article 08-03-2016

Rolling Returns: A Better Way to Measure Performance

We believe that rolling returns provide a particularly robust analytical tool for evaluating manager performance, especially during volatile periods when simply shifting the performance date range one or two months in either direction can paint a very different picture.

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When evaluating fund performance, it is common practice to review results for the most recent year (often the calendar year) along with its related longer-term trailing periods.

However, a calendar-year return is not necessarily any more or less important to consider than any other 12-month period (or related trailing period) during a manager's tenure. It is also true that few investors buy mutual funds on New Year's Eve and then sell exactly five or 10 years later. Of course, the reality is that trailing returns ending last month or last quarter are the most commonly available and easily comparable results, so these otherwise arbitrary periods often drive investor decisions and flows.

Keeping in mind that investors will buy and sell at any time throughout any given year, we think it makes sense to examine performance over a larger series of dates. Rolling returns offer a more effective measure because they provide a more accurate and in-depth picture of a portfolio's performance. Rather than "point-in-time" results anchored by the end of the month or quarter, rolling returns account for the fact that investors typically do not invest at the beginning of the current five- or 10-year period but instead are in fact investing over many periods. So instead of assuming that an investment was made on January 1, rolling returns calculate all of the periods starting not only in January, but also in February, March, April, etc. For example, a monthly five-year rolling return accounts for all of the five-year returns beginning at a given inception date and advancing one month sequentially. This method allows an investor to evaluate the consistency of a fund's performance over time—including the ups and downs of market cycles, which are an important test of a manager's skill.

We believe that rolling returns provide a particularly robust analytical tool for evaluating manager performance, especially during volatile periods when simply shifting the performance date range one or two months in either direction can paint a very different picture.

Royce Funds vs. The Benchmark1
10-Year Rolling Monthly Average Annual Return Periods

Since Fund Inception or Most Recent 20 Years through June 30, 2016

Rolling Returns

1 Included are all U.S. Royce Funds at least with 12 years of history. The Russell 2000 is the benchmark for most funds. Rocye Micro-Cap Fund is compared to the Russell Microcap Index and is measured from the that Index's inception.

Royce Funds1 vs. The Benchmark2
Monthly Rolling Average Annual Return Periods and Relative Results Since Fund Inception or Most Recent 20 Years through June 30, 2016

  Average Annual 10-Year Rolling Return Average Annual 5-Year Rolling Return
Fund Periods Beating
the Index

(%)
Fund
Average3
Index
Average3
Periods Beating
the Index

(%)
Fund
Average3
Index
Average3
U.S. Equity                
Dividend Value
26/26
100 8.4 7.5
 59/86
69 8.9 7.6
Heritage
116/121
96 10.7 7.0
 151/181
83 11.3 7.4
Low-Priced Stock
79/121 
65 9.7 7.0
 133/181
73 10.0 7.4
Micro-Cap
60/73
82 8.7 6.3
 92/133
69 9.0 7.4
Opportunity
103/116
89 10.4 6.9
 137/176
78 11.6 7.4
Pennsylvania Mutual
103/121 
85 9.7 7.0
 139/181
77 10.3 7.4
Premier
120/121 
99 11.1 7.0
 143/181
79 11.2 7.4
Small-Cap Leaders
26/37
70 8.8 7.9
 63/97
65 8.1 6.9
Small-Cap Value
46/61
75 10.0 8.0
 77/121
64 10.2 8.2
Smaller-Companies Growth
38/61
62 9.5 8.0
 56/121
46 9.8 8.2
Special Equity
84/98
86 9.5 6.7
 106/158
67 10.7 8.0
Total Return
84/121 
69 8.8 7.0
 127/181
70 9.5 7.4

1Included are all U.S. Equity Royce Funds with at least 12 years of history.
2The Russell 2000 Index is the benchmark for most funds. Royce Micro-Cap Fund is compared to the Russell Microcap Index from the inception of that index. 
3 Average return shown is the average of all month-end trailing five- and 10-year total returns.

Performance and Expenses as of Quarter-End 6/30/16 (%)

  Average Annual Total Returns(%) Annual Operating Expenses(%)
Fund QTR1 1YR 5YR 10YR SINCE
INCEPT.
DATE GROSS NET
Dividend Value -0.57 -3.86 6.34 7.02 8.05 5/3/04 1.14 1.14
Heritage 0.52 -2.45 4.18 5.75 12.16 12/27/95 1.01 1.01
Low-Priced Stock -1.55 -14.61 -3.53 2.30 9.59 12/15/93 1.29 1.25
Micro-Cap 0.36 -12.74 -1.58 2.89 10.44 12/31/91 1.50 1.50
Opportunity 1.11 -11.38 5.80 5.43 11.30 11/19/96 1.17 1.17
Pennsylvania Mutual 1.31 -4.76 5.58 5.57 13.02 N/A 0.93 0.93
Premier 2.01 -5.61 4.28 6.61 11.08 12/31/91 1.13 1.13
Small-Cap Leaders
0.76 -6.90 3.33 5.83 8.84 06/30/03 1.24 1.24
Small-Cap Value -5.54 -9.37 2.47 5.09 9.23 06/14/01 1.23 1.23
Smaller-Companies Growth 1.01 -12.78 5.57 4.59 10.68 6/14/01 1.33 1.25
Special Equity 2.53 -4.58 6.81 7.24 8.62 05/01/98 1.15 1.15
Total Return 3.28 0.07 7.68 6.16 10.46 12/15/93 1.22 1.22
Russell 2000 3.79 -6.73 8.35 6.20 N/A N/A 0 0
Russell Microcap 3.97 -12.06 8.20 4.31 N/A N/A 0 0

1 Not Annualized. 

Important Performance and Expense Information

All performance information in this piece 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. Investment and Service Class shares redeemed within 30 days of purchase may be subject to a 1% redemption fee payable to the Fund. Redemption fees are not reflected in the performance shown above; if such fees were reflected, performance would be lower. Current month-end performance may be higher or lower than performance quoted and may be obtained at www.roycefunds.com. All performance and expense information reflect results of the Fund’s Investment Class shares. Gross operating expenses reflect each Fund’s gross total annual operating expenses and include management fees, any 12b-1 distribution and service fees, other expenses, and any applicable acquired fund fees and expenses. Net operating expenses reflect contractual fee waivers and/or expense reimbursements exclusive of any applicable acquired fund fees and expenses. All expense information is reported as of the Fund’s most current prospectus. Royce & Associates has contractually agreed to waive fees and/or reimburse operating expenses through April 30, 2017 to the extent necessary to maintain net annual operating expenses (excluding brokerage commissions, taxes, interest, litigation expenses, acquired fund fees and expenses, and other expenses not borne in the ordinary course of business) to no more than 1.24% for the Investment Class of Royce Low-Priced Stock and Smaller-Companies Growth Funds. Acquired fund fees and expenses reflect the estimated amount of the fees and expenses incurred indirectly by any applicable Fund through its investments in mutual funds, hedge funds, private equity funds, and other investment companies.

All performance and risk information presented in this material prior to the commencement date of Investment Class shares on 9/14/07 for Royce Dividend Value Fund, 3/15/07 for Royce Heritage, Low-Priced Stock, Small-Cap Leaders, Small-Cap Value, and Smaller-Companies Growth Funds. Service, Consultant, R, and K Class shares bear an annual distribution expense that is not borne by the Fund's Investment Class. The Royce Funds invest primarily in securities of micro-cap, small-cap, and/or mid-cap companies, which may involve considerably more risk than investments in securities of larger-cap companies (see “Primary Risks for Fund Investors; in the respective prospectus). The Funds may also invest to varying degrees in foreign securities which may involve political,economic, currency, and other risks not encountered in U.S. investments. Please read the prospectus carefully before investing or sending money. 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 unmanaged, capitalization weighted 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 Russell Microcap Index includes 1,000 of the smallest securities in the small-cap Russell 2000 Index. The Russell Global Small Cap Index is an unmanaged, capitalization-weighted index of global small-cap stocks. The Russell Global ex-U.S. Small Cap Index is an unmanaged, capitalization-weighted index of global small-cap stocks, excluding the United States. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index. Distributor: Royce Fund Services, Inc.

Important Disclosure Information

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. All indexes referenced are unmanaged and capitalization weighted. 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 unmanaged, capitalization weighted 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 Russell Microcap Index includes 1,000 of the smallest securities in the small-cap Russell 2000 Index. The Russell Global Small Cap Index is an unmanaged, capitalization-weighted index of global small-cap stocks. The Russell Global ex-U.S. Small Cap Index is an unmanaged, capitalization-weighted index of global small-cap stocks, excluding the United States. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index. 

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