Charles Royce image

The Royce Funds
Financial Advisor Flash
Double Rule
January 3, 2012
rule_bracket_top
We believe that fundamentals are much better than the headlines; that equities, and especially small-caps, will stage a nice rally in 2012. In addition, we believe that quality will continue to be an important driver of long-term outperformance and that non-U.S. small-caps will enjoy significant performance improvement as well.
 Market Comments
Domestic equities of all sizes rebounded in 2011’s dynamic fourth quarter. After severely underperforming in the third quarter, small-caps led the way. The small-cap Russell 2000 Index was up 15.5% in the fourth quarter, compared to a gain of 11.8% for both the S&P 500 and Russell 1000 large-cap indexes, and 7.9% for the more tech-oriented Nasdaq Composite.


Despite the strong fourth-quarter rally, small-caps were unable to supplant their large-cap counterparts as 2011’s performance leader. In 2011, the Russell 2000 was off 4.2%, while the S&P 500 and Russell 1000 were up 2.1% and 1.5%, respectively, and the Nasdaq Composite finished the year down 1.8%.


After leading the charge in the first quarter, the Russell 2000 reached a new peak on April 29 and lost ground through the end of the third quarter, declining 13.5% from its late April peak through 12/31/11. Neither the Russell 1000 or S&P 500 surpassed their respective highs made on 10/9/07.


The turning of the calendar resulted in strong three-year returns for domestic equities of all market caps. Dropping off returns from the fourth quarter of 2008 resulted in double-digit three-year average annual total returns for the period ended 12/31/11, with the Russell 2000 up 15.6%, the S&P 500 up 14.1%, Russell 1000 up 14.8%, and the Nasdaq Composite up 18.2%.


Non-U.S. equities fared considerably worse during the year’s final quarter and concluded 2011 substantially behind their U.S. equivalents, with the Russell Global ex-U.S. Small Cap Index up 0.1%, while the Russell Global ex-U.S. Large Cap Index gained 3.6%. For the full year, both the non-U.S. small-cap and large-cap indexes were significantly in the red, down 18.7% and 13.8%, respectively.


According to Bank of America Merrill Lynch, intraday trading spreads for the Russell 2000 exceeded 1% in 83% of all trading days, and exceeded 2% in 39% of all trading days in 2011 through the end of November.


Within small-cap, the Russell 2000 Value Index edged out the Russell 2000 Growth Index for the second consecutive quarter, up 16.0% versus a gain of 15.0%. For the full year, small-cap growth finished on top, although both style indexes were in the red: -2.9% versus -5.5%.


Micro-caps, as measured by the Russell Microcap Index, also enjoyed strong fourth-quarter performance, up 13.8%, though they trailed their larger-cap siblings for the full year, losing 9.3%.

chart
chart
main-image
icon  Small-Caps And Active Management: The Combination That Adds Value
All 11 Royce Funds with 10 years of history outperformed the Russell 2000 for the 10-year period ended 12/31/11
icon  Chuck Royce on 4Q 2011: Quality Small-Caps Look Poised to Rebound
icon  Whitney George on 2011: High Volatility and Attractive Valuations
We are listing our portfolios according to our Fund Guide categories. The Fund Guide is an informative resource designed to help financial professionals better understand how we think about our portfolios. For a more detailed look, visit us online.
 Fund Performance Comments
Important Information on Performance
All performance information reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Returns are those of the Funds’ oldest Class (Investment Class or Service Class, as the case may be). Consultant, R, K and/or Service Class shares bear an annual distribution expense that is not borne by, or is higher than, the Funds’ oldest Class. Past performance is no guarantee of future results. Current performance may be higher or lower than performance quoted. Returns as of the most recent month-end may be obtained at www.roycefunds.com. Investment return and principal value will fluctuate, so that shares may be worth more or less than their original cost when redeemed. For detailed information on the one-, five-, 10-year and since inception performance as of quarter-end and for expense information for The Royce Funds please view our performance table.

Royce
Category
Fourth Quarter 2011 2011 3-Year AATR Peak to Current 4/29/11 – 12/31/11
Russell 2000 Index
15.5% -4.2% 15.6% -13.5%
Royce Pennsylvania Mutual Fund
Core 13.3 -4.2 17.4 -14.1
  • Flagship Fund managed by Chuck Royce that invests in both small-cap and micro-cap companies.
  • Outperformed the Russell 2000 Index for the one-, three-, five-, 10-, 15-, 20-, 25- and 30-year periods.
Royce Heritage Fund
Core 12.2 -9.3 20.6 -17.9
  • Managed by Chuck Royce and Jim Harvey, the portfolio invests primarily in companies with market capitalizations up to $5 billion.
  • Outperformed the Russell 2000 Index for the three-, five-, 10-, 15-year and since inception (12/27/95) periods.
Royce Total Return Fund
Core +
Dividends
12.4 -1.7 15.3 -9.5
  • Co-managed by Chuck Royce and Jay Kaplan, the Fund focuses on dividend-paying small-cap and micro-cap stocks — one of the least volatile Royce funds over the last five years.
  • Outperformed the Russell 2000 Index for the one-, five-, 10-, 15-year and since inception (12/15/93) periods.
Royce
Category
Fourth Quarter 2011 2011 3-Year AATR Peak to Current 4/29/11 – 12/31/11
Royce Dividend Value Fund
Core +
Dividends
13.2 -4.6 19.6 -11.8
  • Co-managed by Chuck Royce and Jay Kaplan, the Fund focuses on dividend-paying companies with market capitalizations up to $5 billion.
  • Outperformed the Russell 2000 Index for the three-year, five-year and since inception (5/3/04) periods.
Royce Premier Fund
Focused 12.1 -0.9 18.7 -12.1
  • Co-managed by Chuck Royce and Whitney George, this concentrated portfolio focuses on small-cap companies between $500 million and $2.5 billion in market cap.
  • Outperformed the Russell 2000 Index for the one-, three-, five-, 10-, 15-, 20-year and since inception (12/31/91) periods.
Royce Special Equity Fund
Focused 13.8 0.1 15.4 -6.7
  • Managed by Charlie Dreifus, the Fund combines classic value analysis with accounting cynicism.
  • Outperformed the Russell 2000 Index for the one-, five-, 10-year and since inception (5/1/98) periods.
Royce Value Fund
Focused 11.8 -7.4 18.8 -17.2
  • Co-managed by Whitney George and Jay Kaplan, the Fund invests in a limited portfolio of companies between $500 million and $5 billion in market capitalization.
  • Outperformed the Russell 2000 Index for the three-, five-, 10-year and since inception (6/14/01) periods.
Royce
Category
Fourth Quarter 2011 2011 3-Year AATR Peak to Current 4/29/11 – 12/31/11
Royce 100 Fund
Focused 16.1 -6.5 17.2 -15.3
  • Managed by Chuck Royce and Lauren Romeo, the Fund invests in a limited portfolio of approximately 100 companies with market capitalizations up to $5 billion.
  • Outperformed the Russell 2000 Index for the three-year, five-year and since inception (6/30/03) periods.
Royce Low-Priced Stock Fund
Opportunistic Themes 7.9 -14.6 19.9 -21.7
  • Managed by Whitney George, the Fund focuses on small-cap and micro-cap companies whose average cost per share in the Fund’s portfolio is less than $25.
  • Outperformed the Russell 2000 Index for the three-, five-, 10-, 15-year and since inception (12/15/93) periods.
Royce Opportunity Fund
Opportunistic Themes 17.9 -13.0 23.6 -19.3
  • Managed by Buzz Zaino, the Fund uses an opportunistic approach to invest in both small- and micro-cap stocks.
  • Outperformed the Russell 2000 Index for the three-, 10-, 15-year and since inception (11/19/96) periods.
Royce Value Plus Fund
Opportunistic Themes 11.4 -10.0 15.1 -17.9
  • Managed by Chip Skinner, the Fund invests primarily in companies with market capitalizations up to $5 billion that we believe are undervalued and offer above-average growth prospects.
  • Outperformed the Russell 2000 Index for the 10-year and since inception (6/14/01) periods.
Royce
Category
Fourth Quarter 2011 2011 3-Year AATR Peak to Current 4/29/11 – 12/31/11
Royce Micro-Cap Fund
Micro-Cap 9.7 -12.1 21.2 -20.0
  • Managed by Jenifer Taylor, the Fund invests primarily in micro-cap companies with market caps up to $500 million.
  • Outperformed the Russell Microcap Index for the three-, five- and 10-year periods. Outpaced the Russell 2000 Index for the three-, five-, 10-, 15-, 20-year and since inception (12/31/91) periods.
Royce SMid-Cap Value Fund
Mid-Cap 9.0 -11.6 12.8 -20.0
  • Co-managed by Whitney George and Steven McBoyle, the Fund invests primarily in a limited portfolio of companies with market caps between $500 million and $10 billion.
  • Outperformed the Russell 2500 Index for the since inception (9/28/07) period.
Royce Mid-Cap Fund
Mid-Cap 10.2 -6.8 N/A -15.8
  • Managed by Whitney George, Jim Stoeffel, Brendan Hartman and Carl Brown, the Fund invests primarily in equity securities of mid-cap companies with market capitalizations from $2.5 billion to $15 billion.
Royce Global Value Fund
Global/
International
0.4 -18.7 21.3 -24.4
  • Co-managed by Whitney George and David Nadel, the Fund invests primarily in equity securities issued by both U.S. and non-U.S. companies. The Fund may invest in companies of any size.
  • Outperformed the Russell Global Small Cap and MSCI World Small Core Indexes for the three-year, five-year and since inception (12/29/06) periods.
Royce
Category
Fourth Quarter 2011 2011 3-Year AATR Peak to Current 4/29/11 – 12/31/11
Royce International Smaller-Companies Fund
Global/
International
-0.1 -18.8 15.6 -25.0
  • Co-managed by Chuck Royce and David Nadel, the Fund invests primarily in equity securities issued by non-U.S. companies with market caps up to $5 billion.
  • Outperformed the Russell Global ex-U.S. Small Cap and MSCI World ex USA Small Core Indexes for the since inception (6/30/08) period.
Royce European Smaller-Companies Fund
Global/
International
-0.7 -20.3 19.3 -28.3
  • Co-managed by Chuck Royce and David Nadel, the Fund invests primarily in equity securities issued by European companies with market caps up to $5 billion.
  • Outperformed the Russell Europe Small Cap Index for the one-, three-, five-year and since inception (12/29/06) periods. Outperformed the MSCI Europe Small Core for the three-year, five-year and since inception (12/29/06) periods.
Royce Select Fund I
Qualified Investor 14.9 -3.6 16.7 -12.6
  • Managed by Lauren Romeo, this concentrated Fund features a performance fee designed for “qualified investors.”
  • Assets may include both long and short positions in equity securities; generally focuses on small-cap companies.
  • Outperformed the Russell 2000 Index for the one-, three-, five-, 10-year and since inception (11/18/98) periods.
Royce Global Select Fund
Qualified Investor 0.5 -17.8 19.6 -22.6
  • Managed by David Nadel, this concentrated Fund features a performance fee designed for “qualified investors.”
  • Assets may include both long and short positions in equity securities; generally focuses on both U.S. and non-U.S. companies with market caps up to $5 billion.
  • Outperformed the Russell Global Small Cap and MSCI World Small Core Indexes for the three-year, five-year and since inception (6/30/05) periods.
Please Note
This material is authorized for distribution to Financial Professionals only. This Flash Report is not authorized for distribution unless preceded or accompanied by a current prospectus. The Royce Funds invest primarily in securities of micro-, small- and/or mid-cap stocks that may involve considerably more risk than investments in securities of larger-cap companies (see “Primary Risks for Fund Investors” in the prospectus). Please read the prospectuscarefully before investing or sending money. The thoughts concerning recent market movements and future prospects for small-company stocks are solely those of Royce & Associates, LLC, and, of course, there can be no assurances with respect to future small-cap market performance. The Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group. Russell 2000 Index 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 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 2500 Index measures the performance of the 2,500 smallest publicly traded U.S. companies in the Russell 3000 Index. The Russell Microcap Index includes the smallest 1,000 securities in the Russell 2000. The Russell 1000 Index is an unmanaged, capitalization-weighted index of domestic large-cap stocks. It measures the performance of the 1,000 largest publicly traded U.S. companies in the Russell 3000 Index. The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe. It includes approximately 800 of the smallest securities in the Russell 1000 Index. The S&P 500 is an index of U.S. large-cap stocks selected by Standard & Poor’s based on market size, liquidity and industry grouping, among other factors. The Nasdaq Composite is an index of the more than 3,000 common equities listed on the Nasdaq stock exchange. The Morgan Stanley Capital International (MSCI) Europe Small Core, World Small Core and World ex-USA Small Core Indexes are unmanaged indexes of European and global small-cap stocks, respectively. The Russell Global Small Cap Index is an unmanaged, capitalization-weighted index of global small-cap stocks. The Russell Global ex-U.S. Small Cap Index is an unmanaged, capitalization-weighted index of global small-cap stocks, excluding the United States. The Russell Europe Small Cap Index is an unmanaged, capitalization-weighted index of European small-cap stocks. The Russell Developed ex-North America Large Cap Index is an unmanaged, capitalization-weighted index of the developed world’s stock markets, excluding North America. Index returns include net reinvested dividends and/or interest income. The Royce Funds is a service mark of The Royce Funds.
Please carefully consider a Fund’s investment objective, risks, fees and expenses before investing. For a prospectus for any of The Royce Funds containing this and other information, please click here or call (800) 221-4268. Please read the prospectus carefully before investing or sending money. Distributor of The Royce Fund and Royce Capital Fund: Royce Fund Services, Inc.
© 2012 Royce & Associates, LLC, 745 Fifth Avenue, New York, NY 10151. All rights reserved. 
Royce Bullish on Equities

From the BEST small cap fund family in the world. Not surprisingly, they are value investors.