September 30, 2025
The Sound Shore Fund Investor Class (SSHFX) and Institutional Class (SSHVX) advanced 8.46% and 8.53%, respectively, in the third quarter of 2025, well ahead of the Russell 1000 Value Index (Russell Value) which advanced 5.33%, and ahead of the Standard & Poor’s 500 Index (S&P 500) which advanced 8.12%. The three year annualized advances for SSHFX of 21.32% and for SSHVX of 21.57% were ahead of the Russell Value’s 16.96% and behind the S&P 500’s 24.94%. As long-term investors, we highlight that Sound Shore’s 35 year annualized returns of 10.87% and 11.14%, for SSHFX and SSHVX, respectively, as of September 30, 2025, were ahead of the Russell Value at 10.51% and trailed the S&P 500 at 11.41%. 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.
The rally in stocks was driven by strong corporate earnings, modest policy relief and investor enthusiasm for the Federal Reserve cutting interest rates in September by 25 basis points. Notably, sector contribution was broad with only the consumer staples sector finishing lower for the three-month period. While this positive momentum is welcomed, our returns were driven by stocks creating their own tailwinds in a variety of industries, some of which we detail below.
In our second quarter letter we discussed legacy media and our investment in Disney. It is a good case study on how we assess industry change and look for inflection points for companies that adapt and begin to drive value after a period of uncertainty. Our best contributor in the third quarter was another such example, fellow media giant Warner Brothers Discovery. Management has been deleveraging the balance sheet, expanding its streaming business (now a positive contributor to earnings), and Warner Bros. Studios has seen a significant rebound and is growing again. We bought the stock, following years of underperformance, when it was trading for less than $9 per share with a free cash flow yield of more than 15%. After our purchase, the strategic chess pieces in media began to move and management announced their plan to separate the company into a traditional, linear TV business (CNN, TNT, Discovery Channel) and a growth business (streaming, HBO MAX, movie studio). The Street applauded this split and began re-valuing the assets on a sum of the parts basis, driving the stock higher. Not long after, it was reported that the newly created Paramount Skydance was considering a bid to acquire Warner Brothers Discovery. As of this writing no agreement has been reached, but we remain confident that regardless of the outcome of this potential deal, the value of this set of assets will be realized soon.
Clearly, acquisition activity has picked up and we often benefit from that in our portfolio given our hunt for undervalued companies. It’s not just the media sector; power generator AES Corporation is another portfolio holding that may be in play. Not unlike our successful previous investments in Vistra and Constellation Energy, AES is an independent power producer with a pair of utilities in Ohio and Indiana, along with a diversified set of merchant power plants globally. The crown jewel is their utility-scale solar projects that power data centers for the large hyper-scalers such as Meta and Amazon. There have been widely reported rumors that AES is in advanced talks to be acquired by an infrastructure-focused subsidiary of BlackRock. The stock had a significant rebound from the second quarter when it lagged due to uncertain tax credit policies and despite increased electricity demand from data center customers. We believe this recent surge reflects the value of the company’s promising renewable/storage projects as we transition to different energy sources.
Away from Merger & Acquisition activity, a couple of our commodity holdings had divergent performance. Miner Barrick rose on its expanding copper business and rising gold prices which have been driven higher by investor concerns over fiscal stability. The stock was one of our best contributors in the third quarter and for the year-to-date period. Meanwhile, low-cost natural gas and oil producer Coterra Energy declined on soft crude oil prices. This, despite strong natural gas demand for electricity production, executing on its plan to reduce costs, and raising its 2025 guidance. Both companies have strong balance sheets with little debt and are returning capital via dividends and stock repurchases.
Another detractor was leading payment services provider Fidelity National Information Services, despite the company’s raised revenue outlook and meeting earnings expectations. There has been a de-rating of many stocks in the payments space, as investors grapple with technological developments, including stable coin. While a nascent technology with new regulatory support coming from the Genius Act, we see more opportunity than risk to FIS, who will help bank customers develop the capability to offer stable coins to customers. We initiated our position in the fintech leader in 2023 when the stock was trading at 9 times earnings. After a strong first half of 2025, the stock retreated, in spite of good performance and an improving mix of business. FIS has already sold 55% of its ill-fated acquisition of Worldpay and has an agreement to sell the rest. Additionally, the company is bringing in a complimentary credit card processing business from Global Payments that should close in the first half of 2026. As the dust settles, we believe the stock should return to a normal, mid-to-high teen’s valuation.
As we turn to the final three months of the year, investors will be keenly focused on geopolitical events and the Federal Reserve’s action on rates. Coupled with elevated valuations for major technology stocks, headwinds of slowing economic growth and persistent inflation risk, these factors introduce a high degree of uncertainty. As always, we look for more than one way to win by focusing on attractively priced, out-of-favor stocks where managements are building value not yet recognized by “Wall Street.” We are encouraged by the recent breadth in stock performance as investors are increasingly paying attention to company-specific fundamentals. We note that at September 30, 2025 Sound Shore’s portfolio had a forward price-earnings multiple of 12 times consensus, a meaningful discount to the S&P 500 at 23 times and the Russell Value at 17 times, despite strong balance sheets and free cash flow.
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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.
The views in this letter were those of the Fund managers as of 9/30/25 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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