Below is Royce Funds commentary for the first quarter 2015.

We believe U.S. equity returns for the next five years will be positive, but lower than the last five. We think companies with higher quality fundamentals will be market leaders in this lower-return environment, which should favor disciplined active stock pickers.

Royce Funds: 1Q15 Market Comments

Slow Start Leads to Solid Gains

A bearish January gave way to solid first-quarter gains. The small-cap Russell 2000 was the leader among the broad-based domestic indexes, up 4.3% versus gains of 1.6% and 1.0% for the large-cap Russell 1000 and S&P 500 indexes, respectively. The more tech-oriented Nasdaq Composite was also strong with a 3.5% first-quarter return.

New Highs for U.S. Equity Indexes

The three broad-based indexes made new highs in March while the Nasdaq Composite ended the quarter within 3.0% of its March 2000 peak.

Royce Funds

Small-Caps Still Strong from 2009 Low

From the March 9, 2009 market low, the Russell 2000 was up 296.3% through 3/31/15, ahead of the Russell 1000, S&P 500, and Nasdaq Composite. (WOW!)

Rising Rates May Not Slow Stocks

From the interest rate low on 5/2/13 through 3/31/15, small-cap and large-cap indexes were up more than 34%—maybe rising rates don’t necessarily spell gloom and doom for equities?

Large Is in Charge

Trailing 1-, 3-, and 5-year returns ended 3/31/15 favored large-caps, with the Russell 1000 outperforming the Russell 2000.

Royce Funds

Are Non-U.S. Stocks Joining the Bull Party?

Non-U.S. equities performed more in line with their U.S. counterparts. For the quarter, the Russell Global ex-U.S. Small Cap Index returned 3.7% while the Russell Global ex-U.S. Large Cap Index was up 3.5%. However, trailing 1-, 3-, and 5-year results through 3/31/15 were significantly behind their U.S. cousins.

Good Health, Low Power

Within the Russell 2000, Health Care was the best-performing sector in the first quarter by a wide margin. In contrast, Telecommunication Services and Energy were the worst.

Shorter-Term Strength for Small-Cap Growth

Within small-cap, growth led value (by a large margin) for the third consecutive quarter. The Russell 2000 Growth Index finished the quarter up 6.6% versus a gain of 2.0% for the Russell 2000 Value Index. While trailing 1-, 3-, 5-, and 10-year periods ended 3/31/15 favored small-cap growth, small-cap value was the leader for all periods (15-, 20-, 25-, 30-, 35-year) beyond 10 years.

Micro-Caps Rebound, Mid-Caps Impressive

Micro-caps renewed their winning ways, with the Russell Microcap Index up 3.1% in the first quarter. While 12-month results for the micro-cap index trailed those for small-cap (Russell 2000), 3- and 5-year returns ended 3/31/15 were higher. Mid-caps continued their impressive ascent, with the Russell Midcap Index up 4.0% during the quarter.