Royce Investment Partners: Insights and News

Four High-Conviction Holdings in our Small-Cap Opportunistic Value Strategy

Sep 9, 2026 12:09:00 AM

The mutual fund we manage in our Small-Cap Opportunistic Value Strategy, Royce Small-Cap Opportunity Fund, uses an opportunistic approach to invest in companies are categorized into themes: Turnarounds, Unrecognized Asset Values, Undervalued Growth, and Interrupted Earnings. The management team identifies a catalyst for future earnings growth in the form of new management, more favorable business cycle, product innovation, and/or margin improvement. What follows is a look at 4 key positions in the Fund.

We think Aviat Networks (Nasdaq: AVNW) is well-positioned for a significant recovery and sustained growth following a transitional period marked by regional project delays and a challenging macroeconomic environment. Aviat is a telecommunications equipment company specializing in wireless transport and access networking. Its equipment allows customers to wirelessly transmit large amounts of data over long distances, as an alternative or complement to fiberoptic networks.

Aviat Networks (Nasdaq: AVNW)
12/31/25-8/31/26

Source: FactSet.
Past performance is no guarantee of future results.

Liberty Energy Cl. A (NYSE: LBRT)

Liberty Energy Cl. A (NYSE: LBRT)
12/31/25-8/31/26

Source: FactSet.
Past performance is no guarantee of future results.

However, we believe that its s valuation has once again become quite attractive. For example, recent prices do not reflect the midcycle earning power of its oilfield services business or a reasonable, risk-adjusted value for its power business. We have thus been using the weakness to add to our position.

The next two holdings are in the same industry.

We think Lincoln Educational Services (Nasdaq: LINC)

Vocational schools like Lincoln offer students a high-ROI, fast-track alternative to costly four-year college programs. The company specializes in hands-on, career-oriented training in technical fields and is seeing continued growth in trades, automotive, and healthcare enrollment. Trades-focused enrollment tends to be driven by local factors, such as high school pipelines and direct employer relationships, rather than web search funnels.

This trade-school path represents a compelling growth opportunity as skepticism over the value proposition of traditional four-year degrees continues to grow. This dynamic positions Lincoln to capture a larger share of high school graduates seeking faster, more direct routes to high-paying technical careers. The company is also benefiting from powerful, non-cyclical secular trends, including persistent skilled labor shortages across both the trades and healthcare, broad social acceptance of the trades, and rising federal infrastructure and industrial investments. For example, major industrial and automotive companies have repeatedly flagged thousands of open roles they cannot yet fill while the AI data center boom is generating robust demand for electricians, HVAC technicians, plumbers, and welders.

Lincoln Educational Services (Nasdaq: LINC)
12/31/25-8/31/26

Source: FactSet.
Past performance is no guarantee of future results.

While the company has been trading at a premium to standard postsecondary peers, its valuation is also aligned with its closest trade school peer, Universal Technical Institute, and in our view is justified by its clean balance sheet and enviable execution track record.

The company is aggressively transforming itself from a legacy automotive-focused school into a diversified provider of skilled trades and healthcare education, a transition evidenced by the November 2025 launch of a co-branded campus with Heartland Dental for dental hygiene and assistant programs. While fiscal 2026 revenue guidance was recently adjusted to a range of $893 million to $900 million, management remains committed to achieving over $1.2 billion in revenue and nearly $220 million in adjusted EBITDA by fiscal 2029.

Universal Technical Institute is currently executing an accelerated expansion plan that includes the launching of up to five new campuses and approximately 20 new programs annually across its UTI and Concorde divisions. This growth is being supported by a significant increase in capital expenditures, now expected to reach $110 million for fiscal 2026 to ensure the on-time launch of fiscal 2027 initiatives.

The company recently faced a temporary headwind in its high school enrollment channel due to internal execution issues regarding field representative staffing. However, management has already implemented a restructuring plan to simplify operations and improve student acquisition, noting that the underlying demand for skilled trades remains robust and search volumes for their programs are actually increasing.

Universal Technical Institute (NYSE: UTI)
12/31/25-8/31/26

Source: FactSet.
Past performance is no guarantee of future results.

Important Disclosure Information

Average Annual Total Returns as of 6/30/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Opportunity	25.90	53.88	20.42	10.37	15.62	12.74	11/19/96
Russell 2000 Value	17.19	43.01	18.73	8.23	10.89	9.63	N/A
Russell 2000	21.49	40.78	18.60	6.98	11.62	9.03	N/A

¹ Not annualized.

Average Annual Total Returns as of 8/31/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Opportunity	-6.87	30.57	17.59	9.33	13.58	12.39	11/19/96
Russell 2000 Value	0.31	29.95	17.93	8.52	10.08	9.59	N/A
Russell 2000	-2.08	26.46	17.46	6.85	10.55	8.90	N/A

¹ Not annualized.

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

Percentage of Fund Holdings As of 6/30/26 (%)

	Small-Cap Opportunity
Aviat Networks	0.5
Liberty Energy Cl. A	0.4
Universal Technical Institute	0.7
Lincoln Educational Services	0.0

The performance data and trends outlined in this presentation are presented for illustrative purposes only. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements.

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. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus

PM Chip Skinner and Analyst William Collopy Discuss 3 Small-Cap Growth Favorites

Sep 1, 2026 12:09:00 AM

In Royce Smaller-Companies Growth Fund, we look for companies that look poised for multi-year periods of robust growth driven by sustainable competitive advantages and/or benefiting from secular growth themes that create favorable conditions for the business. Each of the three companies we discuss in this piece are large holdings in the portfolio that have earned our long-term confidence.

Flotek Industries (NYSE: FTK) is an energy technology company with two distinct businesses: a legacy Chemistry Technology operation that improves oil and gas well performance, and a faster-growing Data Analytics business that provides real-time hydrocarbon measurement and monitoring across custody transfer, emissions, process control, and power-generation applications. While Data Analytics remains a smaller contributor to revenue, it has become the primary driver of profitability given margins that are substantially higher than the legacy chemicals business.

Flotek Industries (NYSE: FTK)
12/31/25-8/27/26

Source: FactSet.
Past performance is no guarantee of future results.

Hinge Health Cl. A (NYSE: HNGE) is, in our view, the category leader in virtual musculoskeletal care (MSK), moving one of the most common and inconvenient healthcare experiences from the clinic into the home. Through its technology platform, Hinge provides physical therapy, chronic pain treatment, acute injury care, and post-surgical rehabilitation. The model is particularly attractive because AI and automation reduce the time required for clinicians to deliver care, supporting healthy gross margins and creating significant operating leverage as the business scales.

Hinge Health Cl. A (NYSE: HNGE)
12/31/25-8/27/26

Source: FactSet.
Past performance is no guarantee of future results.

Magnite (Nasdaq: MGNI)

Magnite (Nasdaq: MGNI)
12/31/25-8/27/26

Source: FactSet.
Past performance is no guarantee of future results.

Important Disclosure Information

Average Annual Total Returns as of 6/30/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Smaller-Companies Growth	32.56	40.47	23.30	5.91	13.52	11.80	06/14/01
Russell 2000 Growth	25.71	38.74	18.44	5.57	11.97	8.45	N/A
Russell 2000	21.49	40.78	18.60	6.98	11.62	8.94	N/A

¹ Not annualized.

www.royceinvest.com. Gross operating expenses reflect the Fund's total gross annual operating expenses for the Investment Class and include management fees and other expenses. Net operating expenses reflect contractual fee waivers and/or expense reimbursements. All expense information is reported as of the Fund's most current prospectus. Royce has contractually agreed, without right of termination, to waive fees and/or reimburse expenses to the extent necessary to maintain the Investment Class's 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) at or below 1.02% through April 30, 2027.

All performance and risk information presented in this material prior to the commencement date of Investment Class shares on 3/15/07 reflects Service Class results. Shares of the Fund's Service Class bear an annual distribution expense that is not borne by the Investment Class.

The thoughts and opinions of Mr. Skinner and Mr. Collopy concerning the stock market are solely their own and, of course, there can be no assurance with regard to future market movements. No assurance can be given that the past performance trends outlined above will continue.

Percentage of Fund Holdings As of 6/30/26 (%)

	Smaller-Companies Growth
Flotek Industries	2.7
Hinge Health Cl. A	2.9
Magnite	2.8

A Surge in the “Urge to Merge”

Aug 25, 2026 12:08:00 AM

These transactions have become so prevalent that we have published three different pieces Royce Premier Fund

Ten companies that we hold have made a total of 17 acquisitions over the last three years, most from private equity sellers that were offering companies at what we thought were attractive valuations to our Quality Compounders:

Headquartered in Toronto, Colliers International Group is a global diversified professional services and investment management company that operates through three businesses: Commercial Real Estate, Engineering, and Investment Management. The company has been active as an acquirer from private equity players over the last few years.

Colliers bought Englobe from ONCAP, the mid-market private equity platform of Onex, for $475 million in June of 2024. Englobe provides consulting and technical services related to infrastructure, buildings, and environmental projects.
Colliers next acquired Triovest, a leading Canadian commercial real estate services platform, from Coril Holdings in April of 2025.

EnPro

ESAB Corporation manufactures connected fabrication technology and gas control solutions, providing gas control equipment, robotics, and digital solutions for fabrication, industrial, life sciences, and medical applications.

ESCO Technologies

FactSet Research Systems is a financial data, analytics, and software company whose platform is used primarily by investment professionals to research companies and securities, analyze portfolios, manage risk, and support investment decisions. It serves more than 9,000 clients and roughly 240,000 users globally.

Kadant is a global supplier of technologies and engineered systems that play integral roles in enhancing efficiency, optimizing energy utilization, and maximizing productivity.

In April of 2026, Kadant completed its acquisition of Austrian firm Bohler from voestalpine High Performance Metals GmbH, a subsidiary/division of the Austrian steel and technology group, voestalpine AG. The deal gives Kadant a critical supplier that it had targeted for years to secure specialized, patented processes.

MSA Safety is a global manufacturer of safety equipment and technology, mostly serving industrial workers and firefighters with products designed to detect hazards, protect people from them, and prevent serious injuries or fatalities.

SEI Investments is a financial-services company that combines financial technology, outsourced investment operations, custody, and asset management. SEI provides much of the technology and infrastructure that investment firms, banks, financial advisors, and institutions use to manage money and run their businesses.

SEI acquired LifeYield, a Boston-based financial technology company specializing in tax-smart investing and unified managed household (UMH) technology, including tax-loss harvesting, asset location, multi-account portfolio management, and withdrawal optimization, at the end of 2024. LifeYield was privately held, and its owners included two venture capital firms, Vestigo Ventures and Gibraltar Ventures.
At the end of 2025, SEI completed the first stage of purchasing a majority stake in Stratos Wealth Holdings in which SEI agreed to acquire 57.5% of Stratos while legacy holders retained 42.5% of the company subject to put/call rights. The principal seller was Emigrant Partners, the wealth-management investment affiliate of Emigrant Bank.

TMX Group is the owner and operator of the Toronto Stock Exchange (TSX), though its business ranges more widely than running a stock exchange. TMX operates markets while providing trading, clearing, settlement, market data, and analytics services and has evolved into a diversified global exchange, financial data, and market technology business. TMX is not therefore not dependent on stock-trading volumes because a substantial portion of the business now comes from recurring data, analytics, and technology revenue, which substantially diversifies its revenue mix.

TMX completed its purchase of Verity in October of 2025 from Resurgens Technology Partners, an Atlanta-based, software-focused PE firm. Verity operates two segments: VerityRMS, a research management system used by buy-side investment firms, and VerityData, which offers financial datasets and analytics that cover areas such as insider activity, share buybacks, executive compensation, and institutional holdings.

UFP Industries is a diversified manufacturer of wood and wood-alternative products used primarily in construction, industrial packaging, and home improvement/outdoor living. UFP buys lumber and other raw materials and turns them into higher-value products such as decking, fencing, structural components, pallets, and custom packaging. The company operates three segments: UFP Retail Solutions, UFP Packaging, and UFP Construction.

Valvoline provides quick, convenient preventive automotive maintenance services and operates a large network of company-owned and franchised service centers across the U.S. and Canada. Its core offering is stay-in-your-car oil changes, generally completed in about 15 minutes, along with other routine maintenance services such as tire rotations, wiper replacement, fluid services, and other manufacturer-recommended maintenance. As of March 2026, Valvoline had more than 2,400 locations and performed more than 30 million services annually system-wide.

In December of 2025, Valvoline completed its acquisition of Breeze Autocare and Oil Changers from Greenbriar Equity Group, a middle-market private equity firm. Breeze was an independent automotive preventive-maintenance operator with most stores operating under the Oil Changers brand, with an especially strong presence in California, Texas, and the Midwest. The deal means that Valvoline has added a large number of established stores in attractive geographies, potentially spurring revenue and profit growth.

Important Disclosure Information

Average Annual Total Returns as of 6/30/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE	ANNUAL OPERATING EXPENSES
Premier	18.00	31.17	12.92	7.96	11.98	11.34	12/31/91
Russell 2000	21.49	40.78	18.60	6.98	11.62	9.85	N/A

¹ Not annualized.

Percentage of Fund Holdings As of 6/30/26 (%)

	Premier
Colliers International Group	2.0
Enpro	1.5
ESAB Corporation	2.2
ESCO Technologies	2.8
FactSet Research Systems	0.7
Kadant	2.1
MSA Safety	1.8
SEI Investments	2.8
UFP Industries	0.9
Valvoline	2.0

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. The Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. The Fund also generally invests a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than a more broadly diversified portfolio because a decline in the value of any one of these stocks would cause the Fund's overall value to decline to a greater degree. (Please see "Primary Risks for Fund Investors" in the prospectus.) The Fund may invest up to 25% of its net assets (measured at the time of investment) in securities of companies headquartered in foreign countries, which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.

Are Micro-Caps the Market’s Best Kept Secret?

Aug 18, 2026 12:08:00 AM

Micro-cap stocks are having a moment.

For the year-to-date period ended 6/30/26, the Russell Microcap rose 27.5% compared to 22.6% for the small-cap Russell 2000 Index, 10.3% for the large-cap Russell 1000 Index, and 2.0% for the mega-cap Russell Top 50 Index.
For the 1-year period ended 6/30/26, the Russell Microcap advanced 58.5%, the Russell 2000 rose 40.8%, the Russell 1000 gained 22.0%, and the Russell Top 50 was up 16.3%.
From the market low on 4/8/25 through 8/14/26, the Russell Microcap increased 109.0%, the Russell 2000 rose 77.2%, the Russell 1000 gained 58.6%, and the Russell Top 50 was up 54.0%.

Much of the attention that small- and micro-cap stocks have been getting over the last several months has been tied to the increasingly important roles that many smaller companies have been playing in the AI infrastructure buildout, which covers everything from semiconductors (and related components and services), data center construction, and enhanced power needs.

Plenty of Micro-Cap Opportunities Remain

Relative Valuations for Micro-Caps vs. Large-Caps Remain Below Their Long-Term Average Over the Last 25 Years
Russell Microcap vs. Russell 1000 Median LTM EV/EBIT (ex. Negative EBIT Companies), 6/30/01-6/30/26

Source: FactSet

One-Year EPS Growth

Important Disclosure Information

Average Annual Total Returns as of 6/30/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Capital Micro-Cap	32.56	67.58	26.65	12.31	14.24	11.06	12/27/96
Micro-Cap	33.14	67.21	26.77	12.54	14.73	11.67	12/31/91
Russell Microcap	25.63	58.55	23.97	7.07	12.47	N/A	N/A
Russell 2000	21.49	40.78	18.60	6.98	11.62	N/A	N/A

¹ Not annualized.

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. The performance data and trends outlined in this article are presented for illustrative purposes only. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements. Investments in securities of micro-cap, small-cap, and/or mid-cap companies may involve considerably more risk than investments in securities of larger-cap companies. (Please see "Primary Risks for Fund Investors" in the prospectus.) Investments in foreign companies may be subject to different risks than investments in securities of U.S. companies, including adverse political, social, economic, or other developments that are unique to a particular country or region. (Please see "Investing in International Securities" in the prospectus.)

Semiannual Letter: How Small-Cap Can Navigate Sustained Leadership

Aug 11, 2026 12:08:00 AM

Stocks Stay Resilient on the High Seas

Small-Caps Lead the Stock Market Regatta

Of course, the big news for us is that the current cycle has seen small-cap stocks reassert leadership after one of the longest periods of underperformance versus large-caps in nearly a century. From 2011 through 2025, small-caps beat their bigger siblings in just two calendar years, 2013 and 2016. This pattern began to shift as share prices rebounded in early April of last year, fueled by especially robust results for micro-cap stocks. Performance off that low has so far been nothing short of extraordinary on both an absolute and relative basis: from 4/8/25-6/30/26, the Russell Microcap Index gained 108.4% and the small-cap Russell 2000 Index increased 74.5%, while the large-cap Russell 1000 Index was up 52.8%, and the mega-cap Russell Top 50 Index rose 49.0%. And though the AI infrastructure buildout has given tech stocks an advantage over much of the market, the tech-heavy Nasdaq also underperformed small- and micro-cap stocks over this period, rising 73.1%. (July saw each of these indexes pull back with losses for the month.)

Small- and Micro-Cap Were Impressive off the 2025 Market Low
Russell Index Performance, 4/8/25-6/30/26

Past performance is no guarantee of future results.

Small- and micro-cap stocks led for the year-to-date period ended 6/30/26. In this six-month period, the Russell Microcap gained 27.5% and the Russell 2000 advanced 22.6% versus respective gains of 10.3% and 2.0% for the Russell 1000 and Russell Top 50 (the Nasdaq was up 13.1% for the same period).

Elsewhere in the Small-Cap Flotilla

During a cycle in which tech and biotech stocks have done particularly well, we would not typically expect value to outperform growth. Yet the Russell 2000 Value Index gained 23.0% for the year-to-date period ended 6/30/26, nosing ahead of the 22.2% increase for the Russell 2000 Growth Index. Results from the low on 4/8/25 through the end of June were not as close, and in this period small-cap growth had the advantage, rising 77.1% compared to 71.8% for small-cap value.

The State of the Race

Others claim that a rate increase will sink any hopes for extended small-cap leadership. This is a well-rehearsed narrative: rising interest rates are bad for small-cap stocks because smaller companies are seen as carrying higher leverage, depend more on external financing than larger businesses, and are therefore far more vulnerable to increased borrowing costs. This confluence of factors mean that when the Federal Reserve tightens monetary policy, small caps underperform.

History, however, tells a very different story. When we looked at previous Fed tightening cycles, we found little evidence that higher interest rates consistently translated into weaker small-cap performance. What our research also revealed was that earnings were a far more accurate gauge of small-cap performance, on an absolute basis and relative to large-cap stocks. Over time, share prices and earnings consistently converged. Interest rates have occasionally influenced valuations and investor sentiment, but mostly over short-term periods. Long-term returns ultimately followed the path of earnings.

This helps explain why the relationship between rates and small-cap performance can appear inconsistent. The Fed usually raises rates because economic growth is strengthening along with corporate earnings. Conversely, it most often lowers rates when growth is slowing, and earnings expectations are deteriorating. In both cases, the earnings outlook, as opposed to the direction of interest rates, has historically been the more important driver of returns. As with so much in investing, context is key.

How Small-Caps Can Stay at the Helm

Historically Small-Cap Cycles Have Averaged More Than a Decade
Small-Cap and Large-Cap Market Cycles: Average Monthly Relative Performance for CRSP 6-10/CRSP 1-5 from 12/31/31 through 6/30/26 (%)

Past performance is no guarantee of future results.

Russell 2000 Total Market Cap as a Percentage of Russell 3000 Total Market Cap (%), 12/31/84-6/30/26

Source: FactSet. Past performance is no guarantee of future results.

Relative Valuations for Small-Caps vs. Large-Caps are Still Below Average
Russell 2000 vs. Russell 1000 Median LTM EV/EBIT (ex. Negative EBIT Companies), 6/30/01 through 6/30/26

Source: FactSet.

Micro-caps have performed even better than small-caps recently, so one might expect this data to look noticeably different when the Russell Microcap replaces the Russell 2000. However, applying the same EV/EBIT metric to the micro-cap index and comparing it to the large-cap index shows that, though the gap was not as wide, valuations for the Russell Microcap also finished June well below their long-term average compared to the Russell 1000.

Source: FactSet

Earnings Are the Tailwind for an Otherwise Foggy Forecast

One-Year EPS Growth

Of course, there are risks. The current war with Iran is even more uncertain than most armed conflicts, other geopolitical issues remain live, the midterm elections are approaching for our deeply divided electorate, low- and middle-income consumers are feeling pinched by inflation, and the slow but steady rise in unemployment. As we mentioned above, there are important counterbalances to these concerns: reshoring, shortened supply chains that are benefiting certain smaller companies, and trillions in AI-related CapEx spending all argue in favor of an economy that will keep growing.

An Ocean of Opportunity?

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. The performance data and trends outlined in this article are presented for illustrative purposes only. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements. Investments in securities of micro-cap, small-cap, and/or mid-cap companies may involve considerably more risk than investments in securities of larger-cap companies. (Please see "Primary Risks for Fund Investors" in the prospectus.) Investments in foreign companies may be subject to different risks than investments in securities of U.S. companies, including adverse political, social, economic, or other developments that are unique to a particular country or region. (Please see "Investing in International Securities" in the prospectus.)

Royce SMid-Cap Total Return Fund Manager Commentary

Aug 4, 2026 12:08:00 AM

Fund Performance

Royce SMid-Cap Total Return Fund increased 15.2% for the year-to-date period ended 6/30/26 versus respective gains of 22.7% and 24.2% for the Russell 2500 Index and the Russell 2500 Value Index for the same period.

Advance Auto Parts

Element Solutions

FTAI Aviation

Andersen Group Cl. A

The top detracting position was Kyndryl Holdings

Vontier Corporation

CBIZ

Assured Guaranty

TriNet Group

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Current Positioning and Outlook

]]> Important Performance, Expense and Disclosure Information

Important Performance and Expense Information

All performance information 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. Current month-end performance may be higher or lower than performance quoted and may be obtained at www.royceinvest.com. Gross operating expenses reflect the Fund's total gross annual operating expenses for the Service Class and include management fees, 12b-1 distribution and service fees, and other expenses. Net operating expenses reflect contractual fee waivers and/or expense reimbursements. All expense information is reported as of the Fund's most current prospectus. Royce has contractually agreed, without right of termination, to waive fees and/or reimburse expenses to the extent necessary to maintain the Service Class's 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) at or below 1.34% through April 30, 2027.

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

Notes to Performance and Other Important Information

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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.

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus prospectus.)

Royce Small-Cap Fund Manager Commentary

Aug 4, 2026 12:08:00 AM

Fund Performance

Element Solutions

Onto Innovation

MKS

Ultra Clean Holdings develops and supplies critical subsystems, components, parts, and related services to the semiconductor industry. While near-term wafer fab equipment shipments remain constrained by cleanroom growth, the capacity cycle underway is providing unprecedented demand visibility in an environment of increased deposition (which adds material onto a chip wafer) and etch (which selectively removes material) share of capital spending and the buildout of new computing loads. We continue to believe Ultra Clean is a differentiated business model with attractive and durable reinvestment opportunities.

Arcosa

The top detractor at the position level was PAR Technology

ADMA Biologics develops, manufactures, and markets specialty biologics for the treatment of immunodeficient patients at risk of infection and patients at risk for certain infectious diseases. The company operates an FDA-licensed, plasma fractionation and purification facility and a network of FDA-licensed source plasma collection facilities, all in the U.S. ADMA markets three FDA-approved products: Asceniv, Bivigam, and Nabi-HB. Its shares have underperformed due to fears of the strain being put on the balance sheet by the ongoing launch of Asceniv and the commercial strategy behind this launch. Owing to growing concerns about its addressable market impacting competitive alternatives in the medium term, we exited the position during the second quarter of 2026.

Kyndryl Holdings

TransMedics Group is a commercial-stage medical technology company transforming organ transplant therapy for end-stage organ failure patients across multiple disease states. In addition to its proprietary Organ Care System, a portable machine that allows donor organs to stay perfused with oxygenated blood, the company has also been building infrastructure around it including a fleet of 22 fixed-wing aircraft, coordination with ground transportation, and a clinical team that travels with each organ. While revenue has remained positive, earnings have not kept pace. In May, for example, 1Q26 earnings missed analyst expectations by more than 50%, sending its shares tumbling. Rising costs of sales and increased operating expenses tied to scaling its transplant technology and the aviation segment were the primary drivers of the decline in operating profits. Seeing more promising opportunities elsewhere in the market. We sold the last of our shares in June.

Maximus

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Current Positioning and Outlook

]]> Important Performance, Expense, and Disclosure Information

Important Performance and Expense Information

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

Notes to Performance and Other Important Information

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This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus prospectus.)

CIO Small Talk: The Interest Rate Myth and What Really Drives Small-Cap Returns

Jul 28, 2026 12:07:00 AM

With the current consensus that the Fed will be more hawkish regarding rates, a familiar narrative has returned: rising interest rates are bad for small-cap stocks. The logic is straightforward: smaller companies are perceived as being more leveraged, more dependent on external financing, and therefore more vulnerable to higher borrowing costs. As a result, the argument goes, when the Federal Reserve tightens monetary policy, small caps are destined to underperform.

The same pattern emerges during easing cycles. Lower interest rates have generally been supportive for equities but have not consistently favored either small- or large-cap stocks. Leadership has shifted from one cycle to the next, suggesting that monetary policy itself has rarely determined market leadership.

So, if interest rates have not consistently explained small-cap performance (and many companies are far less dependent on debt than commonly believed) what does drive small-cap returns?

The answer is remarkably simple: Earnings.

Earnings Primarily Drive Small-Cap Returns

Source: FactSet. Past performance is no guarantee of future results.

Over the past two decades, stock prices have periodically moved ahead of, or fallen behind, corporate earnings as investor sentiment shifted. Yet over time, prices and earnings have consistently converged. Interest rates can influence valuations and investor sentiment over shorter periods, but long-term returns have ultimately followed the direction of earnings.

This also explains why the relationship between interest rates and small-cap performance has often appeared inconsistent. The Federal Reserve typically raises rates because economic growth is strengthening and corporate earnings are improving. Conversely, it generally lowers rates when growth is slowing, and earnings expectations are deteriorating. In both cases, the earnings outlook, as opposed to the direction of interest rates, has historically been the more important driver of returns.

For investors, we think the implication is straightforward. Rather than asking whether interest rates are moving higher or lower, we think the better, more relevant question is whether corporate earnings are likely to accelerate or decelerate. The temptation during every market cycle is to reduce investing to a single macro variable. Today, that variable is looking more and more like it will be interest rates. History suggests, however, that it may be better to focus on the factors that have consistently driven long-term returns: Earnings growth, balance sheet strength, and business quality. That is particularly true in small-caps, where the opportunity set is exceptionally diverse. Companies differ dramatically in their financial strength, competitive advantages, earnings trajectories, and management teams. Those differences matter far more than broad assumptions about the direction of interest rates.

Important Disclosure Information

prospectus. Please read the prospectus carefully before investing or sending money. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.)

U.S. Small-Cap Market Overview

Jul 24, 2026 12:07:00 AM

The U.S. Small Cap Market Overview is a collection of charts that provides key takeaways from the quarter, including:

An overview of the major factors driving small cap performance
A historical perspective that puts current market conditions in context
Our market outlook, based on historical return patterns, which examines what future small-cap returns might look like

View Chartbook

Important Disclosure Information The thoughts concerning recent market movements and future prospects for small-company stocks are solely those of Royce Investment Partners, and, of course, there can be no assurances with respect to future small-cap market performance. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements.

What’s Working in Royce Small-Cap Fund?

Jul 21, 2026 12:07:00 AM

What the Fund Does

We have been managing our flagship portfolio, Royce Small-Cap Fund, since 1972.

Jay Kaplan, Miles Lewis, Steven McBoyle, Andrew Palen, and Lauren Romeo

The investment disciplines we use include:

High Quality, which looks for companies that have high returns on invested capital and that we see as having significant competitive advantages.
Emerging Quality, where we look for companies that are newer in their lifecycle but that we believe can become High Quality in the future.
Traditional Value, long a mainstay here at Royce, looks for companies trading at prices below our estimate of their current worth.
Quality Value, which focused on companies with attractive profit margins, strong free cash flows, and lower leverage that also trade at what Royce believes are attractive valuations.

Performance Update

2Q26 Attribution

Year-to-date through 6/30/26 Attribution

Current Positioning and Outlook

Important Disclosure Information

Average Annual Total Returns as of 6/30/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	45YR	DATE	ANNUAL OPERATING EXPENSES
Small-Cap	19.17	35.95	16.61	9.69	12.68	11.59	N/A
Russell 2000	21.49	40.78	18.60	6.98	11.62	N/A	N/A

¹ Not annualized.

CIO Small Talk: Is the Russell Reconstitution a Reminder of One of Active Management’s Biggest Advantages?

Jul 14, 2026 12:07:00 AM

For passive investors, those trades are required.

Small-Cap's Weight in the Russell 3000 Is Below Historical Low
Russell 2000 Total Market Cap as a Percentage of Russell 3000 Total Market Cap (%), 12/31/84-6/30/26

Source: FactSet.
Past performance is no guarantee of future results.

Active managers have no such constraints.

Important Disclosure Information

The Royce Roundtable: Ample Small-Cap Opportunities

Jul 7, 2026 12:07:00 AM

How have small-caps been performing recently?

Chris Clark: We were very pleased with performance for the small- and micro-cap indexes. In the second quarter, the Russell 2000 Index rose 21.5%, and the Russell Microcap Index gained 25.6%, versus respective gains of 15.1% and 10.7% for the large-cap Russell 1000 Index and mega-cap Russell Top 50 Index.

We were even more pleased with the long-term results for our flagship, Royce Small-Cap Fund, which beat the Russell 2000 Index (its small-cap benchmark) for the year-to-date period ended 6/30/26 as well as for the 5-, 10-, 20-, 30-, 40-, and 50-year periods as of 06/30/26.

Francis Gannon: Longer-term results for the small- and micro-cap asset classes were also strong on both an absolute and relative basis for small- and micro-cap stocks. For the year-to-date period ended 6/30/26, the Russell 2000 advanced 22.6%, while the Russell Microcap increased 27.5%, compared to respective gains of 10.3% and 2.0% for the Russell 1000 and Russell Top 50. For the 1-year period ended 6/30/26, the Russell 2000 was up 40.8%, the Russell Microcap gained 58.5%, the Russell 1000 was up 22.0%, and the Russell Top 50 returned 16.3%.

Small- and Micro-Cap Are Leading the Market in 2026
Russell Index Performance, 12/31/25-6/30/26

Past performance is no guarantee of future results.

How was performance off the April 2025 market low?

FG:

What do you make of the idea that small-caps do best when rates are low or falling?

CC:

Miles Lewis:

What factors do you think can support ongoing small-cap leadership?

FG:

What other sectors, industries and/or factors have been driving small-cap performance for the year-to-date period ended 6/30/26?

CC:

FG:

ML:

Are you concerned about a bubble in stocks connected to AI?

ML:

CC:

Andrew Palen:

Relative Valuations for Small-Caps vs. Large-Caps Remain Near Their Lowest in 25 Years
Russell 2000 vs. Russell 1000 Median LTM EV/EBIT (ex. Negative EBIT Companies), 6/30/01 through 6/30/26

Source: FactSet

Micro-caps, which is where I do most of my investment work, have performed even better than small-caps over the last year. When we applied the same EV/EBIT metric to look at how valuations for the Russell Microcap compared to the Russell 1000, we found that, while the gap is not as wide, valuations for the Russell Microcap also finished June well below their long-term average compared to the Russell 1000.

Source: FactSet

Does the valuation picture bolster your optimistic view that small-cap can hold on to market leadership?

FG:

Small-Cap and Large-Cap Market Cycles
Average Monthly Relative Performance for CRSP 6-10/CRSP 1-5 from 12/31/31 through 2/28/26 (%)

Past performance is no guarantee of future results.

Do you anticipate broader participation for those areas of the small-cap market that have lagged so far in 2026? What catalysts can boost the areas that have trailed the overall asset class?

ML: Royce Small-Cap Fund that I manage trades at less than 12 times earnings, which is not a metric any of us would expect to see given how well the overall asset class has performed.

What areas of the market look attractively undervalued right now?

AP:

ML:

Can you highlight a holding in Royce Small-Cap Fund that has your long-term confidence?

ML: Nomad Foods

Nomad Foods (NYSE: NOMD)
12/31/25-7/2/26

Past performance is no guarantee of future results.

AP: Stevanato Group

Stevanato Group (NYSE: STVN)
12/31/25-7/2/26

Past performance is no guarantee of future results.

Last, this opportunity exists because Stevanato faces competition from oral GLP-1s that are coming out, which has hurt the stock. But what people haven't realized is that these drugs will likely cost four or five times more to make than an injectable. There are also other complications in terms of the of active ingredient required be put in the pill to achieve the desired therapeutic effect, which causes unwanted side effects, so the uptake might not be as high as people are expecting. I think a lot of these challenges will be resolved over the next eighteen months. So this is a case where we should see the revelation of attractive long-term earnings power as some of these overhangs on the demand story get resolved.

What is your overall outlook for small-cap?

FG:

One-Year EPS Growth

ML:

AP:

CC:

Important Disclosure Information

Average Annual Total Returns as of 6/30/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	45YR	DATE	ANNUAL OPERATING EXPENSES
Small-Cap	19.17	35.95	16.61	9.69	12.68	11.59	N/A
Russell 2000	21.49	40.78	18.60	6.98	11.62	N/A	N/A

¹ Not annualized.

All performance information reflects past performance, is presented on a total return basis, reflects the reinvestment of All performance information 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. Current month-end performance may be higher or lower than performance quoted and may be obtained at www.royceinvest.com. Operating expenses reflect the Fund's total annual operating expenses for the Investment Class as of the Fund's most current prospectus and include management fees and other expenses.

Percentage of Fund Holdings As of 6/30/26 (%)

	Small-Cap
Nomad Foods	0.3
Stevanato Group	0.4

2Q26 Small-Cap Recap

Jul 1, 2026 12:07:00 AM

Small- and Micro-Cap Stay at the Head of the Class

In the bullish second quarter of 2026, small- and micro- cap stocks continued to lead the U.S. equity markets in a robust period for equities of all sizes and styles. Resilience amid mixed signals was once again the main theme, as geopolitical tensions remain unresolved, inflation lingers, and energy prices are still volatile, depending on the changing state of the war with Iran on any given day. On the plus side, the economy is still in solid shape. Consumers are spending, even as they report lower confidence in economic growth, while the AI buildout continues to gain momentum (though not without controversies of its own, most notably around the enormous amount of energy needed to power data centers).

Against this backdrop, U.S, stocks roared back from the low or negative returns in 1Q26. For the second quarter, the Russell 2000 Index rose 21.5%, and the Russell Microcap Index gained 25.6%, versus respective gains of 15.1% and 10.7% for the large-cap Russell 1000 Index and mega-cap Russell Top 50 Index. (The tech-heavy Nasdaq Composite was up 21.6% for the same period.)

In a Bullish Quarter, Small- and Micro-Cap Remain in Front
2Q26 Russell Index Performance

Past performance is no guarantee of future results.

Small- and micro-cap leadership also encompassed longer-term periods. For the year-to-date period ended 6/30/26, the Russell 2000 advanced 22.6%, while the Russell Microcap increased 27.5% compared to a gain of 10.3% for the Russell 1000 and 2.0% for the Russell Top 50. For the 1-year period ended 6/30/26, the Russell 2000 was up 40.8%, the Russell Microcap gained 58.5%, the Russell 1000 was up 22.0%, and the Russell Top 50 returned 16.3%.

Very Impressive Small-and Micro-Cap Performance off the 2025 Low

while the Russell Microcap advanced

Small- and Micro-Cap Were Impressive off the 2025 Market Low
Russell Index Performance, 4/8/25-6/30/26

Past performance is no guarantee of future results.

Foreign Affairs

Results for non-U.S. stocks decoupled from the pattern of their stateside peers in 2Q26, with non-U.S. small-caps trailing non-U.S. large-caps. The MSCI ACWI ex-USA Small Cap Index advanced 9.6% in 2Q26 while the MSCI ACWI ex-USA Large Cap Index was up 15.7%.

Year-to-date and 1-year results followed the same pattern, with non-U.S. small-caps underperforming their large-cap counterparts. For the year-to-date period ended 6/30/26, the MSCI ACWI ex-USA Small Cap gained 9.1%, and the MSCI ACWI ex-USA Large Cap was up 14.4%. For the 1-year period ended 6/30/26, the non-U.S. small-cap index rose 19.8%, while its large-cap sibling gained 29.3%.

Inside Small-Cap: Growth Leads for the Quarter, Value for Most Other Periods

After beating its growth counterpart for three straight quarters, small-cap value trailed in the second quarter, with the Russell 2000 Value Index gaining 17.2% versus 25.7% for the Russell 2000 Growth Index, buoyed in large part by greater exposure to all things AI.

Small-cap value had the advantage over several other, longer-term periods. The Russell 2000 Value beat the Russell 2000 Growth for the year-to-date (+23.0 versus +22.2%), 1-year (+43.0% vs. +38.7%), 3-year (+18.7% vs. +18.4%), and 5-year (+8.2% vs. +5.6%) periods ended 6/30/26, while small-cap growth had the advantage off the 4/8/25 low, gaining 77.1% vs. 71.8% through 6/30/26, as well as for the 10-year period ended 6/30/26, up 12.0% vs. 10.9%.

The Small-Cap Sector Story: Tech Rules in 2Q26, While Industrials, Health Care, and Financials Were Also Strong

Ten of the 11 sectors in the Russell 2000 made positive contributions to 2Q26 results. Information Technology had the biggest impact by far, followed by Industrials, Health Care, and Financials. Energy was the only sector that detracted from performance in the quarter.

Are Earnings Driving Small-Cap Returns?

The Road Ahead: Reasonable Small-Cap Valuations, Strong Earnings, and Higher Volatility

Relative Valuations for Small-Caps vs. Large-Caps Remain Near Their Lowest in 25 Years
Russell 2000 vs. Russell 1000 Median LTM EV/EBIT (ex. Negative EBIT Companies), 6/30/01 through 6/30/26

Source: FactSet.

Of course, micro-caps have performed even better than small-caps over the last year. So we applied the same EV/EBIT metric to look at how valuations for the Russell Microcap compared to the Russell 1000. While the gap is not as wide, valuations for the Russell Microcap finished June still below their long-term average compared to the Russell 1000.

Source: FactSet

One-Year EPS Growth

Can Higher Volatility = More Opportunities?

The ride may not always be smooth in the months ahead because upswings are often interrupted, though not waylaid, by periods of higher volatility as investors assess and re-assess their choices. One method we use to gauge volatility is to track the number of days in which the small-cap index moves up or down 1% or more. By this volatility measure, the performance of small-cap tech offers a compelling example of how volatility is a factor in positive market moments.

Important Disclosure Information

The thoughts concerning recent market movements and future prospects for small-company stocks are solely those of Royce Investment Partners, and, of course, there can be no assurances with respect to future small-cap market performance. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements.

This material is not authorized for distribution unless preceded or accompanied by a current prospectus prospectus. Investments in securities of micro-cap, small-cap, and/or mid-cap companies may involve considerably more risk than investments in securities of larger-cap companies. (Please see "Primary Risks for Fund Investors" in the prospectus prospectus.)

This material is not approved, endorsed, reviewed, or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. The MSCI ACWI ex USA Small Cap Index is an unmanaged, capitalization weighted index of global small-cap stocks, excluding the United States. The MSCI ACWI ex USA Large Cap Index is an unmanaged, capitalization weighted index of global large-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.

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus prospectus.)

Two High-Conviction Holdings in Our Quality Value Strategy

Jun 23, 2026 12:06:00 AM

In the Quality-Value Strategy that we use in Royce Small-Cap Total Return Fund

However, we have been able to add significant value by selective IPO participation over the years. Occasionally a company comes to market that checks all of our boxes for quality and value criteria. They often come public in an industry or niche that we already know well. In this piece, we discuss two holdings, one that we purchased in an IPO that fit this mold and a turnaround that is exhibiting a strong inflection in fundamentals and execution.

Andersen Group

This leads to a flywheel-type business model: as Andersen expands with existing clients, its reputation drives new client wins where the value-add drives high customer retention, and the revenue per employee growth leads to continuous margin improvement, all of which drives strong free cash flow for reinvestment into growth. In addition, Andersen utilizes a quite top-heavy service approach, meaning that clients get a much higher proportion of time from managing director level talent relative to peers, which supports that high-touch element and further deepens the client relationship.

We think that Andersen has many years of industry-leading revenue growth and margin expansion ahead of it based on the attributes discussed, as well as a fantastic low-risk acquisition pipeline, all while trading at an absolute and relative valuation that we find very attractive given those quality characteristics.

We also remain excited about the opportunity and execution in the turnaround story for Advance Auto Parts

In summary, we believe that Advance is a well-run, financially strong business with strong line-of-sight to earnings expansion from its disciplined execution of well-conceived self-help levers by a proven operator.

Important Disclosure Information

Average Annual Total Returns as of 3/31/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Total Return	-1.01	7.88	10.61	5.22	8.71	9.89	12/15/93
Russell 2000 Value	4.96	28.09	13.80	5.79	9.61	9.56	N/A
Russell 2000	0.89	25.72	13.05	3.77	9.88	8.85	N/A

¹ Not annualized.

All performance information 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. Current month-end performance may be higher or lower than performance quoted and may be obtained at www.royceinvest.com. Operating expenses reflect the Fund's total annual operating expenses for the Investment Class as of the Fund's most current prospectus and include management fees, other expenses, and acquired fund fees and expenses. Acquired fund fees and expenses reflect the estimated amount of the fees and expenses incurred indirectly by the Fund through its investments in mutual funds and other investment companies.

Percentage of Fund Holdings As of 3/31/26 (%)

	Small-Cap Total Return
Andersen Group Cl. A	2.2
Advance Auto Parts	2.7

Can This Small-Cap Premier Holding Recapture the Sweet Smell of Success?

Jun 16, 2026 12:06:00 AM

In Royce Premier Fund, Co-Lead Portfolio Manager Steven McBoyle, Assistant Portfolio Manager Andrew Palen, and I are always looking for small-cap companies with unique business models that have high returns on capital and high reinvestment rates. In this piece, we look at a long-term holding with what we think are excellent long-term prospects.

Interparfums

Interparfums generates almost $1.5 billion per year in revenue and typically invests 21% of sales in advertising and promotion. This marketing firepower and alignment with strong brands improves the success rate on its new launches in an industry that sees the introduction of more than 1,500 scents per year, 90% of which fail. The premium pricing associated with luxury brands, combined with an asset light business model (Interparfums has no manufacturing facilities), yields 60%+ gross margins, consistent free cash flow generation, and a long-term average return on invested capital of 35%.

Interparfums will also be unveiling its first fragrance for Longchamp in 2027, a new license it won last year. In addition, it will also grow distribution of its own Solferino and Goutal brands, which target the niche, luxury/haute fragrance market, representing an incremental $5 billion addressable market for Interparfums.

Finally, two recently announced agreements that were competitive takeaways from Coty provide longer-term revenue visibility. Interparfums will assume responsibility for the David Beckham brand in 2028, with plans for a new signature scent in 2029, and for Nautica in 2030. Given its existing sales history, Interparfums estimates first year sales of $50 million for Beckham and $70 million for Nautica, with the expectation that Interparfums can improve their performance over time.

Important Disclosure Information

Average Annual Total Returns as of 3/31/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE	ANNUAL OPERATING EXPENSES
Premier	4.66	18.62	8.42	4.43	10.36	10.89	12/31/91
Russell 2000	0.89	25.72	13.05	3.77	9.88	9.30	N/A

¹ Not annualized.

Percentage of Fund Holdings As of 3/31/26 (%)

	Premier
Interparfums	1.7

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. The Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. The Fund also generally invests a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than a more broadly diversified portfolio because a decline in the value of any one of these stocks would cause the Fund's overall value to decline to a greater degree. (Please see "Primary Risks for Fund Investors" in the prospectus.) The Fund may invest up to 25% of its net assets (measured at the time of investment) in securities of companies headquartered in foreign countries, which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.

Is Any Area of the Market “Affordable”?

Jun 9, 2026 12:06:00 AM

The word seems to be spreading that small- and micro-cap stocks have so far been enjoying a stellar 2026. What seems less well known is that the current cycle of market leadership for the two asset classes stretches back to 2025 and has been in place for 14 months.

After more than a decade that saw mostly positive performance that nonetheless consistently lagged large- and mega-cap stocks, small- and micro-cap stocks have been on a tear since last April. For example, for the 1-year period ended 5/31/26, the small-cap Russell 2000 Index was up 43.1%, and the Russell Microcap Index advanced 62.5% versus respective gains of 28.8% and 29.3% for the large-cap Russell 1000 Index and the mega-cap Russell Top 50 Index.

Results off the U.S. market low in early April of last year have been even more impressive. From 4/8/25-6/8/26, the Russell 2000 gained 64.6%. The Russell Microcap did even better, notching a 91.1% increase, compared to a 50.3% return for the Russell 1000 and 51.1% for the Russell Top 50.

Relative Valuations for Small-Caps vs. Large-Caps Remain Near Their Lowest in 25 Years
Russell 2000 vs. Russell 1000 Median LTM EV/EBIT (ex. Negative EBIT Companies), 5/31/01-5/31/26

Source: FactSet

In light of how well micro-caps have done, we ran the same data for the Russell Microcap versus the Russell 1000 to see if the picture was appreciably different. What we found, however, shows that micro-caps finished May still below their long-term average versus the large-cap index.

Source: FactSet

We then looked at valuations for the three indexes at the level of style to see if value or growth were significantly cheaper or more expensive than their long-term EV/EBIT averages. What we found was that small- and micro-cap value and micro-cap core are the cheapest segments of the U.S. equity market and that these segments are either just below or slightly above their 25-year average valuation; while all three value segments have somewhat similar 25-year average valuations, their current valuations are vastly different; and that overall large-cap valuations still have a long way to fall to reach their 25-year average valuations.

The Russell Microcap Value, Russell Microcap, Russell 2000, and Russell 2000 Value Remain Near Their Historical Average
Current and 25-Year Average Median EV/EBIT (ex. Negative EBIT) Levels for Russell Indexes as of 5/31/26

Source: FactSet

This combination of more attractive valuations and ongoing earnings strength informs our conviction that the current environment continues to offer many compelling opportunities for active, fundamentals-driven investors with a long-term horizon.

Important Disclosure Information

Enterprise value earnings before interest and taxes

Three Key Micro-Cap Holdings

Jun 2, 2026 12:06:00 AM

We recently looked at the selection process for Royce Micro-Cap Fund, which is enjoying excellent results over the last year (see the performance table below for more details). In this piece, Jim and Andrew offer the investment thesis for three portfolio positions that have earned their long-term confidence.

Apyx Medical (Nasdaq: APYX) provides aesthetic surgical tools with two primary products: Renuvion and the recently launched AYON Body Contouring System. Renuvion is designed to treat the loose skin often associated with liposuction procedures, while the recently launched AYON integrates fat removal and skin tightening. AYON recently received FDA 510k clearance for power-assisted liposuction, in our view further enhancing its attractiveness to aesthetic surgeons.

Apyx Medical (Nasdaq: APYX)
12/31/25-5/29/26

Past performance is no guarantee of future results.

LSI Industries (Nasdaq: LYTS) provides lighting and retail display systems. One reason we like the stock is that LSI has differentiated itself from other lighting manufacturers by providing consulting and other services to help customers utilize better lighting and display capabilities to build brand differentiation. These services have found meaningful interest from the petroleum market, convenience stores, and multi-chain retail enterprises.

LSI Industries (Nasdaq: LYTS)
12/31/25-5/29/26

Past performance is no guarantee of future results.

LSI recently expanded its display capabilities through the strategic acquisition of Royston Group, which provides a strongly complementary product set in areas such as internal/external signage, metal shelving, and heated display cases, as well as offering a somewhat distinct customer base. In addition to typical acquisition synergy, we see a broad cross-selling opportunity that we expect to unfold over the next several years.

TrueBlue (NYSE: TBI) is a leading provider of staffing, recruitment process outsourcing, and managed services covering employment-related functions. Its suite of services ranges from temporary staffing across numerous industry verticals to higher-end permanent placements services. TrueBlue is in the process of expanding its services into higher-end offerings while at the same time attempting to rationalize a broad branch network for its lower-end staffing business. Compounding these challenges has been an overall slowdown in temporary staffing demand, as well as the potential disintermediating impact of AI.

TrueBlue (NYSE: TBI)
12/31/25-5/29/26

Past performance is no guarantee of future results.

Important Disclosure Information

Average Annual Total Returns as of 3/31/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Micro-Cap	9.23	45.42	17.76	7.62	11.53	10.83	12/31/91
Russell Microcap	1.49	45.78	16.88	3.13	10.36	N/A	N/A
Russell 2000	0.89	25.72	13.05	3.77	9.88	9.30	N/A

¹ Not annualized.

Average Annual Total Returns as of 5/31/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Micro-Cap	15.58	71.87	25.68	10.09	12.94	11.27	12/31/91
Russell Microcap	12.39	64.61	22.59	5.51	11.30	N/A	N/A
Russell 2000	12.21	44.41	18.19	5.75	10.98	9.64	N/A

¹ Not annualized.

Percentage of Fund Holdings As of 3/31/26 (%)

	Micro-Cap
Apyx Medical	0.7
LSI Industries	0.8
TrueBlue	0.3

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. The performance data and trends outlined in this article are presented for illustrative purposes only. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements. Investments in securities of micro-cap, small-cap, and/or mid-cap companies may involve considerably more risk than investments in securities of larger-cap companies. (Please see "Primary Risks for Fund Investors" in the prospectus.) Investments in foreign companies may be subject to different risks than investments in securities of U.S. companies, including adverse political, social, economic, or other developments that are unique to a particular country or region. (Please see "Investing in International Securities" in the prospectus.)

How Do We Select Micro-Cap Stocks?

May 26, 2026 12:05:00 AM

Like its bigger small-cap sibling, the micro-cap universe is broad and diverse, offering plenty of opportunities to find companies that are lightly researched (or not researched at all) or appear mispriced based on the strength of their financial and operational fundamentals.

Of course, investing in this area of the market also involves considerable risks. Micro-cap companies are followed by few, if any, analysts, and there tends to be less publicly available information about them than about larger small-cap companies. Many micro-cap stocks are thinly traded and can be subject to even more abrupt or erratic market price movements than larger small-, mid-, or large-cap stocks. Some micro-cap companies have limited markets, financial resources and/or product lines, may lack management depth, and can be even more vulnerable to adverse business or market developments.

So, while these conditions create increased risk, they also create great opportunities for us to find stocks trading below our estimate of their current worth as a business.

Companies with Depressed Earnings

Current earnings below normalized level
Very low valuation on Price/Book and/or Price/Sales basis
Specific catalysts for change

Out-of-Favor Value Companies

Above average profitability
Lower than average leverage
Low valuation and expectations

Premier Companies

Discernible competitive advantages
High returns on capital

Growth at a Reasonable Price Companies

Superior projected growth
Support from secular themes
Modest valuations

We are particularly pleased with the recent results for both the asset class (as measured by the Russell Microcap Index) and the Fund, which have been outstanding from the market low last April: from 4/8/25-5/22/26, the Fund gained 93.5%, and the Russell Microcap rose 88.8% compared to 62.3% for the small-cap Russell 2000 Index, 50.4% for the large-cap Russell 1000 Index, and 54.6% for the mega-cap Russell Top 50 Index.

Important Disclosure Information

Average Annual Total Returns as of 3/31/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Micro-Cap	9.23	45.42	17.76	7.62	11.53	10.83	12/31/91
Russell Microcap	1.49	45.78	16.88	3.13	10.36	N/A	N/A
Russell 2000	0.89	25.72	13.05	3.77	9.88	9.30	N/A

¹ Not annualized.

Average Annual Total Returns as of 4/30/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Micro-Cap	15.58	71.87	25.68	10.09	12.94	11.27	12/31/91
Russell Microcap	12.39	64.61	22.59	5.51	11.30	N/A	N/A
Russell 2000	12.21	44.41	18.19	5.75	10.98	9.64	N/A

¹ Not annualized.

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. The performance data and trends outlined in this article are presented for illustrative purposes only. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements. Investments in securities of micro-cap, small-cap, and/or mid-cap companies may involve considerably more risk than investments in securities of larger-cap companies. (Please see "Primary Risks for Fund Investors" in the prospectus.) Investments in foreign companies may be subject to different risks than investments in securities of U.S. companies, including adverse political, social, economic, or other developments that are unique to a particular country or region. (Please see "Investing in International Securities" in the prospectus.)

Four Key Holdings in our Small-Cap Opportunistic Value Strategy

May 19, 2026 12:05:00 AM

Dauch Corporation

Dauch Corporation (NYSE: DCH)
12/31/25-5/15/26

Past performance is no guarantee of future results.

Robert Half International

For the past three years Robert Half has faced declining demand for its staffing services, driven by two factors: Normalization following a hiring binge by its clients during the COVID years and the economic uncertainty faced by its current clients. Protiviti is also going through a period of depressed demand because of significantly lower audit intensity around money laundering activities under the Trump administration. This cyclically low demand has resulted in operating de-leverage and lower than normal margins for. Besides these cyclical demand pressures, Robert Half is also suffering from a perceived risk to its dividend and worries around the existential threat from AI to demand for staffing.

Robert Half International (NYSE: RHI)
12/31/25-5/15/26

Past performance is no guarantee of future results.

Victory Capital Holdings

Victory Capital Holdings (Nasdaq: VCTR)
12/31/25-5/15/26

Past performance is no guarantee of future results.

There are risks, of course. The company is still working through loan repurchase and indemnification issues tied to prior borrower fraud, and fee margins have been pressured by a mix shift toward brokered and large-agency transactions. However, we believe the market is overly focused on these near-term issues and underappreciates the earnings power of the franchise in a normalized commercial real estate capital markets environment.

(NYSE: WD)
12/31/25-5/15/26

Past performance is no guarantee of future results.

Important Disclosure Information

Average Annual Total Returns as of 3/31/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Opportunity	6.37	36.52	13.98	6.37	13.11	11.97	11/19/96
Russell 2000 Value	4.96	28.09	13.80	5.79	9.61	9.13	N/A
Russell 2000	0.89	25.72	13.05	3.77	9.88	8.39	N/A

¹ Not annualized.

Average Annual Total Returns as of 4/30/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Opportunity	15.12	64.34	20.82	9.10	14.43	12.47	11/19/96
Russell 2000 Value	9.66	46.34	18.34	7.33	10.39	9.44	N/A
Russell 2000	12.21	44.41	18.19	5.75	10.98	8.79	N/A

¹ Not annualized.

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

Percentage of Fund Holdings As of 3/31/26 (%)

	Small-Cap Opportunity
Dauch Corporation	0.1
Robert Half	0.5
Victory Capital Holdings Cl. A	0.7
	0.3

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. prospectus.)

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. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus

Chip Skinner Looks at 3 Small-Cap Growth Favorites

May 12, 2026 12:05:00 AM

In Royce Smaller-Companies Growth Fund, we look for companies that look poised for multi-year periods of robust growth driven by sustainable competitive advantages and/or benefiting from secular growth themes that create favorable conditions for the business. Each of the three companies we talk about in this piece are large holdings in the portfolio that have earned our long-term confidence.

Flotek Industries

Axsome Therapeutics

ACV Auctions

Important Disclosure Information

Average Annual Total Returns as of 3/31/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Smaller-Companies Growth	-5.01	22.21	13.85	0.94	10.15	10.43	06/14/01
Russell 2000 Growth	-2.81	23.58	12.27	1.62	9.79	7.54	N/A
Russell 2000	0.89	25.72	13.05	3.77	9.88	8.18	N/A

¹ Not annualized.

Average Annual Total Returns as of 4/30/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Smaller-Companies Growth	12.30	36.66	19.82	2.38	11.33	10.91	06/14/01
Russell 2000 Growth	14.69	42.64	17.97	4.00	11.19	8.11	N/A
Russell 2000	12.21	44.41	18.19	5.75	10.98	8.65	N/A

¹ Not annualized.

All performance information 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. Current month-end performance may be higher or lower than performance quoted and may be obtained at www.royceinvest.com. Gross operating expenses reflect the Fund's total gross annual operating expenses for the Investment Class and include management fees and other expenses. Net operating expenses reflect contractual fee waivers and/or expense reimbursements. All expense information is reported as of the Fund's most current prospectus. Royce has contractually agreed, without right of termination, to waive fees and/or reimburse expenses to the extent necessary to maintain the Investment Class's 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) at or below 1.02% through April 30, 2027.

Percentage of Fund Holdings As of 3/31/26 (%)

	Smaller-Companies Growth
Flotek Industries	2.4
Axsome Therapeutics	2.6
ACV Auctions Cl. A	1.8

This material is not authorized for distribution unless preceded or accompanied by a current prospectus

Beneath the Surface, the Market Is Changing… from Concentration to Participation

May 5, 2026 12:05:00 AM

Source: Furey Research Partners. Past performance is no guarantee of future results.

We see especially noteworthy evidence that this shift may be underway in how small-caps have been behaving during recent periods of stress and/or volatility. In 1Q26, small-caps demonstrated remarkable resilience amid a highly volatile backdrop. The Russell 2000 posted a modest gain of 0.9% while large-caps declined meaningfully, highlighting a historically rare divergence.

To be sure, this result is so compelling based on how infrequently the pattern has occurred. As we noted recently

Periods where dispersion increases alongside improving breadth have historically led to a wider range of outcomes between winners and losers. For active managers focused on fundamentals, this widening dispersal often presents a more compelling opportunity set, particularly in small-cap where business models, balance sheets, and earnings trajectories tend to vary more widely.

So, while the shift in market leadership away from narrow, mega-cap-driven results to broader participation has been creating more volatility, it has also historically expanded the opportunity set for active investors like us. Small-caps appear particularly well positioned given the combination of more attractive relative valuations, improving earnings prospects, and historically low expectations.

Stay tuned...

Important Disclosure Information

Royce Micro-Cap Fund Update and Outlook

Apr 28, 2026 12:04:00 AM

How did Royce Micro-Cap Fund perform in 1Q26?

Andrew Palen: The Fund advanced 9.2% for the quarter, outperforming both its benchmark, the Russell Microcap Index, which rose 1.5%, and the small-cap Russell 2000 Index, which was up 0.9% for the same period.

How did the Fund perform compared to the Russell 2000 over longer-term periods?

Jim Stoeffel:

AP:

What happened at the industry level in 1Q26?

JS:

At the sector level, what factors made the biggest impact relative to the Russell Microcap in 1Q26?

AP:

JS:

Despite these crosscurrents, we remain constructive on the micro-cap asset class. Our portfolio remains underpinned by durable thematic drivers, including reindustrialization, reshoring, and electrification. Our holdings in the supply chain supporting the buildout and densification of next-generation computing platforms and power generation assets are benefiting from multi-year project visibility. Further, we believe the vulnerabilities exposed by the current geopolitical landscape reinforce the burgeoning domestic capital investment cycle, which should continue to benefit our primarily domestic-oriented businesses. However, the principal near-term risk for our interest rate sensitive asset class remains simultaneous upward pressure on input costs and slower economic growth brought about by the prolonged disruption to the Strait of Hormuz.

Important Disclosure Information

Average Annual Total Returns as of 3/31/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Micro-Cap	9.23	45.42	17.76	7.62	11.53	10.83	12/31/91
Russell Microcap	1.49	45.78	16.88	3.13	10.36	N/A	N/A
Russell 2000	0.89	25.72	13.05	3.77	9.88	9.30	N/A

¹ Not annualized.

Royce Small-Cap Fund—1Q26 Update and Outlook

Apr 21, 2026 12:04:00 AM

How did Royce Small-Cap Fund perform in 1Q26?

Lauren Romeo: The Fund advanced 3.9% for the quarter, outperforming its benchmark, the Russell 2000 Index, which was up 0.9%.

How did the Fund perform compared to the Russell 2000 over longer-term periods?

Jay Kaplan:

Andrew Palen:

What happened at the industry level in 1Q26?

Miles Lewis:

At the sector level, what factors made the biggest impact relative to the benchmark in 1Q26?

Steven McBoyle:

Francis Gannon:

Important Disclosure Information

Average Annual Total Returns as of 3/31/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	45YR	DATE	ANNUAL OPERATING EXPENSES
Small-Cap	3.90	24.81	12.38	6.49	10.86	11.39	N/A
Russell 2000	0.89	25.72	13.05	3.77	9.88	N/A	N/A

¹ Not annualized.

Small-Cap Opportunistic Value Strategy—1Q26 Update and Outlook

Apr 14, 2026 12:04:00 AM

How did the Small-Cap Opportunistic Value Strategy perform in 1Q26 and since the market low on 4/8/25?

Jim Harvey: We were very pleased with how Royce Small-Cap Opportunity Fund, the portfolio we manage in the Strategy, performed in both periods. The Fund advanced 6.4% in the quarter, beating its primary small-cap benchmark, Russell 2000 Value Index, which was up 5.0%, and the small-cap Russell 2000 Index, which gained 0.9%, for the same period. The first-quarter performance was especially satisfying considering how volatile and challenging a period it was. Most large-cap stocks were down, for example, as were most small-cap growth stocks.

From 4/8/25 through the end of March 2026, the Fund rose 59.4%, way ahead of both the Russell 2000 Value, which was up 46.6%, and the Russell 2000, which gained 43.6%, for the same period.

How has the Fund done versus its benchmark over longer-term periods?

Brendan Hartman:

Kavitha Venkatraman:

What happened at the industry level during the quarter?

Jim Stoeffel:

How did the Fund perform relative to the Russell 2000 Value on a sector basis in 1Q26?

BH:

What is your outlook for the Strategy?

JH:

BH:

Important Disclosure Information

Average Annual Total Returns as of 3/31/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Opportunity	6.37	36.52	13.98	6.37	13.11	11.97	11/19/96
Russell 2000 Value	4.96	28.09	13.80	5.79	9.61	9.13	N/A
Russell 2000	0.89	25.72	13.05	3.77	9.88	8.39	N/A

¹ Not annualized.

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

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. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus

This Infrastructure Company Is a Quality Compounder

Mar 24, 2026 12:03:00 AM

In Royce Premier Fund, Co-Lead Portfolio Manager Steven McBoyle, Assistant Portfolio Manager Andrew Palen

Arcosa

Acrosa (NYSE: ACA)
12/31/25-3/20/26

Past performance is no guarantee of future results.

Current market forecasts call for a shortfall in utility structure capacity in 2027 and rising demand through at least 2030. Arcosa is addressing its capacity needs by using the weakness in its non-core wind tower business to bring an idled wind facility back online to produce utility structures beginning in the second half of this year. It also recently announced it will be converting another facility for utility production in 2028 after it fulfills its wind tower backlog.

Despite Arcosa approaching the late innings of its transformation phase, where it has refocused on its durable moat businesses that offer faster, less cyclical growth and higher ROIC, the company now trades several multiple points below those paid for similar businesses in private market transactions and of public peers. With its dominant positions in businesses with favorable secular demand tailwinds, we think Arcosa has a solid runway for attractive long-term organic growth and margin expansion, as well as ample high ROIC reinvestment opportunities to pursue when it resumes acquisitions in the aggregates space.

Important Disclosure Information

Average Annual Total Returns as of 12/31/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE	ANNUAL OPERATING EXPENSES
Premier	1.35	5.63	10.05	5.56	10.34	10.83	12/31/91
Russell 2000	2.19	12.81	13.73	6.09	9.62	9.34	N/A

¹ Not annualized.

Average Annual Total Returns as of 2/28/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE	ANNUAL OPERATING EXPENSES
Premier	13.30	19.68	11.39	6.43	12.17	11.18	12/31/91
Russell 2000	6.20	23.34	13.14	5.05	11.30	9.49	N/A

¹ Not annualized.

Percentage of Fund Holdings As of 12/31/25 (%)

	Premier
Arcosa	3.9

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. The Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. The Fund also generally invests a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than a more broadly diversified portfolio because a decline in the value of any one of these stocks would cause the Fund's overall value to decline to a greater degree. (Please see "Primary Risks for Fund Investors" in the prospectus.) The Fund may invest up to 25% of its net assets (measured at the time of investment) in securities of companies headquartered in foreign countries, which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.

How Micro-Caps Can Stay on Top

Mar 17, 2026 12:03:00 AM

Royce Micro-Cap Fund, variable annuity portfolio , and closed-end fund Royce Micro-Cap Trust.

Ongoing significant investments in AI spending also helped to fuel this upswing, and our investable universe of micro-cap stocks includes many companies selling into the AI supply chain. While this includes obvious areas such as semiconductor equipment companies, it also reaches a much broader universe of industrial, energy, and power related stocks that will continue providing the picks and shovels for the AI revolution.

Of course, several risks bear watching, the most glaring being mounting geopolitical risks, not just in the Mideast but across the world. Investors are rightfully focusing on the disruptions to oil supplies from the current military action in Iran, but the sheer magnitude of the potential human cost and the possibility for unexcepted consequences could also pressure political stability in some regions as well as global economic growth more generally.

Similarly, the increasing stress related to private debt held in private equity funds is another concern. Whether it is a harbinger of a broader credit cycle issue that might negatively affect the public banking sector is an open question. It may seem odd, but the extent to which credit risk remains broadly confined to private equity could prove beneficial to micro-caps because private equity is a key competitor for capital within the space.

Here are three holdings in which we have long-term conviction, two that are benefiting from AI spending and one from reindustrialization:

ADTRAN Holdings

As with many of our investments, we think fiber-optic networks are critical to the long-term success of AI technology investments and expect ADTRAN to benefit accordingly. In addition, BEAD spending targeting broadband access to underserved areas is just beginning to flow into telecom spending patterns. While the company has significant cash, a meaningful outstanding obligation to minority shareholders associated with a large acquisition has been an overhang to the stock price, keeping multiples at levels we find attractive. We expect this obligation to ultimately be manageable. In the meantime, it has given us an opportunity to build our position.

ADTRAN (Nasdaq: ADTN)
12/31/25-3/13/26

Past performance is no guarantee of future results.

Bowman Consulting Group provides engineering and design services across several verticals, including building infrastructure, transportation, power utilities, energy services, and natural resources. Bowman neatly fits our thesis that there is a wide range of service providers that will benefit from the rapid buildout of AI data center infrastructure. In addition, Bowman sits at the sweet spot of government spending from both the IJJA and OBBBA.

In 3Q25, the company had a small earnings miss that in our opinion unduly pressured its share price. We used what we saw as a temporary shortfall to reinitiate a position. With its low-debt balance sheet, robust free cash flow characteristics, and a proven track record of successful acquisition integrations, we see Bowman as well positioned to take advantage of a potentially attractive acquisition market. Its valuation is still below historical norms on a price-to-sales and price-to-cash flow basis, making Bowman a highly attractive investment opportunity in our estimation.

Bowman Consulting Group (Nasdaq: BWMN)
12/31/25-3/13/26

Past performance is no guarantee of future results.

Lincoln Educational Services

Lincoln Educational Services (Nasdaq: LINC)
12/31/25-3/13/266

Past performance is no guarantee of future results.

We will continue to use our core approach, where we use multiple investment themes that give us wide exposure to companies with strong fundamentals and/or prospects selling at what we think are attractively low valuations. Despite how well micro-caps have performed over the last several months, we are still seeing what we think are promising long-term opportunities.

Important Disclosure Information

Average Annual Total Returns as of 12/31/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Capital Micro-Cap	2.72	13.89	15.42	9.17	10.14	9.86	12/27/96
Micro-Cap	1.83	13.33	15.30	9.24	10.43	10.62	12/31/91
Micro-Cap Trust	2.47	16.57	15.55	8.85	12.23	10.92	12/14/93
Russell Microcap	6.25	22.98	15.20	7.32	9.58	N/A	N/A
Russell 2000	2.19	12.81	13.73	6.09	9.62	N/A	N/A

¹ Not annualized.

Average Annual Total Returns as of 2/28/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Capital Micro-Cap	15.25	39.10	17.38	8.83	12.50	10.34	12/27/96
Micro-Cap	15.75	39.02	17.23	9.01	12.95	11.04	12/31/91
Micro-Cap Trust	17.22	43.30	19.44	9.28	14.90	11.41	12/14/93
Russell Microcap	6.73	38.65	15.22	4.65	11.68	N/A	N/A
Russell 2000	6.20	23.34	13.14	5.05	11.30	N/A	N/A

¹ Not annualized.

Percentage of Fund Holdings As of 12/31/25 (%)

	Capital Micro-Cap	Micro-Cap	Micro-Cap Trust
ADTRAN Holdings	0.8	0.8	0.8
Bowman Consulting Group	0.2	0.2	0.2
Lincoln Educational Services	1.1	1.0	0.0

This material is not authorized for distribution unless preceded or accompanied by a current prospectus prospectus prospectus prospectus.)

Growth Market Dynamics

Mar 12, 2026 12:03:00 AM

This transcript has been edited for clarity.

Francis Gannon: Hello everyone and welcome to another episode of the Royce Exchange. I'm happy to be joined by portfolio manager Chip Skinner and analyst Will Collopy from our very successful Smaller-Companies Growth strategy. And we want to spend some time talking about the growth opportunities within the small cap space. But Chip, perhaps we could start with what we've seen happening from a rotational standpoint in the market so far this year, after what was a very successful year last year for small cap growth in general, value has really started to show strength this year. We've seen a bit of a rolling AI correction, if you will, through technology and healthcare in different areas of the market and it's really affected the overall performance of the Small Cap Growth Index, which is only up 3.7% through the end of February on a year to date basis versus small cap value which is up close to 9%. What are your thoughts on what's happening in the rotational aspect of the market that you're seeing from a growth perspective?

Chip Skinner: Well, thanks Frank. I might start back in 2025, which as you mentioned, was a good year for small cap growth. However, if you dig beneath the covers, it was quite a roller coaster year in terms of quarterly performance. We were sort of unpleasantly surprised with the administration's tariff announcement the first half of the year that caused a serious correction in the small cap growth segment in particular, as people worried about, what that meant for GDP and inflation and, relations with other countries, etc., etc., and fortunately there was a pretty swift bounce back I think before that the first half was over, so it was a bit of a white knuckle, first half of the year, and I think that was because the recovery was due to the fact that there was a view that maybe the tariffs didn't have as many teeth as people had thought. The impact might not be as severe, and maybe it was just a way to get trading partners to the to the negotiating table. As people got comfortable with that outlook, the third quarter was a very speculative quarter in terms of performance, at least from my viewpoint. Many of the very early-stage areas that may relate to Bitcoin or early-stage biotech companies, there's a whole segment called quantum computing where a lot of early-stage companies have very large market capitalizations. There was a period where a number of those less established companies were outperforming and a lot of us you know meaningfully underperformed in the third quarter. Then it seemed like we got overdone there and, life kind of returned to more of a normal state when the more traditional small-cap growth institutional investor names began to outperform again in the fourth quarter. So, even though it looked like a great quarter, there was a lot of anxiety and ups and downs in 2025.

Frank: How much do you think in that third quarter speculative moment was driven by the Fed and easing by the Federal Reserve to help these companies that are probably carry a lot of debt?

Chip: Many of them don't have debt and actually have a lot of cash which makes an investor more comfortable, even though they may not have revenues or profitability.

I do think the rate environment and rate expectations had a lot to do with the third quarter. The economy in general has been pretty stable. It's been growing, employment has been pretty solid, inflation has been under control even with the tariff discussions, and so I think the backdrop economically has been very favorable to the extent people seem to be changing their view on whether we're in an up-rate environment or down rate environment every so often. My personal view is, we probably are in a stable to maybe declining interest rate environment. I think that's partly to do with the fact that there will be a new Federal Reserve Chair appointed. There will be a lot of pressure to keep rates low.

Frank: Fast forward to this year--you've seen kind of the typical engines of growth, and I mean growth by those that are identified within the growth you know tend to be more growthy, as opposed to value, have faltered a little bit, specifically healthcare and technology, as the ramifications of AI rips through different parts of the overall economy. What's changed and how is that affecting how you're viewing the world?

Chip:

Frank: Spend some time talking about AI. It seems to be, you know, everyday we're dealing with it. The ramifications of it the fear over the possibilities of it, et cetera.

How are you as a growth manager thinking about AI in your respective portfolio companies?

Chip: It's a good point because one of the reasons technology has underperformed this year has been the software sub sector of technology, enterprise software.

Frank: I've heard you often talk about these long trend changes that you try to tap into, themes, if you will. What are you looking at today that you would consider to be some of those long trends?

Chip:

Frank: Will, is there a particular theme that you're interested in as well?

Will Collopy:

Frank: Yeah, I've always been a believer that innovation is not the sole province of the large cap space everybody talks about how wonderful, innovative, all these great businesses are, but obviously you've identified a lot of different areas that innovation is changing how things are being done. I'm curious, how does a growth manager approach the small-cap asset class?

Chip: It's a broad question. I would say that there are a number of ways to do that. We tend to have a longer term horizon for our investments in the portfolio, we're looking for companies that ideally we can own for a long time and some of our better performer names have been multi-year outperformers, and in some cases really unique companies that are creating a new industry and are dominating that industry. We refer to these types of companies as Amazons. They do what Amazon has done successfully, they've taken an innovation, which is online, retail purchasing and, built an entire huge business around it. There are lots of buckets of small-cap stocks out there, as you know, there are thousands of companies in the universe, but it's our job to narrow down that list and not focus on the ones that might be in the very early stage, startup stage. We want to not focus on the ones that have hit maturity and that are not, you know, growing, maybe even slowing down, and focus on the ones that are either slightly early in their multiyear growth cycle that are experiencing an inflection in their growth rate because of maybe some new products or something has changed in the business, or longer term holdings that we refer to as GARP--growth at a reasonable price. And so the combination of those categories is really what our sweet spot is.

Frank: Will?

Will: I feel like there's been a ton of companies in the small-cap space that have grown from being very small companies to being much larger companies, and it really fits into our investment philosophy of, you know, companies moving from developing into the GARP cycle into, you know, potentially an Amazon over the long run. Just attacking a huge, huge market.

Frank:

Important Disclosure Information

The thoughts and opinions concerning the stock market are solely their own as of the recording date and, of course, there can be no assurance regarding future market movements. Their opinions may differ from the opinions of portfolio managers, investment teams or platforms at Royce Investment Partners. The performance data and trends outlined in this recording are presented for illustrative purposes only. No assurance can be given that the past performance trends as outlined in this recording will continue in the future. Historical market trends are not necessarily indicative of future market movements.

This podcast is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.

Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Royce Investment Partners. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Royce Investment Partners managed portfolio.

Past performance is no guarantee of future results.

Small-Caps Roll On Amid Increased Volatility

Mar 10, 2026 12:03:00 AM

Small- and Micro-Caps in the Lead
Russell Index Returns, 4/8/25-3/6/26

Past performance is no guarantee of future results.

Our investment playbook has not changed. We remain focused on fundamentals and seek to use periods of volatility opportunistically to build positions in high-quality small-cap businesses with long runways for growth. Whether uncertainty subsides or reemerges in another form, our discipline, process, and long-term time horizon remain constant. Finally, we think that periods like the present reinforce the value of active management, as heightened volatility typically increases dispersion beneath the surface, making careful security selection all the more impactful for the days ahead. In fact, active small-cap management has an impressive track record during periods of higher volatility, as shown in the chart below.

Is Higher Volatility Good for Active Management?
Percentage Active ¹ Beat Russell 2000 Within Volatility Levels, Monthly Rolling 5-Year Average Annual Return Periods 12/31/78 through 12/31/25

¹

Source: Morningstar

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. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.)

Why Banks, Snacks, and Sporting Goods Are Quality Value Opportunities

Mar 3, 2026 12:03:00 AM

There are six conditions that we think are especially favorable for small-cap banks now:

First is the steeper yield curve. Most regional banks draw the bulk of their income from spread income. The steepening yield curve has led to growth in spread income which in turn is leading to improved profits for a number of small-cap banks.
Deregulation is another important factor. Smaller banks usually lack the scale to absorb new regulations that larger banks do, so as regulations are being relaxed, smaller banks receive a bigger benefit.
is also helping. We are seeing this dynamic play out in two ways: some smaller banks are being acquired at attractive selling prices while others are making what we think are smart acquisitions.
Valuations
Promising earnings, which are a significant positive in their own right and relate favorably to currently attractive valuations. On average, small-cap banks are trading for less than 10x projected earnings per share (EPS) for 2027 versus 20x EPS for the broader market next year.
AI. One of the reasons we like our small-cap bank holdings is that they are established in the geographies they serve. These banks are still very much person-to-person businesses where the bankers know their customers well, and they differentiate themselves by emphasizing relationships and personal service. In this context, we see AI as eventually helping these companies as administrative processes and regulatory work become increasingly automated.

Of course, there are risks. As we noted back in November

There are two holdings that exemplify the attributes we look for. Home BancShares

Towne Bank

Beyond banks are two other companies in which we have long-term conviction. The first is

Important Disclosure Information

Average Annual Total Returns as of 12/31/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Total Return	1.15	2.43	11.82	8.82	9.37	10.01	12/15/93
Russell 2000 Value	3.26	12.59	11.73	8.88	9.27	9.47	N/A
Russell 2000	2.19	12.81	13.73	6.09	9.62	8.89	N/A

¹ Not annualized.

All performance information 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. Current month-end performance may be higher or lower than performance quoted and may be obtained at www.royceinvest.com. Operating expenses reflect the Fund's total annual operating expenses for the Investment Class as of the Fund's most current prospectus and include management fees, other expenses, and acquired fund fees and expenses. Acquired fund fees and expenses reflect the estimated amount of the fees and expenses incurred indirectly by the Fund through its investments in mutual funds and other investment companies.

Percentage of Fund Holdings As of 12/31/25 (%)

	Small-Cap Total Return
Home BancShares	1.9
TowneBank	1.7
	2.9
	2.1

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. The Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. The Fund also generally invests a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than a more broadly diversified portfolio because a decline in the value of any one of these stocks would cause the Fund's overall value to decline to a greater degree. (Please see "Primary Risks for Fund Investors" in the prospectus.) The Fund may invest up to 25% of its net assets (measured at the time of investment) in securities of companies headquartered in foreign countries, which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus

Micro-Cap Asset Class

Mar 2, 2026 12:03:00 AM

This transcript has been edited for clarity.

Francis Gannon: Hello and welcome back to the Royce Exchange.

This is Francis Gannon Co-CIO of Royce Investment Partners.

Our focus today is on the micro-cap asset class, which represents a unique segment of the public equity markets, characterized by small, often underfollowed companies with significant long-term growth potential. I've always been fond of saying that the small-cap asset class are the forgotten asset class, but I would argue that micro-caps are even more forgotten if possible. That was, at least until last year, when micro-caps outperformed for 2025 as a whole, outperforming the Russell 2000, the Russell 1000 and even the top 50 names in the Russell as well by a significant amount.

Joining me to break down some of the opportunities in the micro-cap asset class are portfolio managers James Stoeffel and Andrew Palen, each of which has significant experience in this area. Let's just start off by defining micro-caps. How do you guys think about the asset class, Jim?

Jim Stoeffel: Technically, the way we think about it is, we look at the largest stock within the Russell Microcap Index, which right now I believe is about $1.3 billion dollars. Candidly, and to your point, Frank, about looking for companies that we think can grow and become bigger companies, we tend to think about stocks maybe smaller than that because we want them to grow out of being a micro-cap. Our average micro-cap stock right now is about $700 million dollars. So, we're about 50% below where our maximum could be because we want stocks to move up. And then we have a fair amount of stocks that are really super small, you know, under $100 million, $50 million, $60 million. And those are interesting equities because if they're successful, they become really, really big stocks and they become really, really big contributors to performance. The risk obviously being that when you're that small, you lack scope and scale and if you make one bad decision, it tends to be pretty ugly. So, we tend to think about, from an investment perspective, running pretty diversified portfolios that we can go after some of the really small things that can be, you know, 5 or 10 baggers or whatever the number is. But generally, and Andrew, you can correct me, I would think sort of $500 million to $700 million is sort of our sweet spot of companies that have gained scope and scale but still provide a significant amount of opportunity.

Frank: Andrew, could you spend a second talking about some of the inefficiencies in the asset class and therefore some of the opportunities?

Andrew Palen: As you alluded to, things start from a point of even just less institutional sponsorship, whether that's on our side of the table with investors who are following the companies speaking to management and really having a dialogue about company strategy, I think you'll find lots of companies are going about their way without the same kind of oversight from investors that larger companies have, even down to brokers and research and just general dissemination of information about what the company is doing and what they're planning on doing. I would also note that the companies are making investments. On that last point, I'd say the companies are making investments with longer term horizons, and it's not showing up in numbers.

Frank: And then narrowing it into the way you view the world within micro-caps, what differentiates your approach? How do you look at the asset class and therefore how do you invest in it?

Jim:

Andrew:

Frank: Spend a second on that if you will, in terms of how do you mitigate risks? You've already talked a little bit about the number of names you might own within the Strategy. But, how about from a individual company standpoint? How do you mitigate risk?

Jim:

Andrew: Adding on to what Jim's saying, I think another important factor is the ability to admit we've been wrong. You can control for sizing pretty easily. You're dealing with riskier situations in micro-caps. I think it's important to know, iteratively following these companies and sort of knowing when things are going in the wrong direction. I'd say this this sort of general dynamic, even up through small-caps, where I think the risk reward in the returns you see going from average businesses that are headed towards good businesses, can be a much more attractive risk reward or trying to invest in businesses that are trying to remain great because you have more attractive going in valuations and often there are misunderstood things about the business that play out over sufficiently longer time horizons where you can see consistent reinvestment opportunities or other things that that make it a better long term investment.

Frank: This idea of emerging quality, if you will.

Andrew:

Frank: So, I guess taking all of that into account, does your process lead you to certain sectors of the market and away from certain sectors of the market, Jim?

Jim: The thing that makes small-caps and then in particular micro-caps work is earnings growth. And you need relative earnings growth relative to Mag 7 or whatever else it's going to be to have decent performance. So, you want the tailwind of earnings growth. We do tend to be pro-cyclical because we want that tailwind of cyclical growth to help us. If it works, it's great. If the investment case doesn't work, you've got some tailwind that'll protect you as opposed to constantly going after stocks where you have some sort of major headwinds without cyclical growth. We definitely have a pro-cyclical bias. We're overweight industrials, we're overweight tech. We tend to be underweight biotechs, because there tends to be not a lot of underlying earnings support to the business. And if you get it right in terms of their particular product, that's great, but it tends to be a little binary. Over the course of five years, that's OK. Over the course of a year or two, that might not be great. And we tend to be a little bit underweight, banks. Again, banks are relatively efficiently priced asset, and so they never get overly cheap unless you have a financial crisis. So, you should think about what we do as being generally pro-cyclical. We're not trying to invest in companies that aren't making money, and sometimes we get those wrong. We're looking for companies that are going to be bigger. We want to sell companies because they become $4-, $5-, $6-, $7-, $8-, $9-, $10-billion-dollar companies because we got them right. And that's really the underlying gist of what we're trying to do is to find companies that we think have a strategy that will allow them to become small and smid-cap stocks, and we're happy to sell those to other people to when we get them right.

Frank: It's really interesting. I think the micro-cap asset class here at Royce is part of our research DNA, right? I think we follow companies through certain life cycles and understanding them while they're micro-cap companies has been, kind of, one of the keys to our long-term success. How often do you see small micro-cap companies grow up if you will, to become small-cap companies?

Jim: That's where we're trying to add value is through identifying these stocks that are going to become small-cap stocks and that's how we approach the portfolio. So, we have these stocks that we get right, they run up and they become not micro-cap and then we start harvesting that capital to reinvest at the bottom of the portfolio where, you know, they're still smaller, the investment case hasn't been proven, and where we think the risk reward is significant and maybe 10% upside, 90% downside or with 10 times upside or whatever 90% downside. So, if you look at what we have done relative to how we manage the portfolio, we have a very significant number of stocks at the top of the portfolio that are not micro-cap, or that we've earned that through fundamental research and understanding how micro-caps work.

Frank: You both mentioned the importance of meeting with management teams on a regular basis and the consistency of what you're hearing from them and what are you asking them? What are you looking for? Is there some commonality in most of those discussions?

Andrew: One thing I'd highlight that we haven't discussed has been that, you know, there's a lot of discussion these days thematically. And a lot of what we're seeing in the sort of cyclical businesses that are tied to the economy and to the broad industrial capacity buildout that we've been seeing, you know, with thematic drivers like onshoring deregulation, electrification, kind of next generation manufacturing infrastructure. That very much applies to our companies as well. A lot of the discussion is about the big tech giants or the big industrial giants and what they're seeing. but when we're speaking to our companies, they're very much seeing these types of drivers and are the underlying component suppliers that builds up to these larger themes. I think a lot of the conversations we're having are about, I mean at this point, investments made 2, 3,4 years ago are coming online and driving the business and becoming meaningful business drivers and value drivers for the companies as we go forward.

Frank: Jim?

Jim: Andrew's got it right. The way to think about a lot of our companies is, we're selling the picks and shovels into the broader universe. And if you look at the supply chain around AI, it's one of the broadest supply chains I've ever seen in my life. We're trying to figure out where we can find opportunities in a theme that we think is 100% true and make money. The big topics of the day are obviously AI, that's a that's a multi-pronged sort of issue. The first is, is AI spending in a bubble? And we don't think so yet, but it could get there for sure. And then the next one is how are companies going to harness AI to generate, you know, returns for their businesses? And that's obviously one of the first questions you ask every management team is, how are you harnessing AI to make your business a better business? The tariff issue is obviously, well, it has been front and center. It feels like it's dying down a little bit. But from the micro-cap and small-cap perspective, that was a problem because these companies had to make investment decisions, based on a very uncertain environment and I feel like we're through that. The geopolitical situation has become challenging, and that adds an element of Black Swan type risk that we're thinking a lot about. Then the regulatory environment, Frank, which you which you touched on, which I think has gotten shoved to the side a little bit with everything that's going on, but the regulatory environment has clearly gotten better, which is good for our companies. With the exception of the geopolitical stuff, everything seems to be either good on the regulatory front or a little bit less bad, say on the tariff front. The economy remains pretty strong. You have a lot of stimulus in the pipeline right now, whether it's the great Big, Beautiful bill or even the Biden administration's Jobs Act money is just starting to flow. You had something called the BEAD Act, which was targeted towards telecom, and there's also a lot of money in the system. So, I think the environment's pretty good for the economy. Things feel pretty good right now candidly, but knock on wood, I don't like to jinx myself.

Frank: There are so many myths about small-caps and micro-caps, right?

One of them, I think is around capital allocation; is capital allocation for companies that are micro-cap different than small-cap?

Andrew: I'd say that the capital allocation process is more capital starved with more frequency. When businesses are sub scaled there'll be periods where the business has more capital available, and there are periods where capital is more scarce, and so it breeds different business cultures, different executive behaviors.

Capital allocation is, you know, I'd say as important as it could be with businesses that have de-risked their balance sheet or diversified the business.

You know, this gets back to the point that incremental investments that the companies are making are more meaningful to the enterprise value of the business.

So, yeah, I would say capital allocation is important and that's something that we can investigate first hand. Speaking to these companies that are less covered or have perception gaps, and that's a source of differentiated returns for the Strategy.

Frank: Perhaps an unfair question to ask, but how do you think investors should position micro-caps in their thought process or in their portfolios?

Andrew: I think a lot of the discussion that we've had so far has been about cyclical drivers, thematic drivers and broader takeaways, lack of institutional sponsorship, or you know, a perceived underweight allocations with investors. I think I'd also highlight just the overlooked things. There are plenty of businesses that operate in fragmented markets and still have the growth runway or business quality that you might find in larger-caps, but we're getting them at more attractive valuations with the bigger opportunity for the re-rating evaluation and potentially attractive runways for those business returns. And so, I'd highlight that as a way to get differentiated exposure in investor allocation.

Frank: Yeah, I agree. I think having the right approach to help mitigate risk for the best risk adjusted returns going forward, I think, particularly in this asset class is really helpful. Jim, anything to add there?

Jim:

Frank: We get a lot of questions about private equity. How is private equity affecting microcaps?

Jim:

Andrew: One of the fastest growing areas within private equity has been private equity secondaries. And I think I'd also highlight that dynamic, which has been ongoing, which is, really given the developed nature of the asset class with increasing frequency, these transactions are between sponsors, and so it doesn't involve public companies. I think that also drovea lot of the conversation the last couple of years with the valuations which these transactions are happening in the markets.

Frank: Sure, the public markets wouldn't pay those valuations is the big difference which is fascinating. But anyway I appreciate both of your time today and thank you for enlightening us all about micro-cap asset class.

Jim: Thank you.

Important Disclosure Information

The views expressed are those of the speakers and the comments, opinions and analyses are rendered as of the date of this podcast and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, security or strategy. Statements of fact are from sources considered reliable, but no representation or warranty is made as to their completeness or accuracy.

Past performance is no guarantee of future results.

Quality Small-Caps and the “Urge to Merge”

Feb 24, 2026 12:02:00 AM

acting as an acquiror from private equity sellers that desired liquidity. Several months and three interest rate cuts later, we are seeing additional Premier Fund holdings demonstrating a similar strategic pendulum swing. After a period when public companies were often targets for take-private transactions, some portfolio holdings have shifted decisively to the offensive, serving as essential liquidity providers for the private equity ecosystem.

Two recent transactions highlight these strategic advantages, with private equity sellers offering companies at attractive values to Quality Compounders:

It is also worth noting that Colliers has been active as an acquirer from private equity players over the last few years. Colliers bought Englobe from mid-market private equity firm Onex for $475 million in June or 2024 and acquired Triovest, a leading Canadian commercial real estate services platform, from Coril Holdings in April of 2025.

ESAB Corporation

The Premier team, which consists of Co-Lead PM Lauren Romeo, Assistant Portfolio Manager Andrew Palen

Kadant, a global supplier of technologies and engineered systems that play integral roles in enhancing efficiency, optimizing energy utilization, and maximizing productivity, acquired Austrian firm Bohler from the large industrial group voestalpine AG. This deal gives Kadant a critical supplier that it had targeted for years to secure specialized, patented processes.

Installed Building Products (IBP) made three acquisitions recently that totaled more than $22 million in annual revenue and were consistent with its bolt-on approach to acquisitions. On 12/11/25, IBP acquired CKV Finished Products, while Biomax Spray Foam Insulation was acquired on 1/19/26, and Thermo-Tech Mechanical Insulation was acquired on 2/2/26.

Important Disclosure Information

Average Annual Total Returns as of 12/31/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE	ANNUAL OPERATING EXPENSES
Premier	1.35	5.63	10.05	5.56	10.34	10.83	12/31/91
Russell 2000	2.19	12.81	13.73	6.09	9.62	9.34	N/A

¹ Not annualized.

Average Annual Total Returns as of 1/31/2026 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE	ANNUAL OPERATING EXPENSES
Premier	10.19	13.38	9.47	7.74	12.17	11.11	12/31/91
Russell 2000	5.35	15.81	12.20	6.16	11.21	9.48	N/A

¹ Not annualized.

Percentage of Fund Holdings As of 12/31/25 (%)

	Premier
Colliers International Group	3.3
ESAB Corporation	3.0
Kadant	1.4
Installed Building Products	1.7
Ayesa Engineering	0.0
Eddyfi Technologies	0.0
Bohler	0.0
CKV Finished Products	0.0
Biomax Spray Foam Insulation	0.0
Thermo-Tech Mechanical Insulation	0.0

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. The Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. The Fund also generally invests a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than a more broadly diversified portfolio because a decline in the value of any one of these stocks would cause the Fund's overall value to decline to a greater degree. (Please see "Primary Risks for Fund Investors" in the prospectus.) The Fund may invest up to 25% of its net assets (measured at the time of investment) in securities of companies headquartered in foreign countries, which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.

Manager Commentaries

Aug 5, 2026 12:08:00 AM

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Important Disclosure Information

prospectus prospectus prospectus.)

Royce Capital Fund–Micro-Cap Portfolio Manager Commentary

Feb 18, 2026 12:02:00 AM

Fund Performance

Royce Capital Fund-Micro-Cap Portfolio advanced 13.9% in 2025, trailing the 23.0% gain for its benchmark, the Russell Microcap Index, for the same period. Relative results were better over longer-term periods as the portfolio beat the benchmark for the 3-, 5-, 10-, and 25-year periods ended 12/31/25.

Our top contributor was nLIGHT

LightPath Technologies

Astronics Corporation supplies flight critical electrical power, inflight entertainment and connectivity, lighting and safety, and test solutions to the aerospace, defense, and mass transit industries. The company holds a dominant market share in in-seat power systems for commercial aircraft. Accelerating activity levels related to improving aircraft production rates and ramping defense contracts drove its stock price performance in 2025. With more than two-thirds of revenue related to commercial aircraft, split close to equally between line fit and retrofits, Astronics will also benefit from airline fleet updates. We believe that sustained progress with process efficiencies and portfolio simplification will further benefit its through-cycle earnings power.

Sprott

CECO Environmental offers highly engineered systems and process solutions that safeguard people, the environment, and industrial equipment across niche applications, including the industrial air treatment and management, water treatment, and energy transition end-markets. The company has installed more than $10 billion of equipment across 4,200 customers. Its stock outperformed as CECO continued to deliver record backlog at record quarterly run-rate revenues amid tariff and government shutdown uncertainty, owing to continued momentum in the construction of power generation, water treatment, and semiconductor infrastructure. Electrification, reshoring, and the buildout of advanced manufacturing are sustaining a broad-based demand environment.

Ichor Holdings

PAR Technologies

Lakeland Industries

QuinStreet

It was a very strong year for the asset class, as the Russell Microcap outperformed each of the major domestic indexes. Micro-caps were particularly strong off the early April bottom, rising 63.5% from 4/8/25-12/31/25. Both sector allocation and stock selection hurt, with the former detracting most. At the sector level, both stock selection and a much lower exposure to Health Care hurt relative results most and by a wide margin. The bulk of our underperformance, both in the sector and for the Fund as a whole, was attributable to our underweight in biotechnology and pharmaceuticals, two industries that tend not to fit our investment philosophy and which had significant moves following the April bottom. While we are always thoughtful and deliberate about sector weightings, we believe that staying true to our investment philosophy is critical to long-term term success, even when it causes relative performance issues in the short-term. Also hampering relative results were our higher weighting and stock selection in Consumer Discretionary and a lower weighting and stock selection in Energy. Conversely, stock selection and, to a lesser extent, our lower weighting in Financials, stock selection in Communication Services, and stock selection along with a lower weighting in Consumer Staples were each additive versus the Russell Microcap in 2025.

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Current Positioning and Outlook

]]> Important Performance and Disclosure Information

Important Performance and Expense Information

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, 2025, 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, 2025 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.

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All indexes referred to are unmanaged and capitalization weighted. Each index’s returns include net reinvested dividends and/or interest income. 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 2000 Index is an index of domestic small-cap stocks. It measures the performance of the 2,000 smallest publicly traded U.S. companies in the Russell 3000 Index. The Russell 2000 Value and Growth Indexes consist of the respective value and growth stocks within the Russell 2000 as determined by Russell Investments. The Russell Microcap Index includes 1,000 of the smallest securities in the Russell 2000 Index, along with the next smallest eligible securities as determined by Russell. The Russell 2500 is an unmanaged, capitalization-weighted index of the 2,500 smallest publicly traded U.S. companies in the Russell 3000 index. The returns for the Russell 2500-Financial Sector represent those of the financial services companies within the Russell 2500 index. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. The MSCI ACWI Small Cap Index is an unmanaged, capitalization-weighted index of global small-cap stocks.The MSCI ACWI ex USA Small Cap Index is an 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. 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.

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. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see “Primary Risks for Fund Investors” in the prospectus.)

5 Factors That Can Drive Small-Cap Earnings Growth

Feb 10, 2026 12:02:00 AM

Small-caps have lagged for much of the past several years as higher interest rates, rising costs, and narrow, mega-cap market leadership all worked to compress valuations and mute earnings visibility. This dynamic, however, is beginning to shift. Year-to-date, small-caps have outperformed large-caps, and since the market low on 4/8/25, the Russell 2000 has risen more than 50%, outpacing the Russell 1000, which gained around 40% over the same period. And while sentiment has improved, valuations remain discounted, and fundamentals are starting to turn.

One important driver is the interest-rate environment. Small-cap companies typically carry more leverage and have greater exposure to floating-rate debt than their large-cap peers. As financial conditions become less restrictive, interest expense tends to fall more quickly for smaller companies, leading to a disproportionate benefit to earnings. This pattern has been evident in prior easing cycles, when small-cap earnings growth accelerated relative to large-caps, often before the improvement was fully reflected in consensus estimates.

At the same time, the reshoring of supply chains remains a durable structural trend. As manufacturers prioritize resilience and proximity over lowest-cost production, demand continues to shift toward domestic suppliers and specialized service providers. Many small-cap companies occupy compressed but critical positions in these ecosystems and directly benefit from incremental domestic investment, unlike multinational firms whose exposure is more diffuse.

Technology adoption is another supportive factor not yet appreciated by the market. Most impactfully, AI is no longer confined to large-cap platforms. For smaller companies with lean cost structures and high operating leverage, even incremental productivity gains can have an outsized impact on margins, creating a pathway to earnings growth that does not rely solely on revenue acceleration, a distinction that becomes increasingly relevant as the economic cycle matures.

Taken together, these factors point to an improving earnings environment for small-cap stocks at a time when valuations remain well below large-cap levels. This is not a case for indiscriminate exposure, however. Dispersion within the small-cap universe remains high, and balance sheet strength, pricing power, and management skill continue to matter.

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. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.)

Annual Letter: When Will Small-Cap Reach the Summit?

Feb 3, 2026 12:02:00 AM

How a Year of Uncertainty Became a Year of Double-Digit Returns

likely to be succeeded by Kevin Warsh.

Micro-Caps Reach the Peak of a Resilient Market

An Impressive Year for Stocks of All Sizes
Russell Index Returns, 12/31/24-12/31/25

Past performance is no guarantee of future results

AI: Coming Soon to a Small-Cap Company Near You?

Small-Cap Opportunities Beyond AI

Of course, our investment teams see many opportunities in areas that lie outside AI, including businesses in the Consumer Discretionary and Consumer Staples sectors. There have also been interesting opportunities in Health Care beyond the biopharma complex, which dominated small-cap performance in 2025. Elsewhere, they have been investing in industries such as packaging, business services, and insurance, all of which appear poised to do well in 2026. Green shoots can be seen in the non-AI parts of the semiconductor chain, along with companies involved in manufacturing, where industrial distributors, to take one example, are starting to experience stabilization at the bottom of the business cycle. Opportunities have also been found in diverse areas such as commercial and professional services, transportation, and capital markets.

Revenge of the Forgotten Asset Classes?

Russell Index Returns, 4/8/25-1/30/26

Past performance is no guarantee of future results

With regard to micro-caps specifically, returns for the asset class are often a barometer of risk. To the extent that investors remain comfortable with less liquidity and are willing to take risks, micro-caps should do well. Equally important, there are higher-quality micro-cap companies, and if the market continues to broaden out as we expect, more of these micro-caps should participate as the leadership baton within small-cap as a whole passes from more speculative stocks to more established, quality companies with more proven, durable business models.

Why Small-Cap, Why Now

Do Earnings + Valuations = Sustained Small-Cap Leadership?

In our view, by far the most compelling case for small-cap leadership in 2026 comes from a relatively rare and promising confluence of factors: Relatively low valuations for small-cap versus large-cap and the forecast for higher earnings for small-cap companies. Even after a year of robust returns, valuations for the Russell 2000 at the end of 2025 were still quite close to their lowest levels versus the Russell 1000 in 25 years, using our preferred index valuation metric of EV/EBIT or enterprise value over earnings before interest and taxes.

Relative Valuations for Small-Caps vs. Large-Caps Remain Near Their Lowest in 25 Years
Russell 2000 vs. Russell 1000 Median LTM EV/EBIT (ex. Negative EBIT Companies), 12/31/00 through 12/31/25

Source: FactSet

One-Year EPS Growth

Past performance is not guarantee of future results.

VIEW FUND PERFORMANCE

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. The performance data and trends outlined in this article are presented for illustrative purposes only. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements. Investments in securities of micro-cap, small-cap, and/or mid-cap companies may involve considerably more risk than investments in securities of larger-cap companies. (Please see "Primary Risks for Fund Investors" in the prospectus.) Investments in foreign companies may be subject to different risks than investments in securities of U.S. companies, including adverse political, social, economic, or other developments that are unique to a particular country or region. (Please see "Investing in International Securities" in the prospectus.)

Small-Cap Premier Quality Strategy—4Q25 Update and Outlook

Jan 27, 2026 12:01:00 AM

How did the Small-Cap Premier Quality Strategy perform in 4Q25 and over longer-term periods?

Steven Mcboyle: The mutual fund we manage in the Strategy, Royce Premier Fund, advanced 1.4% for the quarter, lagging its benchmark, Russell 2000 Index, which was up 2.2% for the same period. The Fund gained 5.6% in 2025 versus a 12.8% gain for the benchmark. Longer-term relative results were better. The Fund outperformed the Russell 2000 for the 10-, 20-, 25-, 30-year, and since inception (12/31/91) periods ended 12/31/25 and trailed for the 5-year period.

Lauren Romeo:

Andrew Palen:

What happened at the industry level in 4Q25?

LR:

Which position contributed most in 4Q25?

SM: Our biggest contributor in the second quarter was MKS

Which position detracted most in the quarter?

LR: That would be FirstService Corporation

How did the Fund perform compared to the Russell 2000 on a sector basis in 4Q25?

AP:

How did the Fund perform at the sector level for the calendar year?

LR:

What were the biggest industry contributors and detractors in 2025?

SM:

Which holding contributed most from performance in the calendar year?

AP: Our top contributor at the position level in 2025 was MKS, which we discussed above.

Which holding detracted most in 2025?

LR: Our top detractor was medical technology company, Enovis Corporation

AP:

What is your outlook?

LR:

Important Disclosure Information

Average Annual Total Returns as of 12/31/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE	ANNUAL OPERATING EXPENSES
Premier	1.35	5.63	10.05	5.56	10.34	10.83	12/31/91
Russell 2000	2.19	12.81	13.73	6.09	9.62	9.34	N/A

¹ Not annualized.

Percentage of Fund Holdings As of 12/31/25 (%)

	Premier
MKS	4.2
FirstService Corporation	3.0
Enovis Corporation	0.0

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. The Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. The Fund also generally invests a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than a more broadly diversified portfolio because a decline in the value of any one of these stocks would cause the Fund's overall value to decline to a greater degree. (Please see "Primary Risks for Fund Investors" in the prospectus.) The Fund may invest up to 25% of its net assets (measured at the time of investment) in securities of companies headquartered in foreign countries, which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.

Royce Small-Cap Total Return—4Q25 Update and Outlook

Jan 20, 2026 12:01:00 AM

How did Royce Small-Cap Total Return Fund in 4Q25 and over longer-term periods?

Miles Lewis: The Fund

How did performance shake out at the sector and industry level in 4Q25?

Joesph Hintz:

Which holding contributed most in 4Q25?

JH: PACS Group

Which holding detracted most in the fourth quarter?

Jag Sriram: Our top detractor was automotive aftermarket parts provider, Advance Auto Parts

At the sector level, how did the Fund perform versus its benchmark?

JH:

How did the Fund perform at the sector level in the calendar year?

ML:

What were the biggest industry contributors and detractors?

JS:

Which holding contributed most in 2025?

JH: Just as it was in the fourth quarter, PACS Group was our top contributor in 2025.

Which holding detracted most in 2025?

ML: Our top detractor was Vestis Corporation

ML:

What is the outlook for the Fund?

ML:

Important Disclosure Information

Average Annual Total Returns as of 12/31/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Total Return	1.15	2.43	11.82	8.82	9.37	10.01	12/15/93
Russell 2000 Value	3.26	12.59	11.73	8.88	9.27	9.47	N/A
Russell 2000	2.19	12.81	13.73	6.09	9.62	8.89	N/A

¹ Not annualized.

All performance information 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. Current month-end performance may be higher or lower than performance quoted and may be obtained at www.royceinvest.com. Operating expenses reflect the Fund's total annual operating expenses for the Investment Class as of the Fund's most current prospectus and include management fees, other expenses, and acquired fund fees and expenses. Acquired fund fees and expenses reflect the estimated amount of the fees and expenses incurred indirectly by the Fund through its investments in mutual funds and other investment companies.

Percentage of Fund Holdings As of 12/31/25 (%)

	Small-Cap Total Return
PACS Group	2.0
Advance Auto Parts	2.9
Vestis Corporation	0.0

Royce Small-Cap Fund—4Q25 Update and Outlook

Jan 13, 2026 12:01:00 AM

How did Royce Small-Cap Fund perform in 4Q25?

Lauren Romeo: The Fund advanced 2.0% for the quarter, narrowly trailing its benchmark, the Russell 2000 Index, which was up 2.2% in 4Q25.

How was performance for 2025 as a whole?

Miles Lewis:

How did the Fund perform compared to the Russell 2000 over longer-term periods?

Jay Kaplan:

Andrew Palen:

What happened at the industry level in 4Q25?

Steven McBoyle:

At the sector level, what factors made the biggest impact relative to the benchmark in 4Q25?

Miles Lewis:

Steven McBoyle:

What about at the industry level?

ML:

AP:

Francis Gannon:

Important Disclosure Information

Average Annual Total Returns as of 12/31/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	45YR	DATE	ANNUAL OPERATING EXPENSES
Small-Cap	1.95	8.95	13.90	8.38	11.11	11.45	N/A
Russell 2000	2.19	12.81	13.73	6.09	9.62	N/A	N/A

¹ Not annualized.

2025 in Review

Dec 18, 2025 12:12:00 AM

This transcript has been edited for clarity.

Francis Gannon:

I'm happy to be here today with two of our portfolio managers, Chip Skinner, who's been with the firm for 22 years, has over 40 years of industry experience, and is our portfolio manager for our Smaller-Companies Growth Strategy, and Joe Hintz, who joined us a little over 4 years ago now, has over 10 years of experience in the industry, and works as a portfolio manager on our Small-Cap Quality Value Strategy.

I thought it'd be fun to talk about the year. It's been a really interesting year. Small-caps have faced numerous challenges from the start of this year, from uncertainty over tariffs and the resumption of Fed cuts to a continued push out recovery. In terms of the earning story, which I think is starting to change a little bit and that earnings recession has kind of been there for a period of time as well. But I'd love to get your thoughts on some of the aspects of the market that we've seen this year around small-caps, Chip perhaps let's start with you. What are your thoughts on some of the volatility that we've seen this year?

Chip Skinner: Thanks for having us. I've described this year as a small-cap growth manager feeling a little bit like a pinball in a pinball machine. There has been a lot of volatility. If I roll back the camera a little bit, The first quarter was a negative quarter, The Russell 2000 was down about 10%, and that was precipitated by the big new tariff regime that was announced. Small-cap stocks declined about 25%, believe it or not, from their recent peak.

So, there was a big correction in there. Interestingly, there was a big bounce back in the second quarter. We almost recaptured the entire 10%. Third quarter, another scenario where we had a lot of the speculative sort of categories or sectors of the small-cap universe really outperform things like crypto, quantum computing stocks, and a number of other areas where there's not a lot of revenues, not a lot of earnings, or any earnings.

For a traditional small-cap, long term investor, which was a difficult quarter to keep up with frankly. But then more recently in this current quarter, there has been somewhat of a return to more normal performance of some of the high quality long term growth companies that we invest in, so it has been a somewhat of a milkshake this year it seems like.

Francis:

Biotech has been on fire this year post the tariff tantrum, if you will, on April 8th, but would love to get your thoughts on some of the volatility you saw in the market this year.

Joe Hintz: Thanks for having me on the program today. Appreciate the time to chat. Similar to what Chip said, interesting start to the year. We actually had a good Q1 in a down market and then the rip off the bottom after the tariff announcement has been extremely challenging for quality value managers.

No matter how you look at it, whether it's factors or the types of companies that have been outperforming, it's just been a very, very difficult market for quality managers. You've seen it in biotech, Chip mentioned crypto, you've got the Bitcoin miners. There's even a company in the index that's not supposed to have revenues, I think, until 2027 or 2028 that was one of the top contributors in the index this year. So, when you have that type of an environment where you have not even non earners but non-revenue companies in a small-cap value index leading the market, that's just a significant challenge.

Francis: Joe, history shows that you do see these lower quality kind of stocks rip off the bottom and then quality does come back. You see those better companies come back usually a year after. Where are you seeing opportunities along that line today? Do you think that's going to happen #1? and #2, how are you guys positioning yourselves going into 2026?

Joe:

As we head into 2026 I think there are lots of different places to look for opportunity. First, starting from a macro perspective, taking a step back and thinking about what I just talked about around the bifurcated market and bifurcated economy. We have seen areas of the market that have been in a quasi-recession for a long time. The low-end consumer has been in a recession arguably for several years now. The industrial patch has been quite weak. There are parts of the semiconductor chain that have been weak outside of AI.

We're starting to see potential green shoots in some of those non-AI parts of the economy, which would be very, very positive for breadth in the market to see non AI companies starting to accelerate off the bottom of a cycle. We're seeing some green shoots in parts of the semiconductor chain, we're seeing in some of the regional fed data around manufacturing that we're starting to see some potential green shoots there. Some of the results from our industrial distributors, for example, are starting to see some, at a minimum, stabilization at the bottom of a cycle, and potentially some nice green shoots moving to the other side to the upmarket part of the cycle.

In general, we are hopeful that we're going to see some broadening out of the market. It's been tough for quality value. The other area where we see a lot of opportunity is where companies have been thrown out as if they're going to be AI losers, for example, even though we see a lot of opportunity there. We have an IT services company, it's been a very difficult year for this stock, one of our worst performers this year, but that's basically all come from multiple contraction, meaning that the market has gone from pricing this from a viable business to a melting ice cube business, and we think that the market's doing that because they think that it's going to be an AI loser and that their business model is in jeopardy. We think the exact opposite. We think that there's a lot of opportunity for this company to expand in an AI driven world and we think that as we move away from the picks and shovels phase of the AI build out to more of the true adoption by enterprises phase, this particular company is going to really, really benefit in helping enterprises drive AI adoption. So that's just kind of a smattering of areas where we see opportunity heading into next year.

Francis: Chip, just kind of building a little bit on that. When you think small cap growth, you think tech spending and those companies that are going to be beneficiaries of tech spending around AI, etc. You talked about quantum computing earlier. How are you thinking about in positioning the strategy going into 2026?

Chip: As you might expect, we have a higher mix of technology as well as healthcare companies. It's interesting because every company is going through some kind of a digital upgrade and spending on technology, and some of that will depend on how strong the economy is. But there's some real, as Joe pointed out, AI type areas or initiatives that are going to require a lot of capital spending and investment because I do believe that eventually this is going to change the way a lot of us work and a lot of the products that companies sell; every product will probably have embedded in it some form of artificial intelligence. The way we're positioning and the way we have for some time been positioning is by trying to identify some very long term, durable themes that will generate some of these new, world beating companies and actually new areas of the economy.

So, there are a lot of exciting innovations going on out there. We have a number of themes like this one that are generating some meaningful outperformance opportunities.

Francis:

Chip:

Francis: Joe, any thoughts on it?

Joe

So, what does that mean, Agentic AI? We're just basically talking about going from chat bots where you interact with the model through the chat interface to building out automated workflows to automate business processes. I think we're very early days in that, and that's been delayed by a year just by the complexity of doing this. But I think it is definitely coming. And so that IT services company that I mentioned, they're going to help companies build out agentic workflows.

In terms of seeing AI coming to the small-cap near you, if you want to take the baseball analogy where we haven't even hit the first inning yet, we're in the warm up phase. I think some of the larger companies, to Chip's point, are a little further along. You've started to see some interesting examples. So, I know this year it's been pretty widely reported across the news that healthcare costs are going up, whether it's because of weight loss drugs, higher acuity services being used, etc.

But healthcare costs are very much on the rise. And one interesting thing that I heard from one of our companies that is not in the healthcare space specifically, but has some exposure there is that hospitals are now using AI to better code because I think in the past, maybe because the coding system for different procedures is so complex, maybe something is missed and so the hospital doesn't bill the correct amount, and so you're now seeing AI being used to expand the hospital billing code, not in an illegal way, but just to make sure that the hospitals are getting paid for the procedures that they're performing. That is a big contributor apparently to some of this rise in healthcare costs. You know, I think that's just one example of an industry using AI to extract the requisite value that they had been missing out on in past years. Those are the types of things that we will start to see expand out into the economy going forward. Hospital systems, a lot of these are very large systems. Maybe they can afford to invest in that kind of stuff, maybe they're a little bit ahead of the game, but I think that type of thing will be coming to all industries across the U.S. heading into the next year for sure. As of right now, we are not hearing any of our companies talking explicitly about how much AI is helping them either to grow the top line or save on the bottom line.

Joe: We're maybe in a stance of potentially cautious optimism. One thing that does concern us is that the second Trump administration has brought a lot of unprecedented change, whether it's the massive scale up in tariffs, the significant change in immigration policy, etc. And I think we're only beginning to really see the true impacts of or potentially we're only beginning to see the impacts of these policies.

Maybe tariffs will completely not impact inflation in any major way. We're not macro investors, so it's hard for me to tell you for sure, but, you know, I definitely think heading into 2026, there could be some inflationary impacts that were delayed in terms of us seeing them in actual data but that starts to come through, and then also labor being much tighter now because of much tighter immigration policies. I think that's really going to impact areas like construction, home building, agriculture, etc. Those are areas where tighter immigration policy will impact things, and to what extent those things are impacted is to be determined. But there is definitely a lot of uncertainty as the country goes through some significant changes. That's the caution piece of cautious optimism.

I think the optimism side is something I alluded to earlier where we are seeing some green shoots from an economic perspective. AI has been the main driver of the economy for several years now. We are very hopeful that we're starting to see that expand out into industrials, into the non-AI parts of the chip economy, etc. A further expansion of the economy where you're seeing us coming out of some slower periods for a lot of these other parts of the market would be very, very positive just for the health of the market, the breadth of the market. And then lastly, I would just say that we are hopeful. I mean here at Royce we've done the research. It is common to see low, low-quality lead off the bottom in a market rally, but that transition should happen 6 to 12 months out, and that's where we are heading into 2026. So, I would expect to see quality regain leadership in terms of the types of companies that are really leading the market.

Francis: Chip, how about you?

Chip:

So, if we have that combination of fiscal spending and lower interest rates, that typically is a pretty good backdrop for businesses in general for anyone who's going to borrow money to spend or invest in a project, and particularly for small- cap performance. So, I'm pretty bullish about the potential for that backdrop. Now longer term, there are some consequences. There's probably higher inflation and certainly more federal government debt that will have to be addressed at some point, but I think next year, that's what I'm thinking.

Francis: Yeah, I agree with you. One of the more interesting things out of that tax bill that was signed earlier this year is the fact that you can have 100% depreciation on research and CapEx, so you could see a great CapEx cycle begin, which would be wonderful for small-caps that I don't think the market has really come to grips with yet at all.

Perhaps the last question for you both before we go is, what was something that you read within the past year that people should pick up and read because I think we spent a lot of our time reading stuff. But, we never think of, this is a great piece. What's something you would recommend people read?

Chip:

Francis: Joe, last word.

Joe: Similar to Chip, I think obviously most of my time is spent reading about the companies that we're invested in and the industries that we're invested in and looking at. For the reading that I do outside of work, I think one of the most interesting books I read a little over a year ago now was a book called Endurance by Alfred Lansing. It's about Ernest Shackleton's 1914 expedition down to Antarctica, where they got stuck in the ice for, I think it was about two years. It's a story of survival in an extreme expedition type environment, and it's just a fascinating book. The reason I mention it is that I think it's an interesting book just to think about leadership, which is always an interesting topic for anyone who's interested in business. And just his ability to rally his crew through just unbelievable circumstances and survive. It's just an ultimate tale of survival and heroism and ultimately leadership and getting people through just unbelievable circumstances. So, just a fascinating read period. But I thought it had some implications to business to a certain extent from a leadership perspective.

Francis: Great. Well, thank you both. Till next time. Thank you.

Important Disclosure Information

Past performance is no guarantee of future results.

What’s Next for Small-Caps in 2026?

Dec 16, 2025 12:12:00 AM

Miles Lewis:

We also see one development that will surprise investors in 2026: Small-caps will outperform! The long, dark winter of small-cap underperformance has been exhaustively documented and is well understood. We think 2026 could be the year that small-caps reassert themselves.

Chip Skinner: We are constructive on small cap growth stocks as we head into 2026, primarily due to the accommodative fiscal and monetary policies of the current administration. The speculative activity that characterized the early part of the fourth quarter has since faded, and we are encouraged by a broadening in positive earnings revisions as macro headwinds continue to ease.

We also expect the consumer to remain resilient, with stable employment data trends contradicting some of the more negative headline narratives. Valuations for small-caps remain discounted relative to their large-cap counterparts, and earnings expectations are still conservative in our view, leaving room for positive revision momentum. While we are constructive on the year ahead, we recognize that the benefits of aggressive fiscal spending and lower rates may carry longer-term trade-offs in the form of renewed inflation pressures and widening budget deficits.

Kavitha Venkatraman:

Based on our recent conversations with company management teams, we think spending will pick up in 2026 and drive economic growth. We consequently expect a positive inflection in hiring by small businesses, which should help employment-related stocks. Further, we anticipate that this investment cycle will drive continued robust demand for power, which should benefit a wide swath of the energy and industrial businesses we own in our Small-Cap Opportunistic Strategy.

Steven McBoyle:

Francis Gannon:

Important Disclosure Information

All performance information reflects past performance, is presented on a total return basis, reflects the reinvestment of distributions, and does not reflect the deduction of taxes 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. Current month-end performance may be higher or lower than performance quoted and may be obtained at www.royceinvest.com. Operating expenses reflect the Fund's total annual operating expenses for the Investment Class as of the Fund's most current prospectus and include management fees, other expenses, and acquired fund fees and expenses. Acquired fund fees and expenses reflect the estimated amount of the fees and expenses incurred indirectly by the Fund through its investments in mutual funds and other investment companies.

Prospectus.) Please read the prospectus carefully before investing or sending money. Fund investments in foreign securities may involve political, economic, currency, and other risks not encountered in U.S. investments. Funds that invest a significant portion of their assets in a limited number of stocks may involve considerably more risk than more broadly diversified portfolio. A broadly diversified portfolio, however, does not ensure a profit or guarantee against loss. (See "Primary Risks for Fund Investors" in the respective prospectus.) Please read the prospectus carefully before investing or sending money.

AI in Investing

Dec 10, 2025 12:12:00 AM

We are excited to be bringing you podcasts featuring timely investment insights from our team of investment professionals. You can also find our podcasts on Amazon Music, Apple Podcasts, and Spotify as The Royce Exchange,

This episode has been edited for clarity.

Frank Gannon: Hello and welcome everyone. This is Francis Gannon, Co-Chief Investment Officer at Royce Investment Partners. Thanks for joining us. AI and how it's changing the world of investing is a topic we have spent an enormous amount of time on over the past several years here at Royce and its effects on the small cap asset class we find to be particularly interesting as well as its effects on the companies we invest in. The speed of change has been impressive as to have been the benefits. From our perspective, artificial intelligence is transforming the investment research process.

And as you will see, it is empowering analysts to identify trends and risks that might go unnoticed, unnoticed more effectively, freeing them, from our perspective at least, to spend more time on some higher valued insights.

Joining me in this conversation today are two members of our investment team that are on the forefront of how AI is becoming a critical part of our research capability and to be quite honest, a competitive edge. Joining me are Assistant Portfolio Manager Tim Hipskind and Senior Analyst Zach Weiss.

Guys, I think this is a fascinating and a huge topic. But Tim, perhaps you could start with a bit of a conversation around the evolution of AI and the theme here at Royce.

Tim Hipskind: The evolution has really been amazing to watch. So, what started out in I believe November 2022 of when ChatGPT kind of came into the zeitgeist and Zach and I started using it heavily just for a small cap analyst. It was very helpful at the time to just kind of have simple questions answered at whatever level of complexity you needed. We own a spintronic sensor company and to have some of the nuances of that explained to you was very helpful. That was kind of the beginning, just basic chat bot, ask a question, get an answer, before you might spend time on Google or call a sell side analyst. This allowed you to just get up to speed and learn things a lot quicker.

And it just seems like every three months since then, there's just been dramatic evolutions in what you've been able to do. The next big step was the reasoning models, which just allowed for a whole new level of, for lack of a better term, thinking by the robots. The depth of their output just increased dramatically. That opened up a lot of new use cases from a research standpoint. The other thing that came along at the same time as that reasoning model was the sourcing or the ability to search the Internet and provide sources back to you of what it was saying. Obviously, a big thing we'll get into is the hallucination risk. And early on there's a lot of questions around, hey, it'll say there's four Rs in strawberry or whatever, right?

Frank: So, you keep hearing this concept of your digital brain. How has your digital brain changed?

Zach Weiss: Thanks for having us Frank. I think just overall the encouragement of the Royce management since the advent of AI came about encouraging us to use these tools and get smart and super grateful to work right next to a guy like Tim for the last 3 1/2 years and be able to spitball back and forth on how the stuff has been working. For me, it's kind of just like having a super smart sidekick that knows everything about everything on my side at all times. I have to be a little careful because in a lot of ways. AI can give me answers that I want to hear depending on how I ask the questions. So, a big part for me has been developing the way that I prompt the system to get certain answers.

Tim: And if I could just add on this question of digital brain. We started out where you had an incredibly smart friend sitting next to you, and it was like Swiss cheese. There were some kind of holes in the knowledge, but you had this really smart person with you all the time that you could kind of bounce ideas off of.

Frank: But spend a second about your daily workflow and how that has changed, because I think that's kind of key to understanding how this is helping you. You've talked about running the smart person next to you, but how exactly are you doing that?

Zach: The day-to-day varies depending on whether we're at a conference or earnings or just kind of the general research pipeline that we're working on here day-to-day in the office. In each one of those aspects, there've been ways that we're kind of leveraging the tools. So, for example, if I'm going to a conference and there are 300 companies on the attendee list. Before I would have to manually go through each company attending the conference and say which one should I book a meeting with? Where now I can feed the list through AI and say, which of these companies are worth meeting based on our investment strategy? And then prepare for those meetings.

So, before maybe I only had the capacity for six meetings in the day, now I can do 12 and ask smarter questions based on the ability for AI to help me prepare for those. I think previously, if one of the portfolio managers prescribed me a stock to look into for a for a Strategy, it would be kind of maybe waiting a few days to before having booked a call with a sell side analyst or reading through the 10-K, and now I can kind of have a prescribed list of questions that I know that they would want to have answered and effectively just kind of speed up the process and allow me to go deeper and look at more things.

Earnings season always gets pretty busy around here and historically, we still do manually listen to each earnings call and take notes. But while I'm maybe listening and taking notes on a company that we own, I can have AI analyze the way that I'm prescribing it. All of the competitors and constituencies that might impact the company that we own in a portfolio to give us maybe a more holistic view.

Tim: One example I'll stick with is the earnings season motion. Obviously, it's one of our busiest times and this last earnings season I really tried to commit to see what can I throw at AI and see what sticks in terms of having the process evolve or work better.

Frank: How has it changed your conversations with management teams?

Tim: Before, if I wanted to know the pricing of a specific commodity that's relevant to a company, a lot of the times, especially in small-cap companies, there's not a universal index I can go check that price at. So, you could do some channel checks. You could try to find other ways to find sources of information that are relevant, but it would often be challenging. With the reasoning models I mentioned earlier, really Chat GPT's version, the model O3, the ability to search the entire Internet and pull out data points that you would have had to spend weeks finding before has really been revolutionary.

For example, the pricing of lime, there is a PPI index for it, but it's generally kind of an opaque price, but it is used in a lot of municipal water departments, so there are public bids. For the first time I realized, oh, I can just have ChatGPT go pull a bunch of public bids for lime pricing, and I can even see the specific companies, the bidding, the pricing and the dates. You can think of a bunch of examples like that where the ability to just find things that before would have taken an incredible amount of time, or you just would never have found has increased.

I think we're kind of shocking managements with the level of depth you can go to these days.

Zach: I would echo Tim. This is probably one of the more fun aspects of where we see AI come up in our jobs, at least for me. For example, we have a company that a couple of quarters ago reported in their press release really the core of what we do as research analysts and portfolio managers is predominantly the same, but the tools, the breadth and depth that we can do it with and the speed is the biggest game changer.

Frank: Let's turn to the small-cap asset class. It's the forgotten asset class of late. Everybody's focusing on the upper end from a market cap perspective. It's, I think, one of the last inefficient asset classes out there. We know there's very little analyst coverage on many of the companies that we spend our time on. How is AI helping you round the asset class and specifically what we focus our lives on around here?

Tim: That's been a huge benefit. To your point, Frank, some of the portfolios here have close to 50% of the companies that have no analyst coverage at all, and then you can imagine maybe they have one or two analysts covering some of the others. So, the ability to build sort of a digital analyst that can do a very lightweight version of coverage on these companies is something that's really interesting. And so, one of the things that I did initially through an application called Cursor, which is really just an amazing thing in its own right, but it allows someone like me who has very limited coding experience to build applications and actually get output from them. One of the first things I did was just build an 8-K summarizer. I took a test population of 10 companies that we theoretically could own that have no analyst coverage. And can I build something that summarizes the 8-K whenever they put one out. That was kind of an eye-opening experience because yes, you can, and it can do a really good job.

Zach:

Having tools that we have available now to sort of get ahead with respect to any type of insights that might lead to different investment outcomes, I think is really beneficial. There are companies that are in harder to understand industries, and if there's no sell side coverage, it can be hard to get smart on what exactly these companies do.

It's amazing how many inefficiencies still exist in the small cap space. You can have companies where there's meaningful changes going on that the market is not necessarily catching on to yet, where with the breadth and depth that these tools allow us to get to, might help flag more opportunities than we would have been able to find before.

Frank: At the same time, though, there's enormous misconceptions about AI, right? And I think there's a fear at times about AI and how to implement it and how we should use it. Have you guys thought about that or how that's affecting your day-to-day?

Tim: It's definitely something we think about.

Frank: Let's be honest, AI is wrong at times.

Tim: Yeah, absolutely. And so, the biggest thing that has helped with that is the sourcing of information when you get the responses. You can oftentimes click the link to see where ChatGPT came up with this information? So, that's very helpful. The other thing that I've done is within the background of the AI tools, when I talk to them, I have it tag every statement it says to me with high, medium, or low confidence, which I've found helpful in understanding when is it freestyling a little bit versus when does it have something directly it can point to. So good prompting helps out a lot with that, but there is no getting around it. It's been described as a jagged edge of intelligence, so you have to be careful. It's obviously not something we're relying on wholeheartedly, but to Zach's point, it kind of gives you ammunition to get smart on things before you might go talk to a management team or then go do your diligence in, you know, all the ways that we do that. So, there are definitely risks, but the benefits are just so tremendous. You have to kind of find ways to work with the risks.

Zach: Some other misconceptions that come to mind for me. One in particular is people often talk about the job security that AI or the job risk that AI might pose and that we're all going to be out of work since AI has come into the forefront, just because I can do a lot more stuff, it definitely makes the job more fun. I was getting a haircut yesterday and the barber was kind of defending her job because it was protected from AI. I still think there's a lot of fear out there with respect to job security, and I just continue to explore and play around with the tools to the extent that they can be useful.

With respect to the hallucination risk, it definitely is a real one with AI and there are hallucinations that existed before AI. Tim and I could be in a meeting with the CEO and could walk out of the meeting having heard two different things. That's the importance of having a team dynamic. There have been situations where I've generated something that has helped influence my thoughts on a company, and I've sent it to our team. They'll point out a mistake that's in there and it's a dose of humility. The AI made a hallucination and I'm really glad the team member was able to point out the mistake. Fortunately, those types of checks and balances exist to help mitigate the downside with respect to the mistakes that AI can make. But I also think back to whether it's a sell side analyst who was wrong on a particular trend or a company was wrong. Management teams can be very optimistic with respect to business outlooks. Before AI came about, I think that's just part of the nature of the business is mistakes. Mistakes are going to be made and I think just the extent that we can have checks and balances to mitigate that is important.

Frank: I'm fascinated by the speed at which it's occurring, I mean go back two years or three years ago to where we are today and what AI is able to do. It's fascinating and you can only imagine what it's going to be three years from now, let alone three months from now.

Tim, I mean you speak a lot about this, you know, the speed at which this is changing. We hear a lot about agents and things like that how is that going to be changing the investment world, do you think?

Tim:

For example, person X has this task they have to do and there are 100 people X. 70% of the people do it this way, and it takes 10 minutes to resolve, 30% of the people do it this way and it takes half an hour to resolve. And so, this has been this long field of study where they would take this business process mining, take it to the executives and say, hey, here's how we think you can alter your workflow. In terms of the future of work, we're seeing all these people who have naturally found themselves in the AI world. You hear a lot now about workflows and about how you have to really think about your job, what workflows do you break that up into and where does it make sense after you've mined those processes to tack on an LLM or AI as an addition to your workflow or where can you fully outsource things like summarization?

That's one of the things I've really been thinking about a lot in terms of the workflows and how you optimize them and how do you edit those for better outcomes.

Zach: I have one thing I could add to the future one other additional tool that hasn't really come to the forefront, yet I think it's kind of like a portfolio aid that can give PMs real time insights on weightings or bit buys or sells instead of me running down to a PMs office and saying hey there's insider buying at XYZ company to have a real time alert for them to incorporate into their decision making process. More recently, we have access to a more secured version of AI where we can be more comfortable with our proprietary data that we've amassed. It seems like there's a lot of low hanging fruit to maybe improve investment decisions or at least serve as another pair of eyes that that didn't exist before.

Frank:

Zach: Thanks for having us.

Tim: Thanks.

Important Disclosure Information

The thoughts and opinions concerning the stock market are solely their own as of the recording date and, of course, there can be no assurance regarding future market movements. Their opinions may differ from the opinions of portfolio managers, investment teams, or platforms at Royce Investment Partners. The performance data and trends outlined in this recording are presented for illustrative purposes only. No assurance can be given that the past performance trends as outlined in this recording will continue in the future. Historical market trends are not necessarily indicative of future market movements.

The views expressed are those of the speakers, and the comments, opinions and analyses are rendered as of the date of this podcast and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, security or strategy. Statements of fact are from sources considered reliable, but no representation or warranty is made as to their completeness or accuracy.

Past performance is no guarantee of future results.

Two Theme-Based Small-Cap Opportunities

Dec 9, 2025 12:12:00 AM

The Small-Cap Opportunistic Value Strategy that we use in Royce Small-Cap-Opportunity Fund invests in companies that Lead Portfolio Manager Brendan Hartman, Portfolio Managers Jim Harvey and Jim Stoeffel, and Assistant Portfolio Manager Kavitha Venkatraman categorize into four themes: Turnarounds, Unrecognized Asset Values, Undervalued Growth, and Interrupted Earnings. In this piece, Brendan and Jim Stoeffel discuss an Unrecognized Asset Value stock, and a Turnaround opportunity.

NPK International

NPK International (NYSE: NPKI)
12/31/2024-11/20/2025

Past performance is no guarantee of future results.

Winnebago Industries

Winnebago Industries (NYSE: WGO)
12/31/2024-11/30/2025

Past performance is no guarantee of future results.

Important Disclosure Information

Average Annual Total Returns as of 9/30/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Opportunity	12.93	13.95	17.67	16.93	12.63	11.89	11/19/96
Russell 2000 Value	12.60	7.88	13.56	14.59	9.23	8.99	N/A
Russell 2000	12.39	10.76	15.21	11.56	9.77	8.42	N/A

¹ Not annualized.

Average Annual Total Returns as of 11/30/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Opportunity	0.12	3.88	11.28	11.45	11.72	11.82	11/19/96
Russell 2000 Value	3.07	3.02	9.17	10.51	8.66	9.05	N/A
Russell 2000	2.79	4.09	11.43	7.99	9.12	8.48	N/A

¹ Not annualized.

The thoughts and opinions of Mr. Hartman and Mr. Stoeffel concerning the stock market are solely their own and, of course, there can be no assurance with regard to future market movements. No assurance can be given that the past performance trends as outlined above will continue in the future.

Percentage of Fund Holdings As of 9/30/25 (%)

	Small-Cap Opportunity
NPK International	0.7
Winnebago Industries	0.3

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. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus

Two Key Positions in Our Small-Cap Opportunistic Value Strategy

Dec 2, 2025 12:12:00 AM

The Small-Cap Opportunistic Value Strategy that we use in Royce Small-Cap-Opportunity Fund invests in companies in which Lead Portfolio Manager Brendan Hartman, Portfolio Managers Jim Harvey and Jim Stoeffel, and Assistant Portfolio Manager Kavitha Venkatraman have identified a catalyst for future earnings growth in the form of new management, a more favorable business cycle, product innovation, and/or margin improvement. In this piece, Kavitha and Jim focus on two holdings that have earned their long-term confidence.

Amentum Holdings

(NYSE: AMTM)
12/31/24-11/28/25

Past performance is no guarantee of future results.

Mayville Engineering (NYSE: MEC) is a U.S.-based contract manufacturer, providing a broad range of prototyping and tooling, production fabrication, coating, assembly, and aftermarket services. The largest fabricator in the U.S., Mayville operates 26 plants across nine U.S. states. Manufacturing is 100% domestic and roughly 92% of the direct materials the company uses are sourced domestically. Contract pricing passes tariffs through, which helps insulate earnings before interest, taxes, depreciation and amortization, or EBITDA, while OEMs (original equipment manufacturers) reshore and consolidate suppliers.

(NYSE: MEC)
12/31/24-11/28/25

Past performance is no guarantee of future results.

Management is running a fairly simple playbook: Lean operations, price discipline, and thoughtful capital deployment. Mayville launched a footprint optimization in early August to consolidate three warehouses and one manufacturing facility by the end of 2026, a total charge that will run somewhere in the neighborhood of $5-$7 million. Near-term charges flow through the costs of goods sold, but the objective is fixed-cost relief and better utilization aligned to DC/CP growth.

Important Disclosure Information

Average Annual Total Returns as of 9/30/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Opportunity	12.93	13.95	17.67	16.93	12.63	11.89	11/19/96
Russell 2000 Value	12.60	7.88	13.56	14.59	9.23	8.99	N/A
Russell 2000	12.39	10.76	15.21	11.56	9.77	8.42	N/A

¹ Not annualized.

Average Annual Total Returns as of 11/30/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Opportunity	0.12	3.88	11.28	11.45	11.72	11.82	11/19/96
Russell 2000 Value	3.07	3.02	9.17	10.51	8.66	9.05	N/A
Russell 2000	2.79	4.09	11.43	7.99	9.12	8.48	N/A

¹ Not annualized.

The thoughts and opinions of Ms. Venkatraman and Mr. Harvey concerning the stock market are solely their own and, of course, there can be no assurance with regard to future market movements. No assurance can be given that the past performance trends as outlined above will continue in the future.

Percentage of Fund Holdings As of 9/30/25 (%)

	Small-Cap Opportunity
Amentum Holdings	0.5
Mayville Engineering	0.4

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. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus

In Defense of Small-Cap Banks

Nov 25, 2025 12:11:00 AM

In fact, many of the future potential credit issues have migrated beyond the regulated banking industry into the shadow banking system of private credit. Private credit largely consists of direct loans made by non-bank entities such as private credit funds, asset managers, and hedge funds. These loans typically offer higher interest rates and are frequently used in financing leveraged buyouts, which means they allow borrowers take on much more leverage.

Of course, it is impossible to know when these credit issues will begin to materially impact banks, regardless of size. But when the market begins to price in credit risk again, it is likely going to once more shoot first and ask questions later, with most, if not all, banks in the crosshairs. And despite their relative lack of exposure to NDFIs, we suspect that smaller community and regional bank stocks will be hit hard, as they were in October.

Of the banks we hold in the Fund, here are three of our highest-quality positions, each of which has minimal, if any, NDFI exposure:

Glacier Bancorp (NYSE: GBCI) is a regional bank with operations in Montana, Idaho, Utah, Washington, Wyoming, Colorado, Arizona, and, more recently, Texas. Although they have more than $29 billion in assets, they operate as a collection of small community banks in their markets. Glacier has an outstanding deposit franchise, enabled by their strong market share in smaller markets that the larger banks choose not to focus on. For example, they are the #1 bank in Montana with a more than 20% market share (which is high for a bank), while Wells Fargo, one of only two large banks with a top 10 market share in the state, is #4 at less than 9%. This strong market share gives Glacier one of the lowest cost of deposits in the banking industry.

German American Bancorp

TowneBank (Nasdaq: TOWN) is headquartered in Portsmouth, VA, where it has a dominant share of 36% in the Hampton Roads area. Towne also has a small but growing presence in the fast-growing N.C. market. As a traditional bank, Towne is outstanding in its own right, with a long history of pristine credit, impressive returns on assets and on tangible common equity, solid growth, and a very attractive deposit franchise.

Important Disclosure Information

Average Annual Total Returns as of 9/30/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Total Return	4.86	5.42	15.59	13.57	9.45	10.05	12/15/93
Russell 2000 Value	12.60	7.88	13.56	14.59	9.23	9.44	N/A
Russell 2000	12.39	10.76	15.21	11.56	9.77	8.89	N/A

¹ Not annualized.

All performance information 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. Current month-end performance may be higher or lower than performance quoted and may be obtained at www.royceinvest.com. Operating expenses reflect the Fund's total annual operating expenses for the Investment Class as of the Fund's most current prospectus and include management fees, other expenses, and acquired fund fees and expenses. Acquired fund fees and expenses reflect the estimated amount of the fees and expenses incurred indirectly by the Fund through its investments in mutual funds and other investment companies.

Percentage of Fund Holdings As of 9/30/25 (%)

	Small-Cap Total Return
Glacier Bancorp	1.6
German American Bancorp	1.4
TowneBank	1.7

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. The Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. The Fund also generally invests a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than a more broadly diversified portfolio because a decline in the value of any one of these stocks would cause the Fund's overall value to decline to a greater degree. (Please see "Primary Risks for Fund Investors" in the prospectus.) The Fund may invest up to 25% of its net assets (measured at the time of investment) in securities of companies headquartered in foreign countries, which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.

Myth Busters: Small Caps vs. Private Equity

Nov 18, 2025 12:11:00 AM

The small-cap universe has long been misunderstood, but the myths surrounding it seem to have multiplied lately, alongside investor skepticism. We often hear, for example, that the number of small-cap companies is shrinking, that quality in the public markets has deteriorated compared to private equity, or that IPOs are skipping the small-cap space altogether.

Myth 1: The Number of Public Companies Is Shrinking

Since then, the number of small-cap public companies has remained remarkably stable, and in many respects has even expanded. There are actually more small-cap companies today than there were 15 years ago.

Myth 2: Public Small Caps Are Lower Quality Than Private Equity Holdings

	# of Names	# of Earners	% of Earners
Russell 1000
Russell 2000

Ultimately, we see this as a question of selectivity, not scarcity. The dispersion in small-cap fundamentals is exactly what enables active managers to identify the durable, cash-generating businesses that can compound over time.

Myth 3: The IPO Market Is Skipping Small-Caps

Percent of Total IPOs by Market Cap
From 1/1/2014 through 10/31/2025

Source: FactSet

The Bigger Picture

A Case for Perpetual Renewal

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. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.)

Waiting on the Small-Cap Quality Rebound

Nov 11, 2025 12:11:00 AM

Average Russell 2000 ROE Quintile Performance Over the Last 25 Years as of 9/30/25

Past performance is no guarantee of future results. Source: FactSet.

Here are 4 holdings that we think are positioned to thrive in a high-quality leadership phase:

Arcosa

Exponent

Onto Innovation

UFP Industries

Important Disclosure Information

Average Annual Total Returns as of 9/30/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE	ANNUAL OPERATING EXPENSES
Premier	4.80	0.75	13.08	10.14	10.32	10.87	12/31/91
Russell 2000	12.39	10.76	15.21	11.56	9.77	9.34	N/A

¹ Not annualized.

All performance information 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. Shares redeemed within 30 days of purchase may be subject to a 1% redemption fee, payable to the Fund, which is not reflected in the performance shown above; if it were, performance would be lower. Current month-end performance may be higher or lower than performance quoted and may be obtained at www.royceinvest.com. Operating expenses reflect the Fund's total annual operating expenses for the Investment Class as of the Fund's most current prospectus and include management fees and other expenses.

Percentage of Fund Holdings As of 9/30/25 (%)

	Premier
Arcosa	3.4
Exponent	0.8
Onto Innovation	0.7
UFP Industries	1.0

Return on Invested Capital Return on Average Total Equity

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. The Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. The Fund also generally invests a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than a more broadly diversified portfolio because a decline in the value of any one of these stocks would cause the Fund's overall value to decline to a greater degree. (Please see "Primary Risks for Fund Investors" in the prospectus.) The Fund may invest up to 25% of its net assets (measured at the time of investment) in securities of companies headquartered in foreign countries, which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.

PM Mark Fischer on 4 High-Confidence Positions and the Prospects for Quality Small-Caps Outside the U.S.

Nov 4, 2025 12:11:00 AM

Here are four companies that have the long-term confidence of our team who manage Royce International Premier Fund:

SmartCraft

Oslo-listed SmartCraft ASA

JTC

We first talked about U.K.-listed JTC

Headquartered in France,

Riken Keiki

Japanese company Riken Keiki

We view Riken Keiki as a classic example of a quietly dominant Japanese industrial champion leveraging its home-market strengths to build a global franchise. Despite its mission-critical role, growing recurring revenue streams, and expanding international growth prospects, the stock still trades at an attractive 9% forward cap rate. Analyst coverage also remains limited, with just two regional brokers following the name, leaving what we think is a durable, underappreciated compounder hiding in plain sight.

Important Disclosure Information

Average Annual Total Returns as of 9/30/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE	ANNUAL OPERATING EXPENSES
International Premier	-2.98	2.59	8.54	-0.30	5.87	5.20	12/31/10
MSCI ACWI x USA SC	6.68	15.93	19.36	9.97	8.37	6.17	N/A

¹ Not annualized.

Percentage of Fund Holdings As of 9/30/25 (%)

	International Premier
SmartCraft	1.2
JTC	2.8
Gaztransport Et Technigaz	2.3
Riken Keiki	2.1

Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, endorsed, reviewed, or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. The MSCI ACWI ex USA Small Cap Index is an unmanaged, capitalization-weighted index of global small-cap stocks, excluding the United States. 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.

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. The Fund may invest a significant portion of its assets in foreign companies which may be subject to different risks than investments in securities of U.S. companies, including adverse political, social, economic, or other developments that are unique to a particular country or region. These risk factors may affect the prices of foreign securities issued by companies headquartered in developing countries more than those headquartered in developed countries. (Please see "Investing in Foreign Securities" in the prospectus prospectus.)

Royce Small-Cap Special Equity Fund—3Q25 Update and Outlook

Oct 28, 2025 12:10:00 AM

How did Royce Small-Cap Special Equity Fund perform in 3Q25 and over longer-term periods?

Royce Small-Cap Special Equity Fund advanced 8.6% for the quarter, lagging its benchmark, Russell 2000 Value Index, which was up 12.6% for the same period. The Fund also trailed the Russell 2000 Value Index for the year-to-date period ended 9/30/25, up 2.0% versus 9.0%. The portfolio outperformed its benchmark for the 20-, 25-year, and since inception (5/1/98) periods ended 9/30/25 while lagging for the 1-, 5-, and 10-year periods.

How was performance at the sector level in 3Q25?

How did the Fund perform at the industry level in the third quarter?

Standard Motor Products, which manufactures and distributes premium replacement parts for the automotive aftermarket while also providing customizable solutions for vehicle control and thermal management categories in diverse end markets represented via its Engineered Solutions segment. Sylvamo Corporation, a low-cost producer of uncoated paper with a global reach, was the top detractor.

At the sector level, how did the Fund perform versus the Russell 2000 Value in 3Q25?

Turning to the year-to-date period ended 9/30/25, how were results at the sector level?

What were the top contributing and detracting industries in the year-to-date period?

Standard Motor Products and Sylvamo Corporation were the top contributor and detractor, respectively, for the year-to-date period as well.

At the sector level, how did the Fund perform versus the Russell 2000 Value for the year-to-date period?

What is your outlook?

Important Disclosure Information

Average Annual Total Returns as of 9/30/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Special Equity	8.62	1.68	9.74	9.63	7.72	8.24	05/01/98
Russell 2000 Value	12.60	7.88	13.56	14.59	9.23	7.82	N/A
Russell 2000	12.39	10.76	15.21	11.56	9.77	7.49	N/A

¹ Not annualized.

All performance information 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. Shares redeemed within 30 days of purchase may be subject to a 1% redemption fee, payable to the Fund, which is not reflected in the performance shown above; if it were, performance would be lower. Current month-end performance may be higher or lower than performance quoted and may be obtained at www.royceinvest.com. Operating expenses reflect the Fund's total annual operating expenses for the Investment Class as of the Fund's most current prospectus and include management fees and other expenses.

Percentage of Fund Holdings As of 9/30/25 (%)

	Small-Cap Special Equity
Standard Motor Products	10.4
Sylvamo Corporation	3.6

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. The Fund invests primarily in small-cap stocks which may involve considerably more risk than investing in larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.) As of 9/30/25, the Fund invested a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than more broadly diversified portfolio because a decline in the value of any one of these stocks would cause the Fund's overall value to decline to a greater degree. (Please see "Primary Risks for Fund Investors" in the prospectus.)

What’s Working in Small-Cap Growth Investing?

Oct 21, 2025 12:10:00 AM

How did Royce Smaller-Companies Growth Fund perform in 3Q25?

Chip Skinner: The quarter was somewhat disappointing: the Fund advanced 4.7%, lagging its benchmark, Russell 2000 Growth Index, which was up 12.2% for the same period.

How has the Fund done over longer-term periods?

CS:

How did the Fund do on a sector basis in 3Q25?

CS:

What about at the industry level?

CS:

How did the Fund do at the sector level for the year-to-date period ended 9/30/25?

CS:

How were year-to-date results on an industry basis?

CS:

How did the Fund perform at the sector level versus the Russell 2000 Growth for the year-to-date period?

CS:

How do you see the current small-cap landscape?

CS:

Average Expected Earnings Growth for 2025-2026
Index Aggregate Estimated Two-Year EPS Growth

How have you been positioning the portfolio?

CS:

Important Disclosure Information

Average Annual Total Returns as of 9/30/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Smaller-Companies Growth	4.66	18.94	18.38	9.24	9.70	10.61	06/14/01
Russell 2000 Growth	12.19	13.56	16.68	8.41	9.91	7.78	N/A
Russell 2000	12.39	10.76	15.21	11.56	9.77	8.22	N/A

¹ Not annualized.

All performance information 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. Current month-end performance may be higher or lower than performance quoted and may be obtained at www.royceinvest.com. Gross operating expenses reflect the Fund's total gross annual operating expenses for the Investment Class and include management fees and other expenses. Net operating expenses reflect contractual fee waivers and/or expense reimbursements. All expense information is reported as of the Fund's most current prospectus. Royce has contractually agreed, without right of termination, to waive fees and/or reimburse expenses to the extent necessary to maintain the Investment Class's 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) at or below 1.02% through April 30, 2026.

Percentage of Fund Holdings As of 9/30/25 (%)

	Smaller-Companies Growth
Corcept Therapeutics	1.3
	0.0

Quarterly Small-Cap Equity Factor Review—3Q25

Oct 16, 2025 12:10:00 AM

Micro-cap Stocks Shined in Q3

In the third quarter of 2025, micro-cap stocks, represented by the size factor, demonstrated notable strength within the Russell 2000 universe, advancing 25.0%. In contrast, both low volatility and dividend-paying stocks underperformed, returning 6.6% and 7.2% respectively. The broader Russell 2000 Index rebounded solidly, gaining 12.4% for the quarter.

Small-Cap Factor Performance in 3Q25 and Year-to-Date 2025
Average Annual Total Returns for 3Q25 and Year-to-Date Periods for the Deep Value, Quality Value, and Dividend Value Factors Within the Russell 2000 Index

Past performance is no guarantee of future results. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index.

Royce Small-Cap Deep Value Performed the Best Among the Royce Multi-Factor Indexes

Royce Multi-Factor Index Performance
Average Annual Total Returns for 3Q25, Year-to-Date and Since the Russell 2000 Trough on 4/8/2025

Past performance is no guarantee of future results. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index.

In Q3 2025, the Russell 2000 Index surpassed its prior peak from November 25, 2024. From the trough on April 8, 2025, the Royce Small-Cap Deep Value Index performed the best, rising 42.4%, while the broader Russell 2000 Index returned 39.3%.

Outlook

Small-cap stocks delivered a strong performance in Q3 2025, led by more speculative names. The Deep Value strategy turned in an impressive showing and stands to benefit further should the Federal Reserve adopt a more aggressive rate-cutting stance.

Additionally, the year-over-year growth rate of the true money supply remained slightly positive in Q3, an early signal of monetary easing. However, given the current pace of monetary expansion, the environment continues to favor the Small-Cap Dividend Value strategy in the near term.

Important Disclosure Information

¹High Growth Small-Caps High Momentum Small-Caps Small Size Small-Caps High Value Book-to-Price Small-Caps

²High Value Earnings Yield Small-Caps , i.e. its earning yield (share price divided by trailing 12-month earnings per share). High Profitability Small-Caps

³Dividend Payer Small-Caps are securities within the Russell 2000 that paid a dividend within the last 12-months. Low Volatility Small-Caps Low Leverage Small-Caps

All factors are equal weighted, rebalanced quarterly, and performance is calculated monthly.

The Royce Small-Cap Quality Value Index is a proprietary index composed of small-cap stocks trading in the United States with relatively low valuations, high profitability and high debt coverage compared with the average of stocks in the investment universe. The Royce Small-Cap Deep Value Index is a proprietary index composed of small-cap stocks trading in the United States with relatively low valuations and high debt coverage compared with the average of stocks in the investment universe. The Royce Small-Cap Dividend Value Index is a proprietary index composed of small-cap dividend paying stocks trading in the United States with relatively low valuations, high profitability and high debt coverage compared with the average of stocks in the investment universe. Royce has retained Solactive AG, an unaffiliated third party, to calculate the Underlying Indexes. Solactive AG publishes information regarding the market value of the Underlying Indexes. The full Index rulebooks are available upon request. Past performance is no guarantee of future results. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index.

Small-Cap Opportunistic Value Strategy—3Q25 Update and Outlook

Oct 14, 2025 12:10:00 AM

How did the Small-Cap Opportunistic Value Strategy perform in 3Q25 and off the market low on 4/8/25?

Jim Harvey: We were very pleased with the way that Royce Small-Cap Opportunity Fund, the portfolio we manage in the Strategy, performed in both periods. The Fund increased 12.9% in the quarter, beating its primary small-cap benchmark, Russell 2000 Value Index, which was up 12.6%, and the small-cap Russell 2000 Index, which gained 12.4%, for the same period. From April 8th through the end of September, the Fund rose 47.3%, ahead of both the Russell 2000 Value, which was up 35.3%, and the Russell 2000, which was up 39.3%, for the same period.

How has the Fund done versus its benchmark over longer-term periods?

Brendan Hartman:

Kavitha Venkatraman

What happened at the industry level during the quarter?

Jim Stoeffel:

How did the Fund perform relative to the Russell 2000 Value on a sector basis in 3Q25?

BH:

How did the Fund perform at the sector level for the year-to-date period ended 9/30/25?

KV:

What were the biggest industry contributors and detractors for that period?

JH:

How did performance stack up at the sector level versus the Russell 2000 Value for the year-to-date period ended 9/30/25?

JS:

What is your outlook for the Strategy?

BH:

Important Disclosure Information

Average Annual Total Returns as of 9/30/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Opportunity	12.93	13.95	17.67	16.93	12.63	11.89	11/19/96
Russell 2000 Value	12.60	7.88	13.56	14.59	9.23	8.99	N/A
Russell 2000	12.39	10.76	15.21	11.56	9.77	8.42	N/A

¹ Not annualized.

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

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. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus

The Case for Allocating to International Small-Cap Stocks

Oct 1, 2025 12:10:00 AM

Putting International Small-Caps On the Map

This paper provides an introduction for asset allocators to the international small-cap asset class by detailing its attributes in terms of performance, volatility, correlation, and fundamentals.

Because asset allocators often compare international small-cap with international large-cap, we thought it was particularly important to examine the long-term relative performance of these two asset classes to highlight the regular frequency with which international small-caps outperformed their large-cap siblings.

We then go on to examine how the two asset classes fared in different market environments, such as rising and falling equity markets and rising and falling interest rates periods, which showed that certain periods resulted in even wider positive relative return spreads for international small-caps.

Finally, we look at some indicators that suggest, at least to us, why the current period offers a compelling and timely opportunity. We conclude by highlighting some fundamental factors that we believe make the asset class potentially fertile ground for active management.

Introducing a Large Opportunity in International Small-Caps

Considering that less than 1% ¹ of mutual fund assets in the U.S. are invested in small-caps outside the U.S., we suspect that many asset allocators think of international small-caps (if they think of them at all) as a nearly indistinguishable subset of the large non-U.S. equity universe. If this is correct, international small-caps would seem to be facing an uphill climb toward recognition as an accepted asset class, much like their stateside cousins did more than two decades ago. However, the facts tell a story that should level that hill. Many asset allocators will be surprised to learn that the total market value of the companies in the MSCI ACWI ex USA Small Cap Index, our proxy for international small-caps, is twice as large as that market capitalization of the Russell 2000 Index.

¹ Source: Morningstar

Compared with U.S. small-caps, there are:

Strong Long-Term Relative and Absolute Performance

By market value alone, international small-caps would seem to merit consideration for inclusion in a globally diversified portfolio. However, their performance record makes an even stronger case for its inclusion as part of an overall equity allocation. (All of the results that follow begin with the first full month of performance for the MSCI ACWI ex USA Index on 5/31/94).

Averages of Monthly Rolling Annualized 10-Year Returns

Past Performance is no guarantee of future results.

Annualized rolling monthly 10-year returns for the international small-cap index exceeded the MSCI ACWI ex USA Large-Cap Index (our proxy for international large-cap stocks), and came close to its domestic counterpart in the Russell 2000. For additional context, we also looked at results for the large-cap Russell 1000 over these same periods.

Beyond this strong relative long-term performance record, international small-caps have additional attractive attributes that might be relevant for asset allocators.

Lower Volatility and Attractive Risk-Adjusted Returns

Like their domestic peers, international small-caps have a reputation for high volatility. Even in the context of solid performance, more cautious asset allocators might not consider an investment for fear of taking on an unacceptable level of risk for their clients. The data, however, suggests a different conclusion.

In fact, international small-caps have lower volatility than U.S. small-caps and only marginally higher volatility than international large-caps, based on rolling 10-year standard deviation.

Attractive Risk/Return Trade-Off
Average of Monthly Rolling 10-Year Periods from 5/31/94 through 6/30/25

Past Performance is no guarantee of future results.

Additionally, over this same rolling 10-year period, international small-caps had comparable risk-adjusted returns to U.S. large-caps and small-caps, as well as higher returns than international large-caps, as measured by Sharpe ratio.

Monthly Rolling Annualized 10-Year Sharpe Ratios
From Indexes First Full Month (Ended 5/31/94) through 6/30/25

Past performance is no guarantee of future results

¹ There can be no assurance that companies that currently pay a dividend will continue to do so in the future.

Historical Portfolio Benefits of Low Correlation

As one might expect, international small-caps have a lower correlation to U.S. larger-caps than either international large-caps or U.S. small-caps.

Correlation to U.S. Large-Cap
As of 6/30/25

Correlation of monthly returns from 5/31/94 through 6/30/25

To test the performance and volatility effects this lower correlation might have, we ran results for two hypothetical multi-asset portfolios. For each, we charted hypothetical returns (measured by the growth of $10,000), standard deviation, and Sharpe ratio. Both portfolios were rebalanced quarterly and encompassed the same time period, 5/31/94-6/30/25.

Quarterly Rebalanced, From 5/31/94 through 6/30/25

Past performance is no guarantee of future results.

Persistence in Beating Large-Caps

Batting Average of International Small-Cap vs International-Large Cap
MSCI ACWI x USA SC vs MSCI ACWI x USA LC Monthly Rolling Average Annual Return Periods from the Index Inception (5/31/94) through 6/30/25

Past Performance is no guarantee of future results.

International Small-Cap Results in Different Environments

Analyzing monthly trailing one-year returns from 5/31/94-6/30/25, which consists of 362 periods, we found that while international small-caps outperformed large-caps over most rolling time periods, there were market conditions in which the performance spread was greater than others.

We first examined both positive and negative return periods for the international all-cap index to see how non-U.S. small-caps performed versus their large-cap peers. The result was a relative advantage for the international small-cap index in both negative and positive return periods for non-U.S. stocks. We then broadened our scope, examining returns for the international small- and large-cap indexes when the 10-year German Bund yield was rising and falling:

International Small-Cap vs International Large-Cap in Different Market Environments MSCI ACWI ex USA SC vs MSCI ACWI ex USA LC Monthly Rolling Trailing 1-year Periods from 5/31/94 through 12/31/22
MARKET ENVIRONMENTS		PERIODS INT'L SMALL-CAP BEAT INT'L LARGE-CAP	BATTING AVG	INT'L SMALL-CAP	INT'L LARGE-CAP	AVG SPREAD
International Equity	Positive	148/241	61%	19.1%	17.0%	2.0%
International Equity	Negative	56/121	46%	-13.5%	-13.4%	-0.1%
10-Year German Bund	Rising	86/137	63%	18.1%	15.3%	2.8%
10-Year German Bund	Falling	118/225	52%	1.8%	1.7%	0.4%

International small-caps outperformed their large-cap counterparts in both rising and falling rate environments, but the absolute return level and relative return spread were each significantly different. The best results for U.S. dollar investors came when German Bund Yields were rising, which is possibly due to three overlapping factors: bond yields usually rise when economies are improving, international small-caps have more cyclical exposure than international large-caps, and rising Bund Yields often occur in periods of U.S. dollar weakness, resulting in enhanced gains for U.S. dollar investors.

In three of the four scenarios shown above, the advantage went to international small-cap. We think the results of our research therefore present a strong argument for making a strategic allocation to this asset class.

Among the other compelling reasons to consider allocating to international small-caps is the timeliness of the opportunity. Over the long-term, international small-caps and U.S. small- caps have experienced rotating periods of outperformance with minimal long-term difference between the indexes. However more recently, international small-caps have underperformed which we think has increased the probability for future international outperformance.

International Small-Caps Poised for a Rebound?
MSCI ACWI ex USA Small Cap vs Russell 2000 Annualized Trailing 10-Year Relative Return Spread from 5/31/94 through 6/30/25

¹The 10-year average annual total return through 6/30/25 was 6.54% for the MSCI ACWI ex USA Small Cap and 7.12% for the Russell 2000, -5.26% represents the difference.

When International Has Outperformed U.S.
Monthly Rolling Trailing 1-year Periods from the Index Inception (5/31/94) through 6/30/25

The historical data suggests, then, that relatively good periods for international stocks mean relatively better periods for international small-caps. So while there is no guarantee of the course of future returns, we think the long-term performance history of the two small-cap indexes suggests that a multi-year run for international small-caps is possible. In our view, this is especially relevant when evaluating the opportunity in non-U.S. small-caps.

The Case for Active Management in International Small-Caps

Do the attractive attributes of international small-caps also offer the potential for active managers to improve on these results? We believe they do, based on the following:

A Large and Diverse Asset Class

There are more than twice as many international small-caps as domestic small-caps, providing ample opportunity for active managers to search for mispriced stocks. Further, international small-caps offer access to local, regional, and global businesses hailing from a diverse group of 47 countries.

An Inefficient Asset Class

About 25% of the companies in the MSCI ACWI ex USA Small Cap were receiving one or no sell-side analyst coverage versus 15% for those in the Russell 2000 as of 6/30/25. ¹ This provides an active manager with a potentially sizable analytic advantage.

High ROIC Companies

²-6/30/25, compared to 9.8% for the overall index over the same period. This suggests to us that an active management approach focusing on companies with higher profitability and sustainability can enhance the potential for higher returns. ³

Companies with Earnings

Loss-making international small-cap companies have historically lagged. In fact, companies with positive earnings have outperformed the international small-cap index, gaining 11.5% versus 9.8% on an average annual total return basis from 1/31/03-6/30/25. A manager who focuses on non-U.S. small-caps with established histories of earnings may therefore also be able to potentially enhance returns.

¹Source: Factset
²
³

Historical Performance of Active International Small-Cap Funds

This research also shows that the universe of non-U.S. small-cap stocks is a fruitful starting point, giving active managers a number of opportunities to potentially prune the list of investment candidates.

U.S. Fund Foreign Small/Mid Blend Outperformed the MSCI ACWI ex USA Small Cap Index ¹
Monthly Rolling Average Annual Return 5-Year Periods From 5/31/94 through 6/30/25

Conclusion

We think that the combination of strong absolute and relative performance, low correlation to both international large-caps and U.S. small-caps, and strong results in a number of different market environments makes a very strong case for including international small-caps in a globally diversified portfolio. In our view, the timeliness of the opportunity serves to bolster an already compelling case. We suggest that asset allocators consider the potential advantages active management can offer within the asset class based on both the historical strength of certain fundamentals and the overall inefficiency of this large and diverse group of small-cap stocks.

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Appendix: International Small-Caps vs Emerging Markets

While we believe that our research makes a clear and compelling case for an international small-cap allocation, we understand that some investors will also want to know how the asset class has fared relative to emerging market stocks. This may be of particular relevance given that emerging markets equities have a similar reputation to small-cap stocks for both high returns and high risk.

International Small-Cap: Comparable Return and Lower Risk than Emerging Markets

Sharpe Ratio
Average of Monthly Rolling 5-Year Periods from 5/31/94 through 6/30/25

Down Market Performance Comparison
From 5/31/94 through 6/30/25

Important Disclosure Information

Standard Deviation is a measure that quantifies the amount of variation or dispersion in a data set. Roughly 68% of the data values are within one standard deviation of the mean.

Any information, statements and opinions set forth herein are general in nature, are not directed to or based on the financial situation or needs of any particular investor, and do not constitute, and should not be construed as, investment advice, a forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional.

Five Theme-Based Holdings in Our Small-Cap Opportunistic Value Strategy

Sep 23, 2025 12:09:00 AM

(Nasdaq: FLOC)
12/31/24-9/19/25

Past performance is no guarantee of future.

IAC

(Nasdaq: IAC)
12/31/24-9/19/25

Past performance is no guarantee of future.

Spun out of NCR in 2023, NCR Atleos

(NYSE: NATL)
12/31/24-9/19/25

Past performance is no guarantee of future.

Perella Weinberg Partners Cl. A

With a debt-free balance sheet, significant cash, embedded growth from senior hires, and its recent diversification into private funds advisory, we think PWP is well positioned for earnings acceleration and a potential re-rating closer to its industry peers.

(Nasdaq: PWP)
12/31/24-9/19/25

Past performance is no guarantee of future.

Spun out of Honeywell in 2018, Resideo Technologies (NYSE: REZI) is a leading provider of home comfort, control, and monitoring systems such as thermostats, leak detectors, and fire safety systems, as well as to residential security devices like cameras and sensors. It also owns a leading wholesale distribution network called ADI. We are long-term shareholders and are seeing the company approaching the end of a turnaround phase.

(NYSE: REZI)
12/31/24-9/19/25

Past performance is no guarantee of future.

Important Disclosure Information

Average Annual Total Returns as of 8/31/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Opportunity	9.75	9.85	11.55	15.74	11.62	11.81	11/19/96
Russell 2000 Value	10.39	5.83	8.84	13.06	8.62	8.94	N/A
Russell 2000	9.00	8.17	10.28	10.13	8.88	8.33	N/A

¹ Not annualized.

Average Annual Total Returns as of 6/30/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE
Small-Cap Opportunity	11.70	3.67	10.97	16.55	9.41	11.52	11/19/96
Russell 2000 Value	4.97	5.54	7.45	12.47	6.72	8.62	N/A
Russell 2000	8.50	7.68	10.00	10.04	7.12	8.06	N/A

¹ Not annualized.

The thoughts and opinions of Ms. Venkatraman, Mr. Hartman, Mr. Harvey, and Mr. Stoeffel concerning the stock market are solely their own and, of course, there can be no assurance with regard to future market movements. No assurance can be given that the past performance trends as outlined above will continue in the future.

Percentage of Fund Holdings As of 6/30/25 (%)

	Small-Cap Opportunity
Flowco Holdings Cl. A	0.2
IAC	0.8
NCR Atleos	1.0
Perella Weinberg Partners Cl. A	0.9
Resideo Technologies	1.1

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. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus

Four Small-Caps with Premier Qualities

Sep 16, 2025 12:09:00 AM

With the robust small-cap rally having picked up steam through the summer months, we asked the portfolio management team for Royce Premier Fund

Dorman Products

(NASDAQ: DORM)
12/31/24-9/12/25

Past performance is no guarantee of future results.

ESAB Corporation

(NYSE: ESAB)
12/31/24-9/12/25

Past performance is no guarantee of future results.

Quaker Houghton

(NYSE: KWR)
12/31/24-9/12/25

Past performance is no guarantee of future results.

TMX Group

(X.CN / OTC: TMXXF:US)
12/31/24-9/12/25

Past performance is no guarantee of future results.

Important Disclosure Information

Average Annual Total Returns as of 8/31/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE	ANNUAL OPERATING EXPENSES
Premier	6.65	3.37	10.11	9.55	9.83	10.95	12/31/91
Russell 2000	9.00	8.17	10.28	10.13	8.88	9.27	N/A

¹ Not annualized.

Average Annual Total Returns as of 6/30/2025 (%)

	QTD ¹	1YR	3YR	5YR	10YR	SINCE INCEPT.	DATE	ANNUAL OPERATING EXPENSES
Premier	6.70	1.34	9.49	9.67	8.36	10.80	12/31/91
Russell 2000	8.50	7.68	10.00	10.04	7.12	9.04	N/A

¹ Not annualized.

Percentage of Fund Holdings As of 6/30/25 (%)

	Premier
Dorman Products	2.1
ESAB Corporation	2.6
Quaker Houghton	2.4
TMX Group	3.1

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. The Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. The Fund also generally invests a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than a more broadly diversified portfolio because a decline in the value of any one of these stocks would cause the Fund's overall value to decline to a greater degree. (Please see "Primary Risks for Fund Investors" in the prospectus.) The Fund may invest up to 25% of its net assets (measured at the time of investment) in securities of companies headquartered in foreign countries, which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.

Global Small-Caps: A World of Overlooked Opportunities

Sep 16, 2025 12:09:00 AM

Why Allocate to Global Small-Cap Stocks?

Those allocators already familiar with global large caps may be pleasantly surprised by the similarity in the risk profiles of global large and small caps. Given this comparable risk profile, we think allocators may also be surprised by the regular frequency with which global small-caps have historically delivered higher returns than their larger peers.

The first section compares rolling returns and the frequency of outperformance, risk metrics, and risk-adjusted returns, along with down market and recovery periods, for global small-cap and global large-cap before looking at global small-caps versus emerging markets on the same parameters. ¹ We also present regime studies that reveal the environments that are more and less favorable for each of the three asset classes, comparing them during periods of rising and falling interest rates, increasing and decreasing cyclical activity, narrowing and widening credit spreads, and higher and lower levels of nominal GDP growth. We then show the potential performance benefits of adding global small-caps to a portfolio of global large-caps and to a portfolio of both global large-caps and emerging markets.

The asset class has historically enjoyed:

1) A superior return profile to global large-caps despite a comparable risk profile;
2) A meaningfully lower risk profile than emerging market stocks, despite a somewhat better long-term return profile;
3) A performance record that suggests portfolios could improve their returns without increasing their risk by including global small caps; and
4) Attributes which indicate the asset class may be a fruitful area for active management.

¹ Throughout this paper, we used the MSCI ACWI Small Cap Index as our proxy for global small-caps, the MSCI ACWI Large Cap Index as our proxy for global large-cap stocks, and the MSCI Emerging Markets Index as our proxy for emerging markets for the data in this paper.
Past performance is no guarantee of future results.

An Undiscovered Country

Strong Long-Term Performance and Consistent Outperformance Versus Global Large Caps

% of Outperformance Periods for MSCI ACWI Small-Cap vs MSCI ACWI Large-Cap
Monthly Rolling Average Annual Return Periods from Index Inception (5/31/94) through 6/30/25

Past performance is no guarantee of future results. The above chart is shown for illustrative purposes only and does not reflect the past performance, or project the future performance, of any investment. The performance of an index, such as those used above, does not represent any particular investment as you can not invest in an index. Source: Bloomberg.

Lower-Than-Expected Volatility and Higher Risk Adjusted Returns Versus Global Large-Caps

Responsible allocators must always bear risk in mind, and the attractive long-term performance record for global small-caps would mean less if this advantage came with a markedly higher risk profile. Fortunately, . Global small-caps have higher volatility based on average five- and 10-year rolling monthly average standard deviation, but only modestly so. Moreover, the relatively low incremental volatility of global small- caps is complemented by the relatively large return spread versus global large- caps, a combination that has produced a superior risk/return trade-off as illustrated by the scatterplot.

Average of Monthly Rolling 5- and 10-Year Periods

The above chart is shown for illustrative purposes only and does not reflect the past performance, or project the future performance, of any investment. The performance of an index, such as those used above, does not represent any particular investment as you can not invest in an index. Past performance is no guarantee of future results. Source: Bloomberg.

As might be expected given this favorable risk/return profile, global small-caps have consistently delivered appreciably better risk-adjusted returns than global large-caps, as measured by Sharpe ratio, as well as an admirably high percentage of outperformance periods.

Relative Risk Adjusted Returns for Global Small Cap vs. Global Large Cap
Monthly Rolling Sharpe Ratios from 5/31/94-6/30/25

	PERIODS GLOBAL SMALL BEAT GLOBAL LARGE		MSCI ACWI SMALL AVG*	MSCI ACWI LARGE AVG*
Five-Year	193/314 PERIODS	61%	0.46%	0.42%
10-Year	184/254 PERIODS	72%	0.45%	0.36%

*Average of monthly rolling sharpe ratios over the specified periods.
Past performance is no guarantee of future results. Source: Bloomberg.

Alternative Risk Metrics

While volatility is the most common way of measuring risk, we use two additional measures that are helpful in understanding the potential risks of investing in global small-caps. First, one intuitive definition of risk is the probability of a capital loss. While that probability cannot be known with certainty about a future investment, we suspect that most allocators would be surprised by the percentage of multi-year holding periods when global small-caps experienced a loss, compared with the loss experienced by global large-caps.

Global small-caps had fewer periods of negative or flat returns than global large-caps over rolling 5-year periods. Notably, global small-caps had no negative return experiences over 10-year holding periods, while global large-caps had 17, or 7% of the time.

% of Positive Monthly Rolling Return Periods

Number of periods where MSCI ACWI SC has a positive return: 5-Year, 295 / 314, 10-Year, 254 / 254.
Number of periods where MSCI ACWI LC has a positive return: 5-Year, 255 / 314, 10-Year, 237 / 254.
Past performance is no guarantee of future results. Source: Bloomberg.

Down Market Performance Comparison of Global Small Cap vs. Global Large Cap
From 5/31/ 5/31/94 through 6/30/25(%)

Past performance is no guarantee of future results. Source: Bloomberg.

However, global small-caps also experienced stronger recoveries than global large-caps, averaging 56.9% one year after market troughs, compared with 44.4% for large-cap counterparts. Putting the decline and first year of recovery together shows that global small-caps declined further and bounced back stronger to lead over six of the eight periods.

Subsequent 1-Year Periods after Down Market Performance Comparison
From 5/31/94 through 6/30/25

Past performance is no guarantee of future results. Source: Bloomberg.

A Surprising Performance Advantage Over Emerging Market Equities

The performance spread for global small-caps was narrower versus emerging market equities than it was versus global large-caps, though we have found that any performance advantage for global small-caps tends to come as a surprise, particularly to emerging market equity investors.

% of Outperformance Periods for MSCI ACWI Small Index vs MSCI EM Index
Monthly Rolling Average Annual Return Periods from Index Inception (5/31/94) through 6/30/25

Significantly Lower Volatility and Attractive Risk-Adjusted Returns Versus Emerging Markets

The second misperception relates to the degree of difference in the volatility between the two asset classes. Emerging market equity investors often contend that the two asset classes must have comparable risk profiles. Yet, their return histories show that emerging market equity has a meaningfully higher volatility profile than global small caps. We think that the higher returns and lower volatility of global small caps versus emerging market equities create an attractive risk/ reward profile for the former, as shown in the scatterplot.

Average of Monthly Rolling 5- and 10-Year Periods

In light of both its strong relative performance history and lower volatility, it comes as no surprise that global small caps have a record of consistently higher risk-adjusted returns than emerging markets.

Relative Risk Adjusted Returns for Global Small Caps vs. Emerging Markets
Monthly Rolling Sharpe Ratios from 5/31/94-6/30/25

	PERIODS GLOBAL SMALL BEAT EMERGING MARKETS		MSCI ACWI SMALL AVG*	MSCI EM AVG*
Five-Year	218/314 PERIODS	69%	0.46	0.29
10-Year	179/254 PERIODS	70%	0.46	0.32

*Average of monthly rolling sharpe ratios over the specified periods.
Past performance is no guarantee of future results. Source: Bloomberg.

Frequency of Loss and Down Market Comparisons Versus Emerging Markets

Extending our risk analysis of the two asset classes to include additional risk measures confirms our earlier observations. Global small-caps had fewer periods when they experienced a loss than emerging market equities over rolling 5- and 10-year periods while posting higher average returns. The disparities are startling. Over five-year rolling monthly return periods, the MSCI ACWI Small Cap had 19 negative return periods--while the MSCI EM Index had 74. The global small-cap index had no negative monthly 10-year rolling return periods; emerging markets had seven.

Global small-caps also experienced less severe declines than emerging market equities, beating them in five of the seven major downturns of 20% or more since the inception of the global small- cap index on 5/31/94.

Down Market Performance Comparison
From 5/31/94 through 6/30/25

Past performance is no guarantee of future results. Source: Bloomberg.

Recovery periods were equally favorable for global small-caps, which had an average return in the subsequent recoveries, averaging 56.9% (as mentioned below) one year after the market trough, compared to 52.7% for emerging markets. Putting the decline and first year of recovery together shows a decided performance advantage for global small-cap stocks.

Subsequent 1-Year Periods after Down Market Performance Comparison
From 5/31/94 through 6/30/25

Past performance is no guarantee of future results. Source: Bloomberg.

Global Small-Cap Results in Different Environments

To further examine the superior performance record for global small-caps versus global large-caps and emerging market equities, we analyzed different economic regimes based on four indicators to see which led to the most favorable and unfavorable returns for each of the three asset classes. The four regime conditions were: interest rates, using the 10-year U.S. Treasury yield; cyclical activity, using the U.S. ISM Manufacturing Index; credit spreads, using U.S. high yield spreads; and the level of economic activity, using nominal U.S. GDP growth. For two of the four indicators, we calculated rolling one-year returns from 5/31/94 and compared the results. (We note that data for high-yield spreads only goes back to 12/31/96.)

Looking at interest rates, we found a positive correlation for all three asset classes with rising interest rates, perhaps a surprising result for some. All three asset classes had average one-year returns in rising rate periods that exceeded their overall average one-year returns. Global small-caps outperformed global large-caps in 58% of the observations by an average of 309 basis points. Global small-caps also beat emerging market stocks in 55% of the periods, with an average spread of 97 basis points. When the 10-year Treasury yield was falling, global large-caps fared best, with an average gain of 3.2% while small-caps averaged 2.0%, and emerging markets declined -0.6% on average. It seems likely that the three asset classes did not advance solely because interest rates were rising but because other positive factors, such as economic acceleration, were coincident.

Interest Rate Environments
Monthly Rolling Trailing 1-year Periods from 5/31/94 through 6/30/25

Past performance is no guarantee of future results. Global SC is the MSCI ACWI SC Index, Global Large Cap is the MSCI ACWI LC Index, and EM is the MSCI EM Index. Source: Bloomberg

all three asset classes had average returns that exceeded their overall average one-year returns for periods with rising U.S. ISM readings.

Global small-caps outperformed global large-caps in 62% of the observations by an average of 330 basis points, while global small-caps underperformed emerging market equities by 122 basis points and had lower returns in 56% of the periods. During periods of falling ISM measures, global large caps beat both global small-caps and emerging markets the majority of the time, with an average gain of 3.5% versus an average gain of 1.8% for global small-caps and a loss of -2.9% for emerging markets.

ISM Environments
Monthly Rolling Trailing 1-year Periods from 5/31/94 through 6/30/21

Past performance is no guarantee of future results. Global SC is the MSCI ACWI SC Index, Global Large Cap is the MSCI ACWI LC Index, and EM is the MSCI EM Index. Source: Bloomberg.

Credit Spread Environments
Monthly Rolling Trailing 1-year Periods from 5/31/94-6/30/25
Past performance is no guarantee of future results. Global SC is the MSCI ACWI SC Index, Global Large Cap is the MSCI ACWI LC Index, and EM is the MSCI EM Index. Source: Bloomberg.
During periods when credit spreads were narrowing, global small-caps outperformed global large-caps

Our last test looked at performance in the context of nominal U.S. GDP growth. Previous research showed better correlations of small-cap returns with nominal, rather than real, U.S. GDP growth, as small-caps tend to benefit from both increased inflation and increased real economic growth. We looked at periods of 3-5% nominal U.S. GDP growth compared with periods that grew by more than 5%. The return gap was notable in that global small-caps beat global large- caps 51% of the time by an average of 70 basis points when nominal GDP growth was in the 3-5% range. However, g lobal small-caps underperformed their large-cap siblings by an average of 80 basis points in 68% of the periods when nominal GDP growth was 5% or greater. Somewhat counterintuitively, global small-caps beat emerging markets stocks during these more robust, 5%-plus periods, beating them 74% of the time, with an average return of 10.6% versus 7.3% for emerging markets.

Nominal U.S. GDP Environments
Quarterly Rolling Trailing 1-year Periods from 6/30/05-6/30/25

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Past performance is no guarantee of future results. Global SC is the MSCI ACWI SC Index, Global Large Cap is the MSCI ACWI LC Index, and EM is the MSCI EM Index. Source: Bloomberg

There seem to be clear patterns of relative performance advantages among the three asset classes through different environments. A simplified way to show the same diverse tendencies is to look at returns in each of the past 25 calendar years for the three asset classes, sorted by best return.

The graphic below shows the number of years in which each index finished first or last:

Past performance is no guarantee of future results. Global SC is the MSCI ACWI SC Index, Global Large Cap is the MSCI ACWI LC Index, and EM is the MSCI EM Index. Source: Bloomberg.

These varying results suggest that it might be productive to include these asset classes together in a portfolio, but we think the more salient point is that global small-cap enjoyed fewer years with the lowest return of the three asset classes

Portfolio Examples

While both portfolios showed strong standard and risk-adjusted performance, the portfolio with the global small-cap allocation had higher absolute and risk-adjusted returns as well as comparable volatility.

Four Hypothetical Growth of $100,000,000 by Portfolio Allocations
Quarterly Rebalanced from 5/31/94-6/30/25 (Monthly Data)

The Case for Active Management in Global Small-Caps

Do the attractive attributes of global small caps also offer the potential for active managers to improve on these results? We believe they do, based on the following observations.

A Large and Inefficient Asset Class

A Large Opportunity Set
Number of global small cap vs. large cap companies as of 6/30/25
Source: FactSet
Past performance is no guarantee of future results.
An Inefficient Asset Class

Source: FactSet
Past performance is no guarantee of future results.
High ROIC Companies

Additional support for the case for active management derives from showing that some filters active managers can use have produced historically superior results. For example, the subset of companies within global small-caps with high profitability, based on ROIC (return on invested capital), have delivered returns that markedly exceeded those for the index as a whole. The average annual total return for the top ROIC decile of global small-cap stocks was 14.8% from 3/31/03-6/30/25, compared to 10.5% for the overall index over the same period. This suggests to us that an active management approach focusing on companies with higher profitability can enhance the potential for higher returns.

Conclusion

We suggest that global allocators also consider the potential advantages active management can offer within this asset class based on both the historical strength of certain filters and the overall inefficiency of this large opportunity set of global small-cap stocks.

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