Royce Global Value Trust Manager Commentary
article 12-31-2017

Royce Global Value Trust Manager Commentary

A strong, absolute and relative showing in 2017 gave RGT an advantage over its unleveraged benchmark, the Russell Global Small Cap Index.


Fund Performance

A strong and absolute and relative showing in 2017 gave Royce Global Value Trust (“RGT”) advantage over its unleveraged benchmark, the Russell Global Small Cap Index, for the one- and three-year periods ended December 31, 2017 on both a net asset value (“NAV”) and market price basis. The Fund advanced 31.1% on an NAV basis and 36.0% based on market price in 2017, in both instances substantially ahead of the Russell Global Small Cap Index, which rose 23.3% for the same period.

2017 was a terrific year for stocks up and down the asset class scale and across much of the globe, and we were pleased to see the portfolio more than fully participate.

What Worked… and What Didn’t

Nine of the Fund’s 11 equity sectors finished 2017 in the black. Only Energy detracted—and did so modestly—while Utilities was essentially flat. Industrials and Information Technology led by wide margins, followed by more-than-respectable contributions from Financials and Health Care. Relative to the benchmark, the portfolio’s advantage came overwhelmingly from stock selection, primarily in Financials, Information Technology, and Industrials.

The first of these sectors saw the greatest relative edge come from holdings in capital markets and consumer finance while in Information Technology the electronic equipment, instruments & components and IT services groups had the biggest impact. In Industrials, trading companies & distributors and commercial services & supplies showed the best relative strength. Conversely, ineffective stock selection in Materials hurt relative performance, as did the portfolio’s cash position.

At the industry level, two groups dominated results on an absolute basis—the aforementioned capital markets and electronic equipment, instruments & components—while the IT services (Information Technology) and health care equipment & supplies (Health Care) industries also made noteworthy positive contributions.

The impact of detractors at this same level was comparably very light, with oil, gas & consumable fuels (Energy), technology hardware, storage & peripherals (Information Technology), insurance (Financials), and communications equipment (Information Technology) detracting most. Those countries making the greatest positive impact in 2017 were the U.S., the United Kingdom, Japan, and Germany while South Africa and Puerto Rico detracted most.

The top contributor at the position level was Indian consumer finance company, Bajaj Finance. Its shares were lifted by its strong position in India’s nascent credit markets, which we believe have a long runway for growth given the nation’s fast-growing middle class and its low household debt to GDP ratio. Bajaj has also benefited from successfully cross selling services across its many locations.

Cognex Corporation is the market leader in machine vision technology, which captures and analyzes visual information to automate tasks that previously relied on human eyesight and is thus a major driver of industrial and process automation.

The firm has just begun to move into key end markets, such as consumer electronics, while adoption is expanding to other industries, including a fast-growing logistics segment. With ever-evolving proprietary technology and an unmatched global corps of engineers serving customers, the firm looks poised to sustain its well-above-average ROIC and compound its business value into the future.

The top detractor at the position level was South Africa’s EOH Holdings, Africa’s largest independent information-technology provider, with leading positions in business process outsourcing and SAP implementation across the continent. We were attracted to its rare combination of attractive valuation, strong market position, high growth, and conservative balance sheet.

However, we sold our shares when unexplained insider selling and the threat of customer losses compounded the effects of well-publicized accounting and corruption scandals engulfing even some of the blue-chip denizens of South African business.

We had more confidence in the turnaround potential of CIRCOR International, which makes an array of valves and provides related flow control products and services. Valve sales to the domestic land-based oil industry improved when the price of oil rallied in the second half of the year, but could not offset the sales declines to large offshore project customers where investments are only now showing signs of bottoming and pricing is intense.

We think it can eventually benefit from a recovery in energy prices and the further integration of a recent acquisition, which diversifies its end markets and brings higher margins, differentiated products, and aftermarket service revenue streams, factors that led us to add shares in 2017.

Top Contributors to Performance 20181 (%)

Bravura Solutions0.44
Virtu Financial Cl. A0.44
Sartorius Stedim Biotech0.28
Trade Me Group0.26
Radisson Hospitality0.23

1 Includes dividends

Top Detractors from Performance 20182 (%)

CIRCOR International-0.57
Computer Modelling Group-0.50
SEI Investments-0.50
Air Lease Cl. A-0.43

2 Net of dividends

Current Positioning and Outlook

We have a more positive outlook for international stocks and are more cautious on domestic issues, which makes the Fund’s global flexibility particularly timely. While guarded about prospective U.S. small-cap index returns, we are also optimistic about the portfolio’s potential as it leans towards three factors that we believe will be rewarded going forward—cyclicals, global exposure, and—in many cases—high profitability. In this environment, we see the opportunity for the Fund to continue outperforming in the years ahead.

Average Annual Total Returns Through 12/31/18 (%)

RGT -15.11-17.50-17.507.181.281.05 10/17/13
XRGTX -16.85-16.11-16.116.912.042.49 10/17/13
MSCI ACWI SC -16.76-14.39-14.395.753.564.23 N/A

Annual Operating Expenses: N/A

1 Not annualized.

Important Performance and Disclosure Information

Important Performance and Expense Information

All performance information reflects past performance, is presented on a total return basis, net of the Fund's investment advisory fee, 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 recent month-end may be obtained at 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-cap and mid-cap companies, which may involve considerably more risk than investing in 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.

Closed-End Funds are registered investment companies whose shares of common stock may trade at a discount to their net asset value. Shares of each Fund's common stock are also subject to the market risks of investing in the underlying portoflio securities held by each Fund, respectively. Royce Fund Services, LLC ("RFS") is a member of FINRA and may file this material with FINRA on behalf of each Fund. RFS is not an underwriter or distributor of the closed-end funds.

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

Notes to Performance and Other Important Information

The thoughts expressed in this report concerning recent market movements and future prospects for small company stocks are solely the opinion of Royce at December 31, 2017, 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, 2017 and are subject to change at any time without notice. There can be no assurance that securities mentioned in this report will be included in any Royce-managed portfolio in the future. Regarding the “Top Contributors” and “Top Detractors” tables shown above, 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 2017.

As of 12/31/17, the percentage of Fund assets was as follows: Bajaj Finance was 1.1%, Cognex Corporation was 0.5%, SEI Investments was 1.9%, Relo Group was 0.8%, Vakrangee was 0.5%, EOH Holdings Limited was 0.0%, CIRCOR International was 0.7%, MBIA was 0.5%, World Fuel Services was 0.3%, Diebold Nixdorf was 0.4%.

Sector weightings are determined using the Global Industry Classification Standard (“GICS”). GICS was developed by, and is the exclusive property of, Standard & Poor’s Financial Services LLC (“S&P”) and MSCI Inc. (“MSCI”). GICS is the trademark of S&P and MSCI. “Global Industry Classification Standard (GICS)” and “GICS Direct” are service marks of S&P and MSCI. 

All indexes referred to are unmanaged and capitalization weighted. Each index’s returns include net reinvested dividends and/or interest income. Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.  The Russell Global Small Cap Index is an unmanaged, capitalization-weighted index of global small-cap stocks. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index. Returns for the market indexes used in this report were based on information supplied to Royce by Russell Investments. Royce has not independently verified the above described information.

This material contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties, including, among others, statements as to: 

-the Funds’ future operating results,

-the prospects of the Funds’ portfolio companies,

-the impact of investments that the Funds have made or may make, the dependence of the Funds’ future success on the general economy and its impact on the companies and industries in which the Funds invest, and

-the ability of the Funds’ portfolio companies to achieve their objectives.

This discussion uses words such as “anticipates,” “believes,” “expects,” “future,” “intends,” and similar expressions to identify forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements for any reason.

The Royce Funds have based the forward-looking statements included in this commentary on information available to us on the date of the commentary, and we assume no obligation to update any such forward-looking statements. Although The Royce Funds undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise, you are advised to consult any additional disclosures that we may make through future shareholder communications or reports.




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