How did Royce Small-Cap Special Equity Fund perform in 1Q24 and over longer-term periods?

Royce Small-Cap Special Equity Fund advanced 2.2% for the quarter, lagging its benchmark, Russell 2000 Value Index, which was up 2.9% for the same period. The portfolio outperformed its benchmark for the 3-, 5-, 20-, 25-year, and since inception (5/1/98) periods ended 3/31/24.

“Our highly disciplined stock selection process involves attempting to reduce risk and create alpha over the long term. Seeking to protect against market drawdowns has always been—and remains—a critical part of our process as we strive for sustainable gains with lower volatility.”
—Charlie Dreifus

How was performance at the sector level in 1Q24?

Five of the portfolio's nine sectors made a negative impact on quarterly performance. The sectors making the largest detractions came from Consumer Discretionary, Real Estate and Consumer Staples while the largest positive impacts came from Industrials, Materials and Information Technology.

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

At the industry level, electrical equipment (Industrials), construction materials (Materials), and machinery (Industrials) contributed most for the quarter, while real estate management & development (Real Estate), consumer staples distribution & retail (Consumer Staples), and automobile components (Consumer Discretionary) were the largest detractors.

What were the portfolio’s top contributor and detractor at the position level for the quarter?

The portfolio’s top contributor at the position level for the quarter was Encore Wire, which manufactures building electrical wire, was also the Fund’s top contributor in 2023. The top detractor was Marcus & Millichap, the commercial real estate investment brokerage and capital markets services firm in North America.

At the sector level, how did the Fund perform versus the Russell 2000 Value in 1Q24?

The portfolio’s disadvantage versus its benchmark was primarily attributable to stock selection in the quarter, with the Consumer Discretionary, Energy and Consumer Staples sectors making the most significant negative impact versus the benchmark. Conversely, Materials, Financials and Industrials contributed most to relative quarter results.

What is your outlook?

If we see indications that a correction will occur, we’ll prepare. This caution often proves to be too early—yet when the correction arrives, we use our cash to take advantage of the opportunities that look attractive to us. This caution can appear to look unnecessary. Until, of course, it isn’t. The Nobel Prize winning behavioral economist Danial Kahneman, who died recently, had what we think is an important observation: “Money lost isn’t the same as money gained. Losses feel at least twice as painful as gains feel pleasant.” This in a nutshell is the basis for the Strategy’s emphasis on risk aversion and downside capture ratio. With correlations near pre-pandemic trough levels, it would appear that stock picking should be positioned to outperform the broader indexes—otherwise known as “alpha.” Our highly disciplined stock selection process involves attempting to reduce risk and create alpha over the long term. Seeking to protect against market drawdowns has always been—and remains—a critical part of our process as we strive for sustainable gains with lower volatility.

Important Disclosure Information

Average Annual Total Returns as of 3/31/2024 (%)

  QTD1 1YR 3YR 5YR 10YR SINCE
INCEPT.		 DATE ANNUAL
OPERATING EXPENSES
NET               GROSS
Small-Cap Special Equity 2.17 11.49 5.32 8.25 6.27 8.62 05/01/98  1.21  1.21
Russell 2000 Value
 2.90 18.75 2.22 8.17 6.87 7.73 N/A  N/A  N/A
Russell 2000
 5.18 19.71 -0.10 8.10 7.58 7.29 N/A  N/A  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.

Mr. Dreifus’s thoughts and opinions concerning the stock market are solely his 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.

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.

Percentage of Fund Holdings As of 3/31/24 (%)

  Small-Cap Special Equity

Encore Wire

7.9

Marcus & Millichap

3.2

Company examples are for illustrative purposes only. This does not constitute a recommendation to buy or sell any stock. There can be no assurance that the securities mentioned in this piece will be included in any Fund’s portfolio in the future.

Downside Capture Ratio measures a manager’s performance in down markets relative to the Fund’s benchmark. It is calculated by measuring the Fund’s performance in quarters when the benchmark goes down and dividing it by the benchmark's return in those quarters.

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

Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication. The Russell 2000 Value and Growth indices consist of the respective value and growth stocks within the Russell 2000 as determined by Russell Investments. The Russell 2000 is an unmanaged, capitalization-weighted 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 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 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 3/31/24, 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.)