SouthernSun Asset Management, LLC, an investment management firm, released its “SouthernSun Small Cap Strategy” first quarter 2025 investor letter. A copy of the letter can be downloaded here. In the first quarter, the strategy returned -11.32% on a gross basis (-11.48% net) compared to a -9.48% return for the Russell 2000 Index and -7.74% for the Russell 2000 Value Index. The strategy returned -12.55% on a gross basis (-13.21% net) for the trailing twelve months compared to -4.01% and -3.12% respectively for the indexes over the same period. In addition, please check the top 5 holdings of the strategy to know its best pick in 2025.
In its first-quarter 2025 investor letter, SouthernSun Small Cap Strategy highlighted stocks such as Live Oak Bancshares, Inc. (NYSE:LOB). Headquartered in Wilmington, North Carolina, Live Oak Bancshares, Inc. (NYSE:LOB) is a bank holding company for Live Oak Banking Company that offers commercial banking products and services. The one-month return of Live Oak Bancshares, Inc. (NYSE:LOB) was -0.26%, and its shares lost 20.58% of their value over the last 52 weeks. On April 25, 2025, Live Oak Bancshares, Inc. (NYSE:LOB) stock closed at $12.49 per share with a market capitalization of $1.212 billion.
SouthernSun Small Cap Strategy stated the following regarding Live Oak Bancshares, Inc. (NYSE:LOB) in its Q1 2025 investor letter:
“Live Oak Bancshares, Inc. (NYSE:LOB) was a top detractor in the first quarter in the Small Cap strategy. Live Oak continues to execute well on its unique approach of lending to small businesses as evidenced by the reported $1.4 billion of loan originations in the fourth quarter, which was the second highest quarter of originations in the company’s history. Management also reported continued strength in the loan pipeline and positive small business sentiment based on both government surveys as well as Live Oak’s own internal surveys. The stock has been under pressure primarily due to the elevated provision for loan losses that the company has recorded in recent quarters as well as the macro environment and increased probability for a recession in the US. Much of the provision expense relates to loans originated between 2020 and 2022 when interest rates were at historically low levels. The vast majority of Live Oak’s loans are floating rate, and borrowers have had to absorb the rapid increase in interest rates that occurred primarily during 2023. Approximately 70% of defaults were loans that had interest rate increases of 4% or more since origination. While Live Oak may continue to record elevated provision for loan losses for a few more quarters, we believe that recent trends are part of a normal credit cycle and not indicative of lower credit standards. We believe Live Oak’s differentiated model of leveraging leading edge technology to deliver superior service to small business borrowers will allow it to create significant value to shareholders over the long-term.”
A close-up of financial documents on a desk, indicating the banking products that the company provides.
Live Oak Bancshares, Inc. (NYSE:LOB) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 12 hedge fund portfolios held Live Oak Bancshares, Inc. (NYSE:LOB) at the end of the fourth quarter, compared to 10 in the third quarter. While we acknowledge the potential of Live Oak Bancshares, Inc. (NYSE:LOB) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we covered Live Oak Bancshares, Inc. (NYSE:LOB) and shared the list of oversold bank stocks to buy. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.