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Royce Funds Commentary - 2Q14 Market: Bullish Trend Continues

July 03, 2014 | About:
Holly LaFon

Holly LaFon

277 followers

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 and Russell 1000 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 up 28.9%, the S&P 500 up 25.8%, and the Russell 1000 up 26.5%.

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.

Important Disclosure Information

This material is not authorized for distribution unless preceded or accompanied by a currentprospectus. Please read the prospectus carefully before investing or sending money. Investments in securities of micro-cap, small-cap, and/or mid-cap companies may involve considerably more risk than investments in securities of larger-cap companies. (Please see “Primary Risks for Fund Investors” in the prospectus.) Investments in foreign companies may be subject to different risks than investments in securities of U.S. companies, including adverse political, social, economic, or other developments that are unique to a particular country or region. (Please see “Investing in International Securities” in the prospectus.)

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. All indexes referenced are unmanaged and capitalization-weighted. All index returns include net reinvested dividends and/or interest income. 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. The Russell 2000 Index is an index of domestic small-cap stocks that measures the performance of the 2,000 smallest publicly traded U.S. companies in the Russell 3000 Index. The Russell 1000 index is an 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 2000 Value and Growth indexes consist of the respective value and growth stocks within the Russell 2000 as determined by Russell Investments. The Russell Microcap Index includes 1,000 of the smallest securities in the small-cap Russell 2000 Index, along with the next smallest eligible securities as determined by Russell. The Russell Global ex-U.S. Small Cap Index is an index of global small-cap stocks, excluding the United States, while the Russell Global Small Cap Index is an index of global small-cap stocks, including the United States. The Russell Global ex-U.S. Large Cap Index is an index of global large-cap stocks, excluding the United States. 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 performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index.


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