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Royce Funds: Bull Market Trend Continues In 2Q’14

Bull Market Trend Continues In 2Q’14 via Royce Funds

We believe both economic and market conditions appear sufficiently strong to keep the bullish trend going, although a correction in the near term would not surprise us. Nevertheless, conditions appear to be conducive for both a quality focus and active management, especially in the small-cap sector.

After a difficult April, small-cap companies rallied through quarter end to post their eighth consecutive quarter of positive performance (as measured by the Russell 2000 Index).

It was not enough to catch their large-cap counterparts; for the quarter the large-cap S&P 500 and Russell 1000 Indexes were up 5.2% and 5.1%, respectively, versus a gain of 2.0% for the small-cap Russell 2000.

Year-to-date through 6/30/14, the story was the same, with the S&P 500 (INDEXSP:.INX) and Russell 1000 (INDEXRUSSELL:RUI) posting gains of 7.1% and 7.3%, respectively, versus 3.2% for the small-cap index.

Within both Russell indexes, Energy and Utilities were the top performing sectors for the year-to-date period ended 6/30/14.

Both the S&P 500 and Russell 1000 made new highs during the quarter. In addition, both large-cap indexes provided a performance advantage versus the Russell 2000 over the trailing one- and three-year periods ended 6/30/14.

In contrast, the Russell 2000 outpaced both large-cap indexes for the trailing five-, 10-, and 15-year periods ended 6/30/14.

From the 10-year Treasury low on 5/2/13 through 6/30/14, equities of all sizes performed well, with the Russell 2000 (INDEXRUSSELL:RUT) up 28.9%, the S&P 500 up 25.8%, and the Russell 1000 up 26.5%.

bull market trend

Non-U.S. equities enjoyed similar success—for the second quarter, the Russell Global ex-U.S. Small Cap Index was up 4.2% versus 5.0% for the Russell Global ex-U.S. Large Cap Index. Year-to-date, non-U.S. small-caps had the edge, with the Russell Global ex-U.S. Small Cap Index returning 7.5% versus a gain of 5.8% for the Russell Global ex-U.S. Large Cap Index.

Within small-cap, value continued its 2014 advantage. For the quarter, the Russell 2000 Value Index was up 2.4% versus a gain of 1.7% for the Russell 2000 Growth Index. Year-to-date through 6/30/14, the small-cap value index returned 4.2% while the small-cap growth index rose 2.2%.

Mid-cap continued its impressive 2014 performance. The Russell Midcap Index was up 5.0% in the quarter and 8.7% on a year-to-date basis. In contrast, micro-caps struggled, with the Russell Microcap Index down 1.4% for the quarter and up only 1.6% for the first six months.