RVT: 12% Discount, 8% Yield, Small-Cap Exposure

Looking for high yield income in the small cap sector? The Russell 2000 has suffered in the rising rate era, but, with rates expected to decline sometime in 2024, small caps could return to favor in the market.

Royce Value Trust (NYSE:RVT) was the first small-cap closed-end fund, managed since its inception in 1986 by the same portfolio manager, Chuck Royce—a recognized pioneer of small-cap investing.

Fund Profile:

RVT’s core approach combines multiple investment themes and offers wide exposure to small-cap stocks by investing in companies with high returns on invested capital or those with strong fundamentals and/or prospects trading at what Royce believes are attractive valuations. (RVT site)

RVT has $1.84B in net assets, with a 1.05% expense ratio, and scant leverage of 1.9%. It holds 431 positions and has average daily volume of 236K.

Dividends:

RVT pays variable, quarterly distributions in a March/June/Sept./Dec. schedule. Its most recent payout was $.27 in March. At $13.95, RVT yields 7.74%. It should go ex-dividend next on ~6/7/24, with a ~6/24/24 pay date. RVT has a flattish five-year dividend growth rate of 0.51% due to distribution declines in 2022 and 2023.

Rising interest rates in 2022 – 2023 were not good news for small caps, and RVT’s distribution coverage suffered. In 2022, NII of $6.84M and $29.93M in net realized gains covered just 61% of $141.67M in distributions.

Net assets declined from $2.15B at the start of 2022, to $1.6B at year end.

Net realized gains improved in 2023 to $115M, whereas NII fell to -$1.84M, but distribution coverage improved to 95%, with coverage further aided by unrealized gains of $216M.

Net assets rebounded in 2023, rising to $1.86B at year end:

Holdings:

As of 3/31/24, RVT was overweight industrials, financials, tech, and materials, and underweight healthcare, consumer discretionary, real estate, energy, consumer staples, and utilities, vs. the Russell 2000. 86.5% of RVT’s holdings were US-based.

Its top 10 positions run from 1 to 1.5% and account for ~12% of its portfolio. Included are such diverse holdings as medical technology firm Enovis (ENOV), aviation firm Air Lease (AL), and precious metals exploration firm Alamos Gold (AGI).

Insiders:

Insiders bought 7,300 shares of RVT in March 2024 at prices ranging from $14.76 to $14.81.

Performance:

Halloween 2023 marked the start of the Russell 2000 index’s rebound: It’s up ~10% since then, and RVT has tagged along, rising 9.4%. RVT has outperformed the Russell 2000 and the CEF equity industry over the past year on a total return basis.

It lags the index so far in 2024, but has outperformed the CEF equity industry:

RVT has mostly outperformed the Russell 2000 in up years since 2009 and lagged it in down years. 2011 – 2015 was a period of underperformance, which then reversed in 2016-2017, 2019-2021, and 2023:

As of 4/17/24, RVT has outperformed the Russell 2000 over the past 1,3,5,10, 15, 25, 35-year periods, and since its inception on 11/26/86:

Valuations:

Since NAV/Share is calculated at the end of each trading day, you have to look at the most recent closing values to determine the current NAV discount or premium. Buying CEFs at a deeper discount than their historical average discounts/premiums can be a useful strategy due to mean reversion.

At its 4/17/24 $13.91 closing price, RVT was selling at a 12.63% discount to NAV/share, roughly even with its one-year NAV 12.47% discount, but much cheaper than its three- and five-year discounts of 9.11% and 10.34%, respectively.

RVT is one of the larger equity CEFs, with a $1.56B market cap. It has a much lower P/E of 4.79X than the 14.33X industry average and a cheaper P/book. Its dividend yield is roughly in line with the industry average.

Parting Thoughts:

RVT is ~8.5% below its $14.24 52-week high and looks oversold on its one-year slow stochastic chart. We rate it a speculative Buy, but don’t bet the ranch yet. Its price will be subject to Fedspeak and the general market speculation about the timing and frequency of Fed rate cuts in 2024.

All tables furnished by Hidden Dividend Stocks Plus, unless otherwise noted.