March 31, 2025
The Sound Shore Fund Investor Class (SSHFX) and Institutional Class (SSHVX) declined 1.93% and 1.89%, respectively, in the first quarter of 2025, trailing the Russell 1000 Value Index (Russell Value) which advanced 2.14%, and ahead of the Standard & Poor’s 500 Index (S&P 500) which declined 4.27%. The three year annualized advances for SSHFX of 8.43% and for SSHVX of 8.64% were ahead of the Russell Value’s 6.64% and behind the S&P 500’s 9.06%. As long-term investors, we highlight that Sound Shore’s 35 year annualized returns of 10.13% and 10.41%, for SSHFX and SSHVX, respectively, as of March 31, 2025, were ahead of the Russell Value at 9.81% and trailed the S&P 500 at 10.56%. 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.
After a strong finish to 2024, Sound Shore gave back a portion of our gains in the first quarter of 2025, finishing down 1.9%. While the Russell Value edged higher 2.1%, most of the broad indices were off with the S&P 500 declining 4.3%, Nasdaq 100 Index down 10.3% and the small cap Russell 2000 Index down 9.5%. Policy change in the United States and abroad added to the existing debate regarding inflation, economic growth and uncertainty.
Some of our holdings were disproportionally impacted. For example, certain parts of health care sold off on possible regulatory changes, and one of our best contributors from 2024, Teva Pharmaceutical, was not immune. Teva develops, manufactures and markets generic and specialty drugs focused on neurological and respiratory diseases. Following a period of poor capital allocation decisions by prior management teams, in 2023 we were able to invest at a very attractive 4 times earnings and with a 20%+ free cash flow yield. New leadership has focused on execution and pipeline development, leading to upward inflection in margins and positive clinical trial results. Teva remains remarkably cheap and we added to our position on recent price weakness.
Along with concerns about a slowing economy and consumer spending, holdings PayPal and Disney fell after strong finishes to 2024, despite both having very solid balance sheets. Notwithstanding the economic worries, each has internal change that is driving improved profitability. PayPal is a digital and mobile payments pioneer that we were able to add to the portfolio in the third quarter of 2024 when it was trading below normal at 16 times earnings. A new management team, led by Intuit veteran Alex Chris, has targeted improvements in product and pricing to help drive margins higher. With $5.5 billion in net cash on the balance sheet, including long-term investments, the company is buying approximately 6% of the outstanding shares annually and PayPal remains a full position. Similarly, media and entertainment leader Disney was lower after giving back a portion of its prior YTD gains. With an impressive breadth of content to drive market share and a steady, cash generating Experiences business (parks, resorts, cruises), we believe Disney is uniquely well positioned. The company’s media unit is growing while content spending has come down. We believe their streaming business, which includes ESPN and Hulu, is undervalued and management is raising prices for the service. Trading below 14 times earnings power with a strong balance sheet, renewed dividend and $3 billion annual share buyback program, Disney is an attractive risk/reward with potential to grow both in the US and abroad.
Even within the uncertain market environment, we were encouraged by stability throughout our portfolio. Check Point Software Technologies, an information technology security provider, was our top contributor for the period. A leader in what has become a critical focus for businesses, cyber security solutions, Check Point gained after announcing improved bookings and a positive revenue outlook for 2025. We added the position to the portfolio early in 2024 when it was trading at a below normal 17 times earnings. The company is growing earnings and buying back shares with its free cash flow.
Away from technology, miner Barrick Gold benefitted from rising gold prices and from its expanding copper business. We initiated our investment when the stock was trading at below normal price to earnings and price to book valuations. The depressed valuation was largely due to long-term issues driven by poor acquisitions and shorter-term inflationary pressures that had been a drag on profitability. Following Barrick’s 2019 merger with Randgold, the latter’s senior management team took the reins and have since streamlined and optimized the company’s once sprawling asset base. Today, Barrick is improving operations and driving organic growth which should improve returns on capital. Bolstered by a nearly debt-free balance sheet and strong free cash flows, the company is well positioned to increase dividends, share buybacks and improve its valuation.
Finally, a strong contributor that we have discussed in past letters, power producer Vistra Corp. continued its upward trajectory from last year into the first quarter. A long-term holding, Vistra is a low-cost provider with increasingly important carbon-free nuclear facilities to power data centers. We had been trimming our position as the stock approached our price target and sold the last of our holding early in the quarter.
Taking a moment to reflect, it has been 5 years since the COVID crisis. During that time, in spite of the lack of breadth and Magnificent 7 dominance, market conditions have been better for our style of investing as interest rates normalized off of 0%. In our Performance Commentary from the 1st Quarter of 2020 we wrote:
“As 2020 began, persistently low rates and moderate global growth continued to drive investors into bond proxy (utilities, consumer staples and REITS) and high-growth stocks, leading to their outperformance and rich valuations.”
“By mid-March, with the virus spreading in the US, the Federal Reserve announced it would cut its baseline interest rate range to 0 to 0.25 percent, increase purchases of Treasury bonds and mortgage backed securities…With this last move, the bond proxies may have had their final momentum surge. Only time will tell.”
“When the market senses uncertainty, equities fall sharply and in unison, without regard to fundamentals or an eye to the future. As confidence returns, quality at an attractive price will likely outperform. At Sound Shore, we are long-term, value investors and believe our portfolio is well positioned for trends that are likely to emerge, post-crisis.”
Indeed, in the last five years quality at an attractive price…what we think of as value at Sound Shore has performed quite well. It takes patience, conviction and humility to navigate through these cycles and create long-term results for our clients. As always, we are on to the next play and given the start to 2025 we remain vigilant in seeking the best opportunities for the future.
With all that said, we appreciate your investment alongside ours at Sound Shore. At March 31, 2025 Sound Shore’s portfolio had a forward price-earnings multiple of 11.0 times consensus, a meaningful discount to the S&P 500 at 20.1 times and the Russell Value at 16.1 times, despite strong balance sheets and free cash flow.
Note: This commentary was written the second week of April. Following the tariff announcements of April 2nd, the S&P 500 fell nearly 11% in just two days. As we witness continued volatility while writing this letter, it is important to reiterate the message we relayed above that short-term market performance may test our resolve, but patience is the virtue. We continue to analyze Sound Shore’s portfolio with regard to the proposed tariffs, understanding that the ultimate outcome is far from certain. Our team continues to monitor the situation and with our long-term approach to investing, we are taking advantage of price volatility where we see opportunity.
To hear from our team directly, please go to our website to access short video clips, including our Meet the Team introduction: https://soundshorefund.com/insights-news/
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.
The views in this letter were those of the Fund managers as of 3/31/25 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.
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