| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 10.5% | - | 8.3% |
SouthernSun's small-cap strategy delivered -2.64% net returns in Q4 2025 versus Russell 2000's +2.19%, reflecting market preference for narrative momentum over fundamental breadth. Manager Phillip Cook draws extensive parallels between today's AI-driven environment and the 2014-15 oil collapse, warning that AI has become a macroeconomic assumption embedded across capital markets. Key risks include energy constraints on data centers, rising electricity costs, and grid limitations challenging scalability assumptions. The portfolio emphasizes businesses performing well fundamentally with strong balance sheets and resilient cash flows, though markets don't reward fundamentals linearly. Notable contributors included Advanced Energy Industries benefiting from AI-driven data center demand, while detractors like Crane NXT faced macroeconomic uncertainty despite solid operating performance. Manager initiated positions in CSW Industrials and Kadant while exiting Dycom and Timken. Looking ahead, Cook expects neither collapse nor uninterrupted progress but adjustment periods that restore market clarity, maintaining discipline in finding mispriced opportunities overlooked amid prevailing narratives.
Long-term value creation requires discipline and humility to recognize when markets may be viewing reality through distorted perception, particularly in late-cycle environments where confidence crowds out alternative interpretations of data.
Manager enters 2026 optimistic about the future yet mindful of historical lessons, seeing neither inevitability of collapse nor uninterrupted progress. Expects a landscape shaped by plausible scenarios including valuation compression, overcapacity periods, and macroeconomic crosswinds. Continues to find interesting opportunities in areas overlooked amid prevailing narratives, maintaining balance between optimism and discipline.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Feb 25 2026 | Q4 2025 | AEIS, BOOT, CSW, CXT, DAR, DORM, DY, EXTR, KAI, LPX, TKR, USPH | AI, energy, fundamentals, risk, small caps, valuation, value |
AEIS DAR CSW KAI DORM DY TKR |
Manager draws extensive parallels between today's AI-driven market environment and the 2014-15 oil collapse, warning that AI has become a macroeconomic assumption embedded in capital… |
| Oct 30 2025 | 2025 Q3 | BCO, CXT, DAR, MOD, SCL | active management, Capital Allocation, industrials, Recurring Revenue, Value Investing |
BCO MOD DAR SCL CXT BCO MOD DAR SCL CXT |
SouthernSun emphasized patience and valuation discipline amid divergent market conditions. The letter highlighted industrial and manufacturing opportunities, active managements importance, and disciplined capital allocation across… |
| Jul 17 2025 | 2025 Q2 | BOOT, DY, MSA, OXM, SAM | Capital Allocation, Discipline, Margins, Resilience, small caps |
BOOT DY SAM MSA |
The commentary stresses operational and capital discipline among small-cap companies navigating tariffs, inflation, and uneven demand. Management highlights cost control, margin stewardship, and balance-sheet strength… |
| Apr 25 2025 | 2025 Q1 | BOOT, EPAC, EXTR, LOB, MOD, PII, TKR | - | - | - |
| Dec 31 2024 | 2024 Q4 | AEIS, AWI, BCO, DORM, MGPI, OXM | - | - | - |
| Sep 30 2024 | 2024 Q3 | BOOT, LPX, NGVT, USPH | - | - | - |
| Jul 20 2024 | 2024 Q2 | BOOT, DAR, DY, USPH | - | - | - |
| May 17 2024 | 2024 Q1 | BOOT, DY, MBUU, MGPI | - | - | - |
| Feb 20 2024 | 2023 Q4 | BDC, DY, LOB, SAM | - | - | - |
| Sep 30 2023 | 2023 Q3 | DAR, DY, MUSA, SAM | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| Q4 2025 |
AIThe extended federal government shutdown added volatility during what was otherwise a risk-on environment, with a mid-quarter shift in market behavior for AI-related equities as the exuberant narrative evolved to one more balanced in assessing the technology's enormous potential against staggering capital spending plans and high expectations. The team initiated a position in Credo Technology as a more diversified way to gain exposure to strong trends in AI-connectivity. |
Connectivity Semiconductors Infrastructure Capital Spending |
EnergyEnergy plays a critical role in AI infrastructure economics, with data centers becoming major electricity consumers. Rising power costs compress margins while grid constraints and regulatory scrutiny influence deployment timelines. The manager emphasizes that unlike software-driven growth, AI compute cannot be scaled independently of physical energy reality. |
Data Centers Grid Power Infrastructure Utilities | |
Small CapsThe fund invests in a portfolio of competitively advantaged small and medium-sized businesses, which remained out of favor for most of the quarter. The strategy of owning leading small-cap businesses has been the foundation since inception, delivering 354 basis points of annual outperformance over the benchmark since inception despite recent headwinds. |
Growth Outperformance Benchmark Russell Businesses | |
| 2025 Q3 |
IndustrialIndustrial real estate benefits from multi-year demand drivers including e-commerce growth, last mile infrastructure needs, onshoring trends, and shift from just-in-time to just-in-case inventory management. AI's physical manifestation through robotics and automation will require more industrial facilities. Fund owns Prologis, EastGroup Properties, and Terreno Realty. |
E-commerce Last Mile Onshoring Inventory Robotics |
| 2025 Q2 |
Discipline |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Oct 30, 2025 | Fund Letters | Michael Cook | CXT | Crane NXT Co. | Industrials | Security & Authentication Technologies | Bull | NYSE | Authentication, Digital security, M&A, Payments, recurring revenue, spin-off | Login |
| Feb 25, 2026 | Fund Letters | Michael Cook | TKR | Timken Company | Industrials | Industrial Machinery | Bear | New York Stock Exchange | Acquisitions, Bearings, Execution, Governance, Industrial Motion, ROIC | Login |
| Oct 30, 2025 | Fund Letters | Michael Cook | BCO | Brink’s Company | Industrials | Security & Protection Services | Bull | NYSE | — | Login |
| Oct 30, 2025 | Fund Letters | Michael Cook | MOD | Modine Manufacturing Co. | Consumer Discretionary | Building Products & Equipment | Bull | NYSE | AI, capacity expansion, capital discipline, Cooling, datacenter, EBITDA | Login |
| Oct 30, 2025 | Fund Letters | Michael Cook | DAR | Darling Ingredients Inc. | Consumer Staples | Renewable Fuels & Specialty Chemicals | Bear | NYSE | Feedstock, Food waste, Free Cash Flow, Margin recovery, Regulation, Renewable fuels | Login |
| Oct 30, 2025 | Fund Letters | Michael Cook | SCL | Stepan Company | Materials | Specialty Chemicals | Bull | NYSE | capacity expansion, deleveraging, EBITDA, Polymers, specialty chemicals, Surfactants | Login |
| Oct 30, 2025 | Fund Letters | Michael Cook | CXT | Crane NXT Co. | Industrials | Security & Authentication Technologies | Bull | NYSE | Authentication, Digital security, M&A, Payments, recurring revenue, spin-off | Login |
| Jul 17, 2025 | Fund Letters | Michael Cook | BOOT | Boot Barn Holdings, Inc. | Consumer Discretionary | Specialty Stores | Bull | New York Stock Exchange | Balancesheet, consumer, expansion, Margins, retail, Samestoresales, specialty | Login |
| Jul 17, 2025 | Fund Letters | Michael Cook | DY | Dycom Industries, Inc. | Industrials | Construction & Engineering | Bull | New York Stock Exchange | Acquisitions, backlog, Fiber, growth, infrastructure, leverage, Telecom | Login |
| Jul 17, 2025 | Fund Letters | Michael Cook | SAM | The Boston Beer Company, Inc. | Consumer Staples | Brewers | Bull | New York Stock Exchange | Beverages, brands, cashflow, innovation, Longterm, Margins, Staples | Login |
| Jul 17, 2025 | Fund Letters | Michael Cook | MSA | MSA Safety, Inc. | Industrials | Safety Equipment | Bull | New York Stock Exchange | Balancesheet, Equipment, Industrials, Margins, Recurringrevenue, Safety, valuation | Login |
| Feb 25, 2026 | Fund Letters | Michael Cook | AEIS | Advanced Energy Industries, Inc. | Information Technology | Semiconductors & Semiconductor Equipment | Bull | NASDAQ | AI, CapEx, data centers, net cash, operating leverage, semiconductors | Login |
| Feb 25, 2026 | Fund Letters | Michael Cook | DAR | Darling Ingredients Inc. | Consumer Staples | Food Products | Bull | New York Stock Exchange | cash flow, Cyclical Recovery, Regulation, Renewable diesel, Sustainability, vertical integration | Login |
| Oct 30, 2025 | Fund Letters | Michael Cook | BCO | Brink’s Company | Industrials | Security & Protection Services | Bull | NYSE | — | Login |
| Feb 25, 2026 | Fund Letters | Michael Cook | CSW | CSW Industrials, Inc. | Industrials | Building Products | Bull | NASDAQ | Acquisitions, compounder, Distribution, HVAC, leverage, Pricing power | Login |
| Oct 30, 2025 | Fund Letters | Michael Cook | MOD | Modine Manufacturing Co. | Consumer Discretionary | Building Products & Equipment | Bull | NYSE | AI, capacity expansion, capital discipline, Cooling, datacenter, EBITDA | Login |
| Feb 25, 2026 | Fund Letters | Michael Cook | KAI | Kadant Inc. | Industrials | Industrial Machinery | Bull | New York Stock Exchange | Acquisitions, Bolt-On, Free Cash Flow, Industrials, Pricing power, recurring revenue | Login |
| Oct 30, 2025 | Fund Letters | Michael Cook | DAR | Darling Ingredients Inc. | Consumer Staples | Renewable Fuels & Specialty Chemicals | Bear | NYSE | Feedstock, Food waste, Free Cash Flow, Margin recovery, Regulation, Renewable fuels | Login |
| Feb 25, 2026 | Fund Letters | Michael Cook | DORM | Dorman Products, Inc. | Consumer Discretionary | Automotive Parts & Equipment | Bull | NASDAQ | aftermarket, Execution, Margins, Mix, Pricing, Vehicle Fleet | Login |
| Oct 30, 2025 | Fund Letters | Michael Cook | SCL | Stepan Company | Materials | Specialty Chemicals | Bull | NYSE | capacity expansion, deleveraging, EBITDA, Polymers, specialty chemicals, Surfactants | Login |
| Feb 25, 2026 | Fund Letters | Michael Cook | DY | Dycom Industries, Inc. | Industrials | Construction & Engineering | Bear | New York Stock Exchange | Acquisitions, capital allocation, Fiber, Integration, Telecom, valuation | Login |
| TICKER | COMMENTARY |
|---|---|
| AEIS | Advanced Energy Industries, Inc. (AEIS) was a top contributor in the Small Cap strategy during the quarter. AEIS provides highly engineered power conversion and control solutions for semiconductor equipment and data centers. Shares performed well after the company delivered a strong third-quarter report, exceeding the high end of guidance on the back of record Data Center Computing revenue that more than doubled year-over-year. Total revenue increased 24% year-over-year and Adjusted EPS rose 78%, reflecting both growth and operating leverage. Looking ahead, we spent time with management and others in and around the space during the quarter, and management reiterated that AI-driven demand remains robust and expects Data Center Computing to grow 25–30% in 2026 on secured design wins, supported by incremental capacity in the Philippines and Mexico and a Thailand facility that is ready to ramp quickly. In Semiconductor, customer validation of the eVerest and eVoS platforms underpins our expectation for growth as leading-edge logic and memory spending is expected to strengthen into 2026–2027. The balance sheet remains strong with a $192M net cash position. |
| BOOT | Longer-term holdings such as Boot Barn increased, outperforming benchmark returns |
| CSW | CSW Industrials, Inc. (CSW) is a diversified industrial growth company focused on niche, value added products across three segments: Contractor Solutions, Specialized Reliability Solutions, and Engineered Building Solutions. The portfolio is oriented around products that help customers do the job faster, avoid failures, and protect expensive assets—with core end markets spanning HVAC/R, plumbing, electrical, architecturally-specified building products, and industrial reliability. The core business is Contractor Solutions (~72% of TTM revenue, ~84% of Adj. EBITDA), which sells a broad set of replacement parts, installation accessories, and maintenance and repair tools predominantly used by residential and commercial HVAC and plumbing contractors. Products include HVAC motors and capacitors, evaporator coils, air handlers, condensate pads, pans, pumps, line-set covers, thread sealants, and maintenance chemicals – supported by well-known brands such as RectorSeal, Aspen, MARS, and others. Contractors often ask for CSW products by name and have been using the brands for many years, resulting in pricing power for CSW. Also, management has successfully executed an acquisition playbook in this segment, adding products which immediately benefit from gaining broader distribution through CSW's distribution network. |
| CXT | Crane NXT (CXT) was a bottom contributor in the SMID Cap strategy during the quarter despite delivering solid operating performance in its most recent earnings release. The company reported sales of $445 million (+10% YoY) with a core sales increase of 1%, adjusted operating margin of 24.7%, and adjusted EPS of $1.28, while also raising full-year sales growth guidance. However, management also highlighted macroeconomic uncertainty impacting demand in the Payment Innovations segment. |
| DAR | Darling Ingredients (DAR) was a top contributor in the SMID Cap strategy in the fourth quarter. DAR is the largest publicly traded company turning edible by-products and food waste into sustainable products and a leading producer of renewable energy. Darling has faced significant headwinds over the past couple of years, and the stock traded within a fairly tight range of $30-40 over the past twelve months. This downturn is, in our opinion, at or near a bottom. We see several fundamental and regulatory changes supporting our view that top line and bottom-line results will inflect higher in 2026. |
| DORM | Dorman Products (DORM) was a bottom contributor in the period, even as fundamentals remained constructive in its latest earnings release. Dorman reported net sales of $543.7 million (+7.9% YoY) and meaningful gross profit improvement with gross profit at 44.4% of net sales (up from 40.5% a year ago), reflecting favorable mix and execution—particularly within Light Duty. We believe the share weakness was more about near-term market positioning and expectations than business deterioration, as we see continued strength in the core business and expect solid results to continue. |
| DY | After a long and successful ownership of DY, we decided to exit our position in the fourth quarter in favor of more attractive opportunities. The business is experiencing strong demand from internet providers for fiber deployment, but we believe much of the recent valuation expansion is being driven by AI exuberance. |
| EXTR | Earlier in 2025, we added EXTR to the Small Cap strategy. We have continued to get to know the company throughout the year, and our conviction has built, so in the fourth quarter we added EXTR to the SMID strategy. Extreme Networks is one of the top three players in the enterprise networking industry, although it remains a distant third behind Cisco and Hewlett Packard (HPE), which together control more than 60% of the market. |
| KAI | Kadant Inc. (KAI) is a global supplier of critical components and engineered systems to process industries, primarily pulp, paper, and wood processing. Its products—including debarkers, stranders, chippers, balers, pulpers, rotary joints, and doctor systems—are essential to customers' manufacturing operations. Given the high cost of downtime, customers place a premium on quality, reliability, and service, enabling KAI to price for value. Most of Kadant's product lines hold #1 or #2 market share and have histories spanning over 100 years, resulting in a large installed base that drives a highly recurring parts and services revenue stream (approximately two-thirds of total revenue). While Kadant's underlying end markets grow modestly (roughly 2–3% annually), the company has consistently supplemented organic growth through disciplined bolt-on acquisitions at attractive valuations, typically mid- to high-single-digit EBITDA multiples. Management has clearly articulated acquisition criteria—focused on market-leading positions, critical equipment, and high parts and consumables content—and has demonstrated discipline in adhering to this framework. The acquired businesses tend to generate high returns on tangible assets and strong free cash flow, which Kadant reinvests into additional acquisitions. We expect this capital-allocation flywheel to continue generating mid-teens returns over time. |
| LPX | Louisiana-Pacific Corporation (LPX) |
| TKR | We exited our position in TKR after a long and successful investment in favor of more attractive opportunities. Despite still believing TKR has strong and durable brands in industrial bearings, we don't expect the company's strategy of redeploying capital into acquiring industrial motion businesses to create material value for shareholders. |
| USPH | U.S. Physical Therapy, Inc. (USPH) |
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