• Small-cap earnings are strong, from our viewpoint, in an environment that is working through supply chain and inflationary challenges. Per Bloomberg, 87% of Russell 2000 companies reported earnings with 60% beating sales expectations and earnings estimates (as of 11/12/2021). 
• Supply chain disruption has negatively impacted the ability of many businesses to procure adequate supplies. Less supply has also led to input cost inflation. Additionally, numerous companies are reporting hiring challenges resulting in wage inflation.
• Many firms that we have heard from expect these issues to last well into 2022. To the extent they last longer, margins will probably be pressured at most businesses. 
• Despite these challenges, demand remains strong, the consumer is healthy, and many enterprises have successfully raised prices to combat these issues.
• Fenimore remains focused on the long term. Some of our small-cap holdings will likely face short-term disruption. Several should find it easier to withstand these shocks and some should actually benefit. Regardless of the current issues, we believe that all our holdings are high-quality and remain positive as it relates to their long-term prospects.    

Kevin Gioia, CFA
Portfolio Manager, FAM Small Cap Fund