Royce & Associates is best known for its value-oriented, domestic small-cap funds. But domestic small caps rarely have exposure to foreign markets, so small-cap investors could be missing out on overseas growth. Fortunately, Royce Heritage (RGFAX) applies the firm’s time-tested investment process to both US and foreign equities. Although domestic stocks still dominate the fund’s portfolio, it has a sizable 25.6 percent allocation to foreign stocks, and its mandate caps that allocation at 35 percent of assets.

The fund’s foreign stock exposure has occasionally made it a market laggard in the short term, such as during the latter part of 2011 when such stocks failed to mirror the US market’s year-end ascent. But the fund’s foreign sleeve has also helped it trounce most of its peers over the long term, particularly during the last decade when foreign markets routinely outperformed the US market.

According to Morningstar, Royce Heritage is ranked in the top 11 percent of its small-cap blend category over the trailing five- and 10-year periods, and it’s ranked in the top 2 percent of its category over the trailing 15-year period.

Of course, the firm’s famed investment process likely has the most significant role in this impressive performance. Management selects companies that trade at a 30 percent to 50 percent discount to their estimate of a firm’s intrinsic value. And they adhere to this value discipline by selling or trimming a position once it reaches their estimate of fair value.

Management employs bottom-up, fundamental analysis to identify stocks that have solid balance sheets, high internal rates of return, and strong free cash f low. As part of this process, they regularly conduct inter views with customers, suppliers and competitors.

Royce Heritage also places an emphasis on risk reduction. Small-cap names typically exhibit greater volatility than large-cap stocks, so management attempts to dampen volatility by diversifying across 234 holdings, with just 13.8 percent of assets in the fund’s top-10 holdings. In addition to diversification, management’s risk-reduction efforts also focus on a company’s ability to weather financial distress while also continuing to invest in its business.

This approach has helped the fund keep volatility largely in line with its benchmark. During the Great Recession, for example, the fund’s largest rolling 12-month loss was 42.3 percent versus the small-cap Russell 2000’s 42.4 percent loss.

Over the trailing 15-year period, Royce Heritage has managed to beat the market as well as its benchmark by wide margins on a total-return basis. It outperformed the S&P 500 by 7.6 percentage points annualized, while also beating the Russell 2000 by 6.1 percentage points annualized.

However, the fund’s contrarian bent can also hurt its performance over the short term. During last year’s market turmoil, management maintained its overweight allocations to the financials and metals and mining sectors, opting for minimal allocations to more defensive sectors such as consumer staples and health care.