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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.
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 (WIRE, Financial), which manufactures building electrical wire, was also the Fund's top contributor in 2023. The top detractor was Marcus & Millichap (MMI, Financial), 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.
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.
