SouthernSun Asset Management, LLC, an investment management firm, released its “SouthernSun Small Cap Strategy” second-quarter 2026 investor letter. A copy of the letter can be downloaded here. The second quarter of 2026 was driven by the AI boom and the Iran War, affecting interest rates, oil, commodities, and consumer sentiment. The riskiest market segments performed robustly in the quarter, primarily driven by technology and industrial firms linked to the AI arms race. Some portfolio companies linked to high-value consumer purchases faced pressure but still aligned with positive earnings and trends. The Small Cap Composite returned +10.79% on a gross basis +10.58% net) in the second quarter versus the Russell 2000®, which returned 21.49%, and the Russell 2000® Value, which returned 17.19%, over the same period. The composite returned 27.10% on a gross basis (26.13% net) versus 40.78% and 43.01% for the indexes. The fund underperformed the index due to the underweight position in speculative growth. In addition, please check the Strategy’s top five holdings to know its best picks in 2026.
In its Q2 2026 investor letter, SouthernSun Small Cap Strategy highlighted Darling Ingredients Inc. (NYSE:DAR). Darling Ingredients Inc. (NYSE:DAR) is a leader in converting edible and inedible bio-nutrients to sustainable natural ingredients. On July 23, 2026, Darling Ingredients Inc. (NYSE:DAR) closed at $63.40 per share, reflecting a market capitalization of $10.08 billion. Darling Ingredients Inc. (NYSE:DAR) posted a one-month return of 20.76%, while its shares gained 84.79% over the past 52 weeks.
SouthernSun Small Cap Strategy stated the following regarding Darling Ingredients Inc. (NYSE:DAR) in its Q2 2026 investor update:
“Darling Ingredients Inc. (NYSE:DAR) was a bottom contributor in the Small Cap strategy during the second quarter after being a top contributor during the first, up nearly 65% through March 31. DAR is the largest publicly traded company turning edible by-products into sustainable products and a leading producer of renewable energy. DAR’s fundamentally improved earnings trajectory following the robust EPA mandates on renewable fuel volumes remains intact, and the business is performing well. The modest decline in the share price in Q2 largely reflected the pending resolution(s) of the Iran military conflict, which brought nonrenewable fuel prices down meaningfully. For reference, Crude Oil Futures were down nearly 40% in the second quarter, and DAR declined partly due to the substitution value of renewables being incrementally less for aviation fuel, in particular. That said, the DAR volume picture for the year is not impacted meaningfully by exogenous factors like the price of oil and is rather determined by the minimum volume requirements from the RVO and the growth of DAR’s other business lines. We remain optimistic on DAR’s business prospects and believe shares remain underpriced relative to both the near-term and long-term earnings power of the company.”
Darling Ingredients Inc. (NYSE:DAR) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 61 hedge fund portfolios held Darling Ingredients Inc. (NYSE:DAR) at the end of the first quarter, up from 47 in the previous quarter. While we acknowledge the risk and potential of Darling Ingredients Inc. (NYSE:DAR) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than Darling Ingredients Inc. (NYSE:DAR) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Darling Ingredients Inc. (NYSE:DAR) and shared the list of best defensive stocks to buy amid geopolitical tensions. In addition, please check out our hedge fund investor letters Q2 2026 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.
