Dundee Corporation was 0.4%, Genworth MI Canada was 1.6%, Relo Holdings was 1.4%, and De'Longhi was 0.8%.

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 portfolio 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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