The Sound Shore Fund Investor Class (SSHFX) and Institutional Class (SSHVX) advanced 10.48% and 10.58%, respectively, in the second quarter of 2026, trailing the Russell 1000 Value Index (Russell Value) which advanced 13.87%, and the Standard & Poor’s 500 Index (S&P 500) which advanced 15.20%.  The three-year annualized gains for SSHFX of 19.41% and for SSHVX of 19.66% were ahead of the Russell Value’s 17.79% and behind the S&P 500’s 20.61%.  As long-term investors, we highlight that Sound Shore’s 35-year annualized returns of 10.67% and 10.93%, for SSHFX and SSHVX, respectively, as of June 30, 2026, were ahead of the Russell Value at 10.46% and trailed the S&P 500 at 11.11%.  For the Fund's most recent standardized performance information, click here.

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.

Stocks staged a powerful comeback in the second quarter of 2026, with the S&P 500 rallying 15.2% to mark its strongest quarterly gain since 2020.  Propelled by a resurgence in the artificial intelligence (AI) trade, semiconductor, hardware, and memory chip makers saw triple-digit surges driven by massive data center infrastructure spending.  Investor sentiment was further bolstered by a tentative ceasefire in the Iran war and the ensuing decline in oil prices, which eased inflationary fears.  Combined with resilient corporate earnings and a stable U.S. labor market, equities shrugged off higher Treasury yields and hawkish comments from the new Federal Reserve Chair, Kevin Warsh.  The concentration of returns within the S&P 500 has received a lot of attention lately, but notably, it wasn’t just the growth-oriented S&P that benefited from AI.  A very narrow band of companies drove performance within the Russell Value as well.  Information technology (IT) contributed 9.4 percentage points of the Russell Value’s 13.8% second quarter return, with just two names—Micron Technology and Intel—accounting for 4.3 percentage points of that total.

Sound Shore’s portfolio also benefited from the AI wave in the second quarter.  Sound Shore has always had exposure to IT (approximately 15% weight during Q2), but our value discipline will steer us away from the most expensive parts of the market.  Qualcomm and Marvell Technology, were two of our strongest contributors in 2Q.  Both are excellent case studies, which we profiled in our first quarter letter as businesses marrying secular technology tailwinds with compelling valuations.  A leading semiconductor supplier, Qualcomm (QCOM) is rapidly diversifying its business; its developer tools are accelerating edge AI functionality in new markets, driving demand for QCOM chips.  We believe Qualcomm possesses the strategic flexibility required to capture the immense AI opportunity ahead.  Notably, we believe Qualcomm is trading for an attractive 10 times earnings power once the new business kicks in.  Meanwhile, Marvell Technology benefited from its data center exposure which stems from the company’s dominant networking and optical business and is now expanding into custom silicon (ASIC) tailored chips for hyperscalers.  The trick from here remains how long will the cycle last and how much exposure is appropriate, given the unprecedented move in this part of the market.  More on that later.

Importantly, we had more breadth in our return than the indices.  Away from tech, health benefits leader Elevance Health was a strong contributor.  Elevance offers network-based managed care plans to large and small employer, individual, Medicaid, and Medicare markets.  We identified the stock after it had sold off on investor concerns over regulatory risk and weak margins in its Medicaid and Medicare businesses.  Trading below normal at 13 times earnings with double digit earnings growth, we feel the market is underestimating the strength of the franchise.  Management is focused on improving margins in the near term and the company consistently returns capital to shareholders via stock repurchases and dividends.  Of note, CEO Gail Boudreaux has highlighted that internal artificial intelligence tools have slashed prior authorization denials by nearly 70% and optimized payment integrity.  This translates directly into lower administrative overhead and expanding operating margins, proving that the productivity benefits of AI are reverberating far beyond the technology sector itself.

Leading airline Southwest Air was also a meaningful contributor this quarter.  Having weathered a difficult industry environment over the last 5 years, management is implementing a number of changes to boost margins, including premium services like increased legroom, preferred seating, and charging for checked bags.  These initiatives allow Southwest to better price its product and restore returns to historical standards.  With an estimated earnings power of $6 or more per share, we believe this investment maintains a compelling position in the portfolio.

Detractors for the period included some of our energy names which gave back a portion of their YTD gains as they retreated with energy prices.  Our energy holdings have low-cost operations and strong balance sheets to better manage the volatile nature of the industry.  Similarly, biopharmaceutical company Regeneron returned a portion of its earlier advance after announcing mixed clinical trial results for its melanoma drug.  We initiated our position when the stock was trading at a very attractive 13 times earnings with an 8% free cash flow yield.  The company has a fortress balance sheet and a number of pipeline drugs that show great promise that we don’t think we are paying for at this valuation.

The artificial intelligence revolution we are witnessing is rippling through the economy in distinct technological waves, with each phase triggering an enormous capital expenditure cycle for the next.  The initial wave concentrated heavily on raw compute power, cementing Nvidia’s dominance in GPU technology alongside specialized CPU and ASIC developers.  However, as hyperscalers race to build data centers to house this compute, the wave has rapidly expanded into the physical world.  This has sparked unprecedented demand for electrical equipment manufacturers to provide grid hardware, and forced power companies to secure the electrical capacity required to keep these facilities running.  Ultimately, this surging infrastructure groundswell backflows into the hardware layer, driving a secondary wave of demand for advanced memory chips to prevent data bottlenecks and keep pace with accelerating processing speeds. There are certainly parts of this surge of investment that will be cyclical and many participants are beginning to ponder when/if that occurs.  As always, we remain vigilant in our process – refusing to chase the latest momentum.  Instead, we focus on investing in companies with enduring business models and better earnings power that is not reflected in today’s stock price.

With 48 years of experience and having been through numerous market cycles, our contrarian approach remains focused on uncovering attractively valued companies with internally driven earnings that can propel value for years to come.  Our long-term investment process looks forward to assess where a company’s normal earning power will be.  This leads us to stocks with management teams employing strategies that are durable and have sustainable businesses we want to partner with in our portfolio.  The ability to have a long-term view and manage through these cycles is increasingly rare, but will likely determine our success.

Currently, our portfolio is attractively valued at an average twelve-month forward P/E ratio of 13 times versus the S&P 500 of 20 times and the Russell Value of 17 times.  We appreciate your investment alongside ours and encourage you to reach out with any questions or comments.