Small-cap specialists since 1972.

So, we've done some research into the small-cap market, and we found a connection that many asset allocators may not be aware of . In a value-led market, you might lean towards value, but what we found is you also want to lean towards active, because active tends to beat passive in value-led markets.

What's really relevant about that now is because of the popularity of market-cap-weighted ETF indexes, people may have put a lot of their clients' money into a strategy that's set up to underperform.

What should asset allocators be aware of?

So, there's a subtlety about value-led periods that asset allocators want to be aware of when they're selecting active strategies. The research that we've done shows that value-led periods are more broadly led. More stocks participate in that versus growth-led, would tend to be more narrow.

So, when you're looking to active strategies, you actually want those that are high active share. You want to be further away from the benchmark. That's really the opportunity.

Why not just use the value index?

You might be tempted to use the value index. Here's why we don't think that that's a good idea right now. We don't think that the value in value is equally distributed.

We actually think it clusters around cyclicals. You want to be aware that the small value index has at least 50 percent sensitivity to interest rates.

With yields as low as they are, we think that those stocks are going to have a headwind. We think, and somewhere you want to be is in a value-led period, you want to be in active strategies; you want to be in those with high active share that are leaning towards cyclical stocks.

The thoughts and opinions expressed in the video are solely those of the persons speaking as of October 13, 2016 and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the  prospectus  carefully before investing or sending money. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the  prospectus .)