March 31, 2024

The Sound Shore Fund Investor Class (SSHFX) and Institutional Class (SSHVX) advanced 17.05% and 17.10%, respectively, in the first quarter of 2024, well ahead of the Russell 1000 Value Index (Russell Value) which advanced 8.99%.  The three year annualized advances for SSHFX of 10.96% and for SSHVX of 11.18% were also ahead of the Russell Value’s 8.11%.  As long-term investors, we highlight that Sound Shore’s 35 year annualized returns of 10.32% and 10.61%, for SSHFX and SSHVX, respectively, as of March 31, 2024, were ahead of the Russell Value at 9.98%.  For the Fund's most recent standardized performance information, click here.

 

Sound Shore Fund’s strong first quarter 2024 gain was substantially ahead of both the Russell Value and S&P 500 indices.  The Fund’s portfolio return was driven by 12 holdings from seven different sectors that were each up 20% or more for the period. These included, among others, Fidelity National Information Services in financials, FLEX in technology, General Motors in consumer discretionary, Organon in health care, and PACCAR in industrials.  These stocks outperformed as they continued to adapt, execute and win in their respective end markets.  We are repeatedly tasked with understanding changes within industries and identifying individual companies that are best able to react and take advantage of an evolving landscape.  Although change can sometimes sow fear as markets have a distaste for uncertainty, opportunity lies on the other side if properly analyzed.  Charles Darwin’s Origin of Species sums it up well:  “…the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself.”  Since Sound Shore’s founding in 1978, our contrarian investment process focuses not only on valuation, but also on the adaptability and sustainability of company business models.

 

Two companies that led our best contributors list embody this resilience:  independent power producers Vistra and Constellation Energy.  Both stocks surged along with rising electricity prices reflecting an improving demand environment.  However, this performance was years in the making as each company prepared their assets for a dynamic market while maintaining strong balance sheets in order to take advantage of the resulting volatility.  In our 2023 year-end letter we detailed Vistra’s strategic position to supply power to the company’s markets.  Similarly, Midwest focused Constellation is the biggest producer of carbon-free electricity in the US with nuclear power plants representing the majority of its capacity.  We added the name in January 2023 when the stock was trading at an attractive 15 times earnings with clear line of sight to improved earnings and cash flow.  Our research identified an upside to earnings power from maturing hedges and regulatory changes, including the Inflation Reduction Act’s nuclear credit.  A spinout from Exelon Corp, we viewed the strength of Constellation’s clean, reliable baseload power model as appealing for residential and commercial customers.  Demand for electricity is growing and notably, load peaks are changing as well.  As the country brings on more renewables and adjusts to greater demand later in the day due to increased use of electric heat pumps and electric car charging, reliable clean power is at a premium.  Moreover, data center demand is also now becoming an important driver and the company’s contract to supply Microsoft at premium power prices is evidence of the opportunity.  You can learn more about our outlook for power markets in our November 2023 appearance on Business Breakdowns.  Find it here:  https://soundshorefund.com/insights-news/

 

The diverse mix of names that drove our portfolio’s first quarter performance included drug maker Teva Pharmaceutical.  Still trading at a double digit free cash flow yield, the stock advanced after 2024 guidance was above expectations.  Teva develops, manufactures and markets generic drugs as well as specialty drugs focused on neurological and respiratory diseases.  We believe management has positioned the company for renewed growth, driven by its most promising branded drug pipeline in years.  Meanwhile industrial lighting supplier Acuity Brands finished higher after reporting strong earnings that included rising gross margins and strong free cash flow.  The company has the number one market share in lighting fixtures and controls in North America and is a leading supplier of energy efficient retrofit solutions for commercial buildings.

 

A detractor for the period was global aerospace leader Boeing.  Over the past couple of years the stock rebounded from operational challenges and had surged on improved free cash generation from increasing order activity, driven by global demand for aircraft.  It was one of our best performers in the fourth quarter of 2023 after its November plane deliveries increased.  When additional manufacturing issues surfaced in January, we believed it would push restructuring efforts back enough to warrant a review by our team.  Despite having been a good investment for us, we were quick to react and sold our position at a gain, albeit less than before the news.

 

Even with our first quarter outperformance, as of March 31, 2024, Sound Shore’s portfolio had a forward price-earnings multiple of 11.7 times consensus estimates, a meaningful discount to the S&P 500 Index at 20.9 times and the Russell Value at 15.9 times.  It is our belief that the Sound Shore portfolio represents tremendous value.

 

Thank you for your investment alongside ours in Sound Shore.

 

 

 

 

 

 

Important Information

An investment in the Fund is subject to risk, including the possible loss of principal amount invested. Mid Cap Risk: Securities of medium sized companies may be more volatile and more difficult to liquidate during market downturns than securities of large, more widely traded companies. Foreign Securities Risk: The Fund may invest in foreign securities primarily in the form of American Depositary Receipts. Investing in the securities of foreign issuers also involves certain special risks, which are not typically associated with investing in U.S. dollar-denominated securities or quoted securities of U.S. issuers including increased risks of adverse issuer, political, regulatory, market or economic developments, changes in currency rates and in exchange control regulations. The Fund is also subject to other risks, including, but not limited to, risks associated with value investing.

The Adviser analyzes risk on a company-by-company basis. The Adviser considers governance as well as environmental and social factors (ESG) as appropriate. While valuation, governance, environmental and social factors are analyzed, the evaluation of all key investment considerations is industry- and company-specific. Consequently, no one issue necessarily disqualifies a company from investment and no individual characteristic must be present prior to investment.

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.

The views in this letter were those of the Fund managers as of 12/31/23 and may not necessarily reflect their views on the date this letter is first published or anytime thereafter.

This commentary may contain discussions about certain investments both held and not held in the portfolio. Current and future portfolio holdings are subject to risk. For the Fund’s Top 10 Holdings click here.

You should consider the Fund’s investment objective, risks, charges and expenses carefully before investing. The summary prospectus and/or the prospectus contain this and other information about the Fund and are available from your financial intermediary or www.soundshorefund.com. The summary prospectus and/or prospectus should be read carefully before investing.

Distributed by Foreside Fund Services, LLC.

December 31, 2023

The Sound Shore Fund Investor Class (SSHFX) and Institutional Class (SSHVX) advanced 12.43% and 12.50%, respectively, in the fourth quarter of 2023, ahead of the Russell 1000 Value Index (Russell Value) which advanced 9.50%.  As of December 31, 2023, the three year annualized advances for SSHFX of 9.12% and for SSHVX of 9.34% were also ahead of the Russell Value's 8.86%.  As long-term investors, we highlight that Sound Shore's 35 year annualized returns of 10.14% and 10.43%, for SSHFX and SSHVX, respectively, as of December 31, 2023, were ahead of the Russell Value at 9.94%.  For the Fund's most recent...

September 30, 2023

The Sound Shore Fund Investor Class (SSHFX) and Institutional Class (SSHVX) declined 2.01% and 1.94%, respectively, in the third quarter of 2023, ahead of the Russell 1000 Value Index (Russell Value) which declined 3.16%.  The three year annualized advances for SSHFX of 11.83% and for SSHVX of 12.05% were also ahead of the Russell Value's 11.05%.  As long-term investors, we highlight that Sound Shore's 35 year annualized returns of 9.84% and 10.13%, for SSHFX and SSHVX, respectively, as of September 30, 2023, were ahead of the Russell Value at 9.72%.  For the Fund's most recent standardized performance information, click here.  ...

June 30, 2023

The Sound Shore Fund Investor Class (SSHFX) and Institutional Class (SSHVX) advanced 5.14% and 5.18%, respectively, in the second quarter of 2023, ahead of the Russell 1000 Value Index (Russell Value) which advanced 4.07%. The three year annualized advances for SSHFX of 15.16% and for SSHVX of 15.37% were also ahead of the Russell Value's 14.30%. As long-term investors, we highlight that Sound Shore's 35 year annualized returns of 10.06% and 10.36%, for SSHFX and SSHVX, respectively, as of June 30, 2023, were ahead of the Russell Value at 9.85%.  For the Fund's most recent standardized performance information, click here.  ...

March 31, 2023

The Sound Shore Fund Investor Class (SSHFX) and Institutional Class (SSHVX) advanced 1.37% and 1.41%, respectively, in the first quarter of 2023, ahead of the Russell 1000 Value Index (Russell Value) which advanced 1.01%. The three year advances for SSHFX of 19.51% and for SSHVX of 19.73% were ahead of the Russell Value's 17.93%. As long-term investors, we highlight that Sound Shore's 35 year annualized returns of 10.08% and 10.38%, for SSHFX and SSHVX, respectively, as of March 31, 2023, were ahead of the Russell Value at 9.97%. For the Fund's most recent standardized performance information, click here. The year...

December 31, 2022

The Sound Shore Fund Investor (SSHFX) and Institutional (SSHVX) class shares advanced 13.18% and 13.25%, respectively, in the 4th quarter of 2022, ahead of the Russell 1000 Value Index (Russell Value) which was up 12.42%.  The 2022 full year declines for SSHFX of 10.57% and for SSHVX of 10.40% were behind the Russell Value's decline of 7.54%.  For the Fund's most recent standardized performance information, click here. The bear market during 2022, which saw the Standard & Poor's 500 Index (S&P 500) down almost 25% at its September trough and finish the year down 18%, represents the 7th such occurrence in...