Local by flywheel divi11/6/2023 Today the companies are worth $23 billion and $16 billion, respectively. “If it’s a great company, we know it won’t be a small cap forever.”Īmong SouthernSun’s biggest wins in the past are the likes of rural-supply retailer Tractor Supply (TSCO) and fluidics system manufacturer Idex Corporation (IEX) back when they were still small caps. They have to keep doing it, as their winners outgrow the fund’s lightweight class. “We’re hooked on the idea of finding innovative companies that nobody has ever heard of,” says Phillip Cook. Over the last five years, the fund has returned 9% on an annualized basis, well above peers. Though it has fewer assets, SouthernSun’s SMID-cap fund has had solid results as well-with the strategy up 15% this year, more than double its benchmark. Since the small-cap mutual fund’s inception in 2003, it has posted an annualized return of 13%, outpacing the Russell and the S&P indexes. They manage a low-turnover, concentrated portfolio of under-the-radar businesses and aim to double their invested capital roughly every half-decade. While SouthernSun boasts a solid long-term track record since its inception, since deciding to jointly spearhead the team eight years ago, father and son have consistently outperformed their benchmark-often by a country mile. That comes on the heels of an outstanding 2022, at least in relative terms, when the fund ranked top among its peers, according to Morningstar, losing just 1%-compared with drops of roughly 20% for the Russell and the large-cap S&P 500. The flagship fund’s 21-stock portfolio is up more than 10% this year, outpacing the Russell 2000’s 8.8%. “That said, we do not have a hard cut-off for when we have to sell a business because we like to let great companies grow within our client portfolios,” says Phillip. Most holdings in the firm’s small-cap fund have a market capitalization of $3 billion or less, while the SMID cap strategy typically invests in companies of up to $6 billion.
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