The Royce Small-Cap Opportunity Fund advanced 11.9% in 2025, slightly trailing its benchmark, the Russell 2000 Value Index, which rose 12.6% over the same period. The fund outperformed the benchmark over longer terms, including 3-, 5-, 10-, 15-, 20-, 25-year periods and since inception in November 1996. Sector contributions varied, with industrials and information technology leading gains.
The Royce Small-Cap Opportunity Fund's manager commentary for fiscal year 2025 highlights a year of mixed results for the theme-based portfolio. The fund achieved an 11.9% return in 2025, compared to the 12.6% gain of its benchmark, the Russell 2000 Value Index. However, the fund demonstrated stronger performance over extended horizons, surpassing the benchmark for the 3-, 5-, 10-, 15-, 20-, and 25-year periods ending December 31, 2025, as well as since its inception on November 19, 1996.
At the sector level, five of the portfolio's 10 equity sectors contributed positively to performance. Industrials, Information Technology, and Financials provided the largest positive impacts. In contrast, Consumer Discretionary, Energy, and Consumer Staples exerted the biggest negative effects.
Among individual holdings, nLIGHT emerged as the top contributor. Its shares outperformed due to upward revisions in the outlook for its aerospace and defense customers. Conversely, Lakeland Industries was the fund's top-detracting position.
Looking ahead, the commentary notes a compelling case for small-cap leadership in 2026, driven by a rare confluence of promising factors. This assessment underscores the fund's focus on thematic investments in the small-cap space.