Aristotle Capital Management’s Core Equity Fund laid out a clear first-quarter picture: markets softened, bond returns dipped, and one holding—Darling Ingredients—stood out for momentum tied to the Renewable Volume Obligation update. The fund’s letter explains why allocation choices dented performance even as stock picking helped, and it flags firms riding secular tailwinds or strong product cycles.
The quarter was rough across the board, with the S&P 500 down 4.33% and the Bloomberg U.S. Aggregate Bond Index slipping 0.05%. Against that backdrop, the Fund (Class I-2) posted a total return of -4.45%, marginally underperforming the index by a hair. Aristotle pins the gap mainly on allocation decisions rather than poor security selection, which it says contributed positively.
Investment discipline remains focused on companies with durable growth drivers, not short-term fads, and the letter highlights the advantage of sticking with firms enjoying secular tailwinds or cyclical product strength. The fund continues to monitor its top holdings and balance exposure where conviction and valuation align. That approach helps explain why certain names were kept despite a choppy market.
One name that earned a spotlight was Darling Ingredients, listed as DAR. Aristotle singled it out as a contributor during the quarter as the stock found continued momentum ahead of an EPA decision on the Renewable Volume Obligation. On May 12, 2026, DAR closed at $62.26 per share, posted a one-month return of 6.01%, and was up 78.31% over the trailing year, with a market capitalization around $10.00 billion.
“Darling Ingredients Inc. (NYSE:DAR) contributed to performance in the first quarter, as the stock continued to show momentum ahead of the finalization of the Environmental Protection Agency’s Renewable Volume Obligation (RVO), which came in the final days of March. The RVO was ahead of expectations and bodes well for continued improvement in renewable diesel margins for Darling’s joint-venture Diamond Green Diesel.”
That quoted passage is telling: Darling’s business mixes old-school commodity processing with an edge in renewable fuel inputs, and RVO policy shifts can move margins quickly. Diamond Green Diesel is the joint venture that stands to gain when RVOs strengthen demand for renewable diesel, and the fund interprets the late-March RVO outcome as favorable. Momentum around policy clarity tends to attract investor attention, especially when it directly improves refining economics.
Darling’s core model turns edible and inedible byproducts into usable ingredients for feed, fuel, and other industrial applications, which gives it a hedge against single-market volatility. The company reported total sales of $1.6 billion in Q1 2026, up from $1.4 billion a year earlier, showing meaningful top-line growth even in a challenging macro patch. That revenue uptick supports the narrative of operational resilience and demand for renewable-related outputs.
Institutional positioning is mixed but meaningful: 47 hedge fund portfolios held DAR at the end of the fourth quarter, down from 51 the prior quarter, reflecting some trimming but continued institutional interest. The stock isn’t on a list titled 40 Most Popular Stocks Among Hedge Funds Heading Into 2026, yet it still commands attention from active managers who track policy-driven opportunities. Moves in and out of positions can reflect shifting views on policy durability and margin outlooks for renewable diesel initiatives.
Aristotle stresses that allocation effect, not security selection, drove the fund’s underperformance, which is an important distinction for investors watching portfolio construction. That nuance means the team believes its stock picks remain sound even if timing or sector weights hurt relative returns in this window. The letter underscores a patient, thematic approach rather than chasing short-term momentum across the board.
Finally, the authors note broader market possibilities beyond this single name, mentioning that some AI-related stocks might offer larger upside potential with different risk profiles and recommending a free report on a short-term AI opportunity. That comment aims to point readers toward other themes the firm sees as attractive today while keeping Darling in the conversation as a policy-sensitive renewable energy play.
