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Letter From Cobleskill: Spring 2025

Written by Makayla Tebano on . Posted in All News, Featured News & Insights, Investment Insights.

Letter From Cobleskill: Spring 2025

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    Dear Fellow Investor,

    At a time when there is uncertainty in the U.S. economy — and, by extension, in the stock market — our Fenimore team remains keenly focused on being as certain as we can that the companies we invest in are ready for whatever the coming months may bring.

    Investing in what we deem to be quality businesses that meet our exacting criteria has been Fenimore’s cornerstone since our founding in the midst of a recession 51 years ago. Times always change, and currently it’s a fast-paced environment, but we are on top of the situation and continue to maintain our unchanging principles as we execute our plan.

  • Letter from Cobleskill Spring 2021

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    THE NATIONAL ECONOMIC PICTURE
    It’s fair to say that the 2025 outlook for America’s economic picture is now different from what investors expected as the new year began. At that time, the overall consensus was that the Federal Reserve would continue to lower short-term interest rates as inflation subsided; corporate earnings would grow more than 10% this year; and the new administration’s policies of lower taxes and less regulation would ignite business growth and boost the stock market.

    Instead, inflation remains stubborn at approximately 3%, where it’s been since 2023, and short-term interest rate reductions are stalled. Corporate earnings projections are being revised down (still solid but below expectations), partially due to the potential impact of tariffs. And, as of this writing, the S&P 500 Index was hovering around the same place as on Election Day.

    The on-again/off-again prospect of tariffs on goods from China, Canada, and Mexico — and the uncertainty those prospects are creating among businesses and consumers — will likely slow economic growth initially, which may cause the stock market to decline.

    This is not intended as a critique of the short- or long-term merits of the administration’s economic-related actions, especially since it’s only been a few months. It’s just the facts of where things stand today and another reason I often say, “No one can predict the stock market.”

    STAYING FOCUSED ON QUALITY BUSINESSES
    So, what is our team doing about the uncertainty? We’re seeking to ensure that the firms we invest in are ready to address it. Fenimore’s investment research analysts don’t limit our due diligence to the quarterly earnings calls that publicly traded companies are required to hold with droves of investors, analysts, and the news media. We talk privately and frequently with the leadership of our businesses — in person whenever possible — so we can see their operations firsthand, have an in-depth understanding of their strategies, and ask the hard questions that either reinforce our confidence in them or give us pause about future investments.

    Our most recent meetings have found our holdings to be strong and optimistic overall. Tariff issues are certainly a primary topic, but I’m pleased to report that we’ve found our companies universally equipped to weather any related storms. Due to tariff hikes during the administration’s first term, COVID, and a growing fear of doing business in China, most holdings have a diverse supplier base and the ability to adapt. They are much more prepared for change this time around.

    For example, only one of our companies has projected a reduction in earnings as a result of tariffs; however, through a series of tactical steps, they should be able to mitigate this estimated decline by two-thirds. Another firm showed us how they reduced imports from China in recent years to minimize tariff impacts. These imports were 50% of their product mix, but now are just 16%.

    These are the types of strategic moves we expect from our holdings as we aim to maximize your return and minimize your risk.

    INVESTING FOR THE LONG TERM
    As always in times of uncertainty, Fenimore encourages you to stay aware of present-day economic and market conditions, but to keep your focus on the future and stay the course. Meanwhile, we remain dedicated to investing in quality businesses that we believe can create value for our investors over the long term while navigating the everchanging landscape — just as we have since 1974.

    Our associates are available to speak with you about your investments to ensure they are aligned with your life goals. If you have questions or concerns, we encourage you to contact us at 800-932-3271 or info@fenimoreasset.com. For those of you who live in our region, please stop in or schedule a time to meet at our home office in Cobleskill or branch office in Albany, which just celebrated a successful one-year anniversary.

    Thank you for your confidence in us.

    Sincerely,
    John D. Fox, CFA®
    CHIEF INVESTMENT OFFICER

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    Earnings, Tariffs and Market Declines

    Written by Makayla Tebano on . Posted in Featured News & Insights, Investment Insights.

    Market Update: 

    EARNINGS, TARIFFS & MARKET DECLINES

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      March 11, 2025

      With the backdrop of a resilient and expanding economy, coupled with prospects for pro-business tax and regulatory policies, the market entered 2025 with positive momentum, reaching a peak in February. Over the last week, sentiment has quickly shifted as uncertainty surrounding tariffs and negative revisions to corporate earnings estimates have led to market declines. From the highs, stock prices have declined to the lowest levels since September.

      Index Nov 5, 2024 Close Feb 19, 2025 Peak Mar 10, 2025 Close % Change from Peak
      S&P 500 5,782.76 6,144.15 5,614.56 -8.6%
    • Andrew Boord, Portfolio Manager - Fenimore Small Cap Strategy

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    WHAT CHANGED

    Investor Outlook Entering 2025 Today’s Reality
    The Federal Reserve will continue to reduce short-term interest rates as inflation cooled. Inflation remains stubborn near 3% and the Federal Reserve rate reductions are on hold.
    Corporate earnings were poised to increase mid-teens. Analysts are revising earnings estimates down as weak outlooks on fourth-quarter calls and the impact of tariffs takes hold.
    New administration policies of low taxes and less regulation ignite business growth. New administration’s implementation of tariffs is expected to slow economic growth. Work by the Tax Foundation in Washington, DC, suggests a 1% decrease in GDP growth.

    A COMPANY-LEVEL VIEW
    Fenimore is dedicated to identifying select, quality businesses that we believe can grow and produce attractive returns over time – businesses that can withstand the inevitable bumps of economic cycles and policy changes.

    As our businesses reported earnings, most of the calls with management were dominated by questions about tariffs. As specific timing over the implementation of tariffs has been elusive, there were few definitive answers. Most management teams reassured investors that they could employ strategies similar to those used during the last major wave of tariffs. Broadly, there are three key approaches companies are using to mitigate the impact of tariffs:

    1. Diversify sourcing strategies. In response to tariff increases during the Trump administration’s first term, many companies proactively restructured their supply chains to mitigate geopolitical risk. This shift was further expedited during the pandemic as businesses sought greater resilience. Floor and Décor (FND) exemplifies this transition—having sourced 50% of its products from China in 2018, the company successfully reduced that figure to just 16% by the fourth quarter of 2024.
    2. Leverage supplier negotiations. Companies with strong competitive advantages and dominant market positions may have the bargaining power to compel suppliers to absorb a portion of the increased costs, thereby cushioning the impact of tariffs.
    3. Adjust pricing strategies. Several management teams have indicated that price increases could serve as a direct offset to higher costs. However, the extent to which this strategy will be adopted—and whether it could contribute to inflation—remains uncertain.

    IMPACT ON EARNINGS PER SHARE
    If left unaddressed, tariffs may pose headwinds to corporate earnings. Among the earnings calls we’ve participated in, Zebra Technologies Corporation (ZBRA) was the only company to provide a precise dollar impact estimate. Without mitigation, they anticipate a $60 million hit to profits in 2025. However, after implementing various countermeasures—including the aforementioned strategies—they project the net impact will be reduced to $20 million, or approximately 2% of pre-tax profits.

    On a broader scale, a recent J.P. Morgan report estimated that the implementation of the proposed tariffs could lower S&P 500 earnings per share (EPS) by approximately $16, representing a 6% reduction from current projections. If accurate and without further mitigation efforts, this adjustment would curb the index’s expected double-digit earnings growth to approximately 5%.

    * Source: J.P. Morgan Equity Strategy & Quantitative Research, Factset

    LOOKING AHEAD: Changing Times. Unchanging Principles.
    We stick to our plan: only owning companies we understand deeply, with what we believe to be solid competitive advantages, profitability, and strong leadership. Our Research team remains busy and diligent with earnings calls, talking with management teams, and traveling for face-to-face meetings. We recognize it’s a fast-moving environment with a lot of change. We will provide an update in our next quarterly letters, going out in early April.

    At Fenimore, we remain dedicated to the principles and philosophy that have seen us through many market cycles over the past 50+ years.

    STAY CONNECTED
    If you have any questions, please reach out to us. Call 800-721-5391, email us at info@fenimoreasset.com, or stop by either our Albany or Cobleskill location.

    Securities offered through Fenimore Securities, Inc. Member FINRA/SIPC, and advisory services offered through Fenimore Asset Management, Inc.

    Past performance is not indicative of future results. All investing involves risk including the possible loss of principal. Before investing, carefully read the fund’s investment objectives, risks, charges and expenses. FAM Funds’ prospectus or summary prospectus contains this and other important information about FAM Funds and should be read carefully before you invest or send money. 

    To obtain a prospectus or summary prospectus and performance data that is current to the most recent month-end for each fund as well as other information, please go to fenimoreasset.com or call (800) 932-3271.

    The principal risks of investing in the fund are: stock market risk (stocks fluctuate in response to the activities of individual companies and to general stock market and economic conditions), stock selection risk (Fenimore utilizes a value approach to stock selection and there is risk that the stocks selected may not realize their intrinsic value, or their price may go down over time), and small-cap risk (prices of small-cap companies can fluctuate more than the stocks of larger companies and may not correspond to changes in the stock market in general).

    Neither this presentation nor any of its contents may be distributed or used for any other purpose without the prior written consent of Fenimore. The description of certain aspects of the market herein is a condensed summary only. This summary does not purport to be complete and no obligation to update or otherwise revise such information is being assumed. These materials are provided for informational purposes only and are not otherwise intended as an offer to sell, or the solicitation of an offer to purchase, any security or other financial instrument. This summary is not advice, a recommendation or an offer to enter into any transaction with Fenimore or any of their affiliated funds. This presentation may contain statements based on the current beliefs and expectations of Fenimore’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Any references herein to any of Fenimore’s past or present investments, portfolio characteristics, or performance, have been provided for illustrative purposes only. It should not be assumed that these investments were or will be profitable or that any future investments will be profitable or will equal the performance of these investments. There can be no guarantee that the investment objectives of Fenimore will be achieved. Any investment entails a risk of loss. Unless otherwise noted, information included herein is presented as of the date indicated on the cover page and may change at any time without notice.

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    Letter From Cobleskill: Autumn 2024

    Written by Makayla Tebano on . Posted in All News, Featured News & Insights, Investment Insights.

    Letter From Cobleskill: Autumn 2024

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      Dear Fellow Investor,

      As I pen this letter, we are pleased with the overall performance of our mutual funds so far this year and, more importantly, over the long term. Despite our positive view, your FAM Funds team understands that you may be apprehensive with the November election looming. The interest rate environment, fears of a recession, and artificial intelligence (AI) may also be on your mind.

      Even though there seems to be a constant drumbeat of negative and confusing news, Fenimore’s investment research analysts see order in the disorder and this keeps us grounded. What we are observing is that, in general, corporate earnings are still growing, and we believe we are invested in a collection of high-quality businesses that are positioned well for the long term.

    • Andrew Boord, Portfolio Manager - Fenimore Small Cap Strategy

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    PRESIDENTIAL ELECTION
    Regardless of your politics, this year’s presidential election is creating some concern. However, when we look at past election years, the stock market has performed relatively well no matter which party controls the White House or Congress. It is also reassuring that the stock market rose in 20 of the last 24 election years.1 The Wall Street Journal published an article in early September about this topic with essentially the same takeaway. While our analysts are keenly aware of current issues, they continually look ahead seeking to own high-quality companies because, in our experience, this is the key to building wealth over time.

    INTEREST RATES
    Interest rates have slowly inched downward over the past two years in anticipation of Federal Reserve rate cuts. These rate cuts were confirmed at an August 2024 meeting where the Federal Reserve Chairman, Jerome Powell, stated, “The time has come for policy to adjust.” Lower rates should help increase home and automobile purchases, create an uptick in commercial construction projects, position businesses in certain sectors to thrive, and improve consumer confidence.

    FEARS OF A RECESSION
    Profits are still growing, overall, but results are mixed across sectors and industries. For instance, insurance, aggregates, and some high-tech pockets are performing well while industrials and banking are flat.

    Our research team continues to visit our holdings’ headquarters and monitor them, attend conferences to discover new opportunities, and engage with customers and suppliers at industry trade shows. We still see encouraging signs at the company level, including dividend growth, stock buybacks, and mergers and acquisitions. Because of this shareholder value creation, coupled with increasing profits, we remain bullish on stocks since stock prices tend to follow earnings over time.

    AI
    Increasing enthusiasm surrounding AI and considerable capital investments in its infrastructure have helped propel the positive stock market returns this year. At the same time, we are still in the very early stages of this technology and no one knows what the future holds. In fact, there are many similarities to the excitement of the dot-com era.

    As businesses strive to constantly improve, AI should help them to mine, process, and analyze data faster than ever before. While it remains to be seen how AI will take shape, we expect that many of our holdings should benefit from increased AI investment due to the services and technologies they provide.

    LOOKING AHEAD
    To reiterate, rising corporate profits typically lead to rising stock prices. These earnings are the result of hard work, ingenuity, and the compounding of knowledge and capital—not politics. Throughout Fenimore’s half-century in business, it has paid to believe in corporate America.

    We will continue to follow our market-tested investment approach, identifying what we deem to be high-quality companies, purchasing shares in them if they are available at appealing prices, and, ideally, holding them for many years as they grow profits. When we execute our plan effectively, we expect healthy returns over time, regardless of the temporary challenges experienced along the way.

    STAY CONNECTED
    Please do not hesitate to connect with us about your investments and financial goals at our Cobleskill or Albany office. You can also contact us from the comfort of your home by calling 800.932.3271 or emailing us at info@fenimoreasset.com.

    Thank you for your confidence in us.

    Sincerely,
    John D. Fox, CFA®
    CHIEF INVESTMENT OFFICER

      

    1 FactSet as of 8/31/2024

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    Letter From Cobleskill: Spring 2024

    Written by Makayla Tebano on . Posted in All News, Featured News & Insights, Investment Insights.

    LETTER FROM COBLESKILL: Spring 2024

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      Dear Fellow Investor,

      A sense of stability has returned to the investment world as it appears that inflation is abating and the economy is growing slowly. Our team views stability with optimism and the stock market, which is forward-looking, has responded accordingly. The S&P 500 Index hit a new high in January after more than two years since its previous high.1

      How did we get to where we are today? Late in 2021, inflation began to accelerate. When it became clear that high inflation was not temporary, the Federal Reserve (“Fed”) intervened. The Fed increased short-term interest rates significantly — at a record pace of just 18 months. Interest rates are a key factor in valuing assets, so this sudden change caused the prices of stocks, bonds, and real estate to decline.

    • Andrew Boord, Portfolio Manager - Fenimore Small Cap Strategy

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    Given this backdrop, why are stocks currently performing well overall? It seems that the market is now expecting the Fed to cut short-term interest rates due to inflation stabilizing. No one knows what the Fed will do, but we believe that steady interest rates (no more increases) are a positive for asset prices across the spectrum. Additionally, corporate earnings are projected to achieve mid- to high-single-digit growth this year. This adds to the optimism because stock prices tend to follow earnings growth over time.

    Even with the volatility and uncertainty over the past two years, you may be pleasantly surprised to know that the stock market has generated good returns over one, three, five, and 10 years as of year-end 2023.2 Likewise, we hope you are pleased when you review your FAM Funds quarterly statement.

    50 YEARS OF UNCHANGING INVESTMENT PRINCIPLES
    Just as Fenimore Asset Management’s stock selection process has been steadfast over the last half-century despite an ever-changing investment landscape, so has our mantra — focus on the long term. As we celebrate our golden anniversary, our research analysts remain dedicated to identifying select, quality businesses that we believe can grow and produce attractive returns over time.

    We evaluate these companies carefully through personal meetings with leadership, facility tours, and extensive research. Our approval criteria are unyielding: small to midsize firms with business models we understand and clear competitive advantages; strong balance sheets, free cash flow generation, and increasing cash profits; experienced and ethical management; and the potential to deliver long-term, sustainable growth for our investors.

    Developing an in-depth understanding of companies, including their economic worth, allows us to welcome market volatility rather than fear it. Sometimes, that means moving on to what we think are better opportunities. Other times, it means buying more shares in the face of market panic. Fenimore prepares for markets and does not predict them. We believe that having a long-term perspective, knowing what you own, and investing in quality, well-run businesses is the best way to outpace inflation and grow wealth over the long haul.

    LOOKING AHEAD
    While matters seem to have stabilized and our team is positive about the future, many outcomes are still possible. As a result, we will continue to stick to our market-tested approach and identify what we deem to be the best companies, buy shares in them if they are available at reasonable prices, and hold them for many years as they increase earnings. If we execute our process well, then we expect healthy returns over time — regardless of the temporary macro conditions experienced along the way.

    NEW ALBANY OFFICE NOW OPEN
    On March 6, Fenimore moved into our new Albany branch office with the goal of ensuring that the investor experience and work environment are the same as our Cobleskill headquarters. Located at 142 Wolf Road, the new location is more than double the size of our previous Albany office. This larger space accommodates multiple operating groups to better serve you. We welcome you to visit us or schedule an appointment.

    LET’S TALK
    Please do not hesitate to connect with us about your investments and financial goals in our Cobleskill or Albany office, or from the comfort of your own home. Call 800.932.3271 or email us at info@fenimoreasset.com.

    Thank you for your confidence in us.

    Sincerely,
    John D. Fox, CFA®
    CHIEF INVESTMENT OFFICER

      

      

    1 FactSet as of 1/19/2024
    2 FactSet as of 12/31/2023

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    Investing at Market Highs

    Written by Makayla Tebano on . Posted in Featured News & Insights, Investment Insights, Uncategorized.

    Investing at Market Highs

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      Fenimore Portfolio Manager, Will Preston, CFA®, shares his thoughts on investing at market highs.

      The stock market has hit 14 “all-time” highs in the first two months of 2024. While this is great for portfolios, we understand it can also raise concerns about investing at market highs, particularly given the 9-month, -25% bear market that followed the last peak in early 2022. I’d like to reassure you that a long-term view is what matters most.

      Compared to the last peak in January 2022, today’s investing backdrop is very different. In January 2022, inflation was +7.6% and rising, along with growing expectations that the Federal Reserve would have to raise interest rates to combat the persistent inflation. This of course turned out to be true with interest rates increasing 11 times in 16 months.

      In February 2024, inflation, as measured by the Consumer Price Index, increased 3.2% year-over-year and has been trending down, supporting investor expectations that the Fed will not need to hike rates again this cycle. While some focus will remain on when the Fed will begin cutting interest rates, long-term company value creation continues to come from businesses growing earnings and cash flow.

    • Andrew Boord, Portfolio Manager - Fenimore Small Cap Strategy

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    Another contrast to the previous market peak was the speculative investments that drove a lot of the returns. The IPO market set a record in 2021 and we saw wild returns in meme stocks, SPACs (special purpose acquisition companies), and crypto. We do not see this speculative behavior today. 

    Comparing trailing multi-year returns for these market indices as of the end of February 2024 against the same trailing multi-year periods at the end of 2021 illustrates the exuberance that existed in 2021.

    2/29/2024 3-YR TR
    S&P 500 11.91%
    Russell Mid Cap 5.51%
    Russell 2000 -0.94%
    NASDAQ Composite 7.69%
    12/31/2021 3-YR TR
    S&P 500 26.07%
    Russell Mid Cap 23.29%
    Russell 2000 20.02%
    NASDAQ Composite 34.26%

    Performance data quoted above is historical. Past performance is not indicative of future results, current performance may be higher or lower than the performance data quoted. Investment returns may fluctuate; the value of your investment upon redemption may be more or less than the initial amount invested.

    As you can see, trailing returns are closer to long-term US equity return averages compared to 2021, which should bode well for future return prospects. 

    In summary, the current market environment has notable distinctions from that of 2021 and early 2022. Despite potential reservations about investing at market peaks, it’s important to remember that the stock market regularly achieves all-time highs, and today’s “peak” will inevitably be surpassed by a new market high in the future.

    • S&P 500 New all-time highs by year

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      Ultimately, when your objective, like ours, is to preserve and compound capital over the long term, it necessitates investors to stay invested irrespective of market conditions. This has been our philosophy for the last 50 years and will continue for the next 50.

      Thank you for allowing us to be your trusted investment partner.

      Will Preston, CFA®
      Portfolio Manager, FAM Dividend Focus Fund

    Securities offered through Fenimore Securities, Inc. Member FINRA/SIPC, and advisory services offered through Fenimore Asset Management, Inc.

    Important Disclosures
    Performance data quoted above is historical. Past performance is not indicative of future results, current performance may be higher or lower than the performance data quoted. Investment returns may fluctuate; the value of your investment upon redemption may be more or less than the initial amount invested. All returns are net of expenses. To obtain performance data that is current to the most recent month-end for each fund as well as other information on the FAM Funds, please go to fenimoreasset.com or call (800) 932-3271.

    Please consider a fund’s investment objectives, risks, charges, and expenses carefully before investing. The FAM Funds prospectus or summary prospectus contains this and other important information about each Fund and should be read carefully before you invest or send money. To obtain a prospectus or summary prospectus for each fund as well as other information on the FAM Funds, please go to fenimoreasset.com or call (800) 932-3271.

    This presentation was prepared exclusively for the benefit and use of Fenimore Asset Management, Inc. (“Fenimore”) and FAM Funds clients to whom it is directly addressed and delivered and does not carry any right of publication or disclosure, in whole or in part, to any other party. Neither this presentation nor any of its contents may be distributed or used for any other purpose without the prior written consent of Fenimore.

    In part, the purpose of this presentation is to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. This summary does not purport to be complete and no obligation to update or otherwise revise such information is being assumed. These materials are provided for informational purposes only and are not otherwise intended as an offer to sell, or the solicitation of an offer to purchase, any security or other financial instrument. This summary is not advice, a recommendation or an offer to enter into any transaction with Fenimore or any of their affiliated funds.

    These materials contain the views and opinions of Fenimore. Additionally, the information herein is subject to change and is not intended to be complete or to constitute all of the information necessary to evaluate adequately the consequences of investing in any securities or other financial instruments or strategies described herein. These materials also include information obtained from other sources believed to be reliable, but Fenimore does not warrant its completeness or accuracy. In no event shall Fenimore be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction.

    We undertake no duty or obligation to publicly update or revise the information contained in this presentation. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of Fenimore funds, or information about the market, as indicative of future results.

    All projections, forecasts and estimates of returns and other “forward-looking” information not purely historical in nature are based on assumptions, which are unlikely to be consistent with, and may differ materially from, actual events or conditions. Such forward-looking information only illustrates hypothetical results under certain assumptions and does not reflect actual investment results and is not a guarantee of future results. Actual results will vary with each use and over time, and the variations may be material. Nothing herein should be construed as an investment recommendation or as legal, tax, investment, or accounting advice.

    There is no guarantee that any of the estimates, targets or projections illustrated in this summary will be achieved. Any references herein to any of Fenimore’s past or present investments, portfolio characteristics, or performance, have been provided for illustrative purposes only. It should not be assumed that these investments were or will be profitable or that any future investments will be profitable or will equal the performance of these investments. There can be no guarantee that the investment objectives of Fenimore will be achieved. Any investment entails a risk of loss. An investor could lose all or substantially all of his or her investment. Unless otherwise noted, information included herein is presented as of the date indicated on the cover page and may change at any time without notice.

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    Andrew Boord

    FAM Small Cap Portfolio Manager Talks Valuations

    Written by Makayla Tebano on . Posted in Featured News & Insights, Investment Insights.

    FAM Small Cap Portfolio Manager Talks Valuations

    • FAM Small Cap Fund Portfolio Manager, Andrew Boord, shares his thoughts on small-cap valuations.

      We definitely think small caps are on average trading at much lower valuations than large caps. We also regularly remind ourselves, and others, that historically small and large caps have taken turns leading the market, often for 10 to 15 years at a time, so eventually small caps will outperform large caps.  The big difference in valuations doesn’t mean relative performance will change tomorrow, but it does improve the odds of small caps outperforming large caps over the next 5 to 10 years. 

      That said, we at Fenimore focus 90% of our efforts on about 200 small businesses. We know very little about the other 1,800 lower quality small caps, and probably even less about macro topics, which is why we do not speak to the valuation of the Russell 2000, and instead focus on the valuation of our small cap investible universe. I would rather talk about the industries and businesses we intimately know—Russian fish, new floor offerings, risk of office loans, or the pricing of appliances because it impacts a new idea we’re evaluating—than employment trends. This is why it’s always a challenge to reconcile what we know or are hearing from our companies with the macro questions of the day.

    • Andrew Boord

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      Andrew Boord
      Portfolio Manager, FAM Small Cap Fund

    Rather than comment about Russell 2000 valuations, we think about the valuations of the 27 companies we own stock in and the other 10 to 20 we might like to invest in eventually. When we think about our positions, valuations feel reasonable overall, maybe even low-ish, but it varies by company. Below is a quick summary of our 10 largest positions (as of 1/31/24), with particular focus on current valuations versus the prior 5 to 10 years.

    • CBIZ (CBZ) is trading at a higher-than-normal valuation. Our hope is that EPS growth stays high and they grow into it.
    • ExlSerivice Holdings (EXLS) valuation was on the high side of normal about a year ago but has declined considerably. Using FactSet data, the stock is about 19x forward P/E. Relative to the past 10 years, this is in the middle of the range.
    • Colliers International Group (CIGI) is very diverse by property type, service type, and geography. That said, soft U.S. office leasing and property sales brokerage is a headwind. So, the multiple is middle of the road versus history, while earnings are a little depressed (probably by 15 to 20%) by the lack of office transactions.
    • Pinnacle Financial Partners (PNFP) is trading around 1.7x tangible book. Clearly, investors fear bank stocks today. Outside of now and the COVID pandemic, the stock regularly traded around 2.5x tangible book.
    • Trisura Group (TRRSF) is only trading for about 11x earnings, which we view as cheap.
    • Chemed Corp. (CHE) is not particularly cheap, although it rarely is, at about 25x forward earnings. Over the past decade, the stock has regularly traded between 20x to30x. I would argue that EPS are a little depressed right now as the hospice business is still rebounding post-COVID, but even if true, the stock isn’t cheap.
    • Choice Hotels International (CHH): Investors are concerned that CHH may buy Wyndham, adding debt and integration risk. As a result, CHH is trading around 18x forward P/E, which is on the low side of normal versus history. 
    • Nomad Foods (NOMD) struggled with supply chain issues especially after Russia invaded Ukraine. Higher interest rates are a headwind too. They are starting to come out of this transition period, as you can see by the recent stock move. However, it still appears to be trading at 9x to 10x forward earnings.
    • Brookfield Infrastructure Corp. (BIPC) is a dividend stock, so I would argue the best way to value it is by dividend yield; our thesis is that long-term return will be the yield plus the growth rate of hopefully 5% to 9%. Yield-sensitive stocks sold off as interest rates rose. Today, BIPC yields about 4.4%. History is a bit limited, but in the past the stock usually yielded 3% to 3.7%. I would argue that the stock is cheap.
    • Landstar System (LSTR) is a truckload broker—a fabulous, yet volatile business. Demand goes through cycles tied to GDP growth, while supply goes through its own cycles tied to truck builds. In the past few quarters, they have been in a definite down cycle, which is the deceleration phase after the post-COVID boom. While the multiple may not look cheap, EPS are quite depressed. The stock should do quite well when the next upcycle inevitably occurs. 

    I should add that during the past 13 months, in the FAM Small Cap Fund, we trimmed CBIZ slightly while adding to Colliers, Pinnacle, Trisura, Choice, Nomad, and Brookfield Infrastructure Corp. 

    Fenimore was founded on and remains true to a value-oriented investment approach focused on individual companies. This value investing philosophy has been applied by the firm in all environments, regardless of market cycle stages, for the last 50 years.

    This gives us confidence that applying our traditional focus on valuation to the small-cap equity universe is a worthwhile endeavor. Of course, the concept of “value” does not exist in a vacuum: some stocks are “cheap for a reason.” The quality profile of a company is integral to our assessment of overall valuation.

    STAY CONNECTED
    If you have any questions, please reach out to us. Call 800-721-5391, email us at info@fenimoreasset.com, or stop by either our Albany or Cobleskill location.

    Thank you for your ongoing trust.

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    John Fox, CIO, Joins Walter Thorne of the Albany Business Review for Albany Executive Insights

    Written by Wright Design on . Posted in Featured News & Insights, Investment Insights, Videos & Podcasts.

    John Fox, CIO, Joins Walter Thorne of the Albany Business Review for Albany Executive Insights

    John Fox, CIO, is honored to join Walter Thorne, Market President and Publisher of the Albany Business Review, for the Albany Executive Insights series, presented in partnership with the Albany Business Review.

    Learn more as John walks through Fenimore’s investment approach:

    1. Quality Business
    2. Strong Financials
    3. Proven Management
    4. Margin of Safety
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    Letter From Cobleskill Autumn 2023

    Letter From Cobleskill: Autumn 2023

    Written by Wright Design on . Posted in All News, Featured News & Insights, Investment Insights.

    Letter From Cobleskill: Autumn 2023

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      Dear Fellow Investor,

      Earlier this year, an executive of a successful business greeted me by asking, “When’s the market going up?”

      At first, I thought he was joking. The stock market was up and had been for some time. Then I realized: he was being genuine. The negative news headlines — high interest rates, inflation running rampant, a potential recession on the way — have dominated the financial landscape to the point that many people are not watching the market or even looking at their quarterly statements for fear of what they think they will see. The market is still up (as of 9/30/2023).

    • Letter From Cobleskill Autumn 2023

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    SHIRKING THE WAVE, SEEKING LONG-TERM VALUE
    Long-term asset growth for our investors has been one of Fenimore’s defining goals since our founding in 1974. The effects we are seeing today come from the seeds we planted — and the discipline we exercised — two and three years ago. That’s when we avoided buying so-called “pandemic winners,” such as ultra-hot businesses that we viewed as speculative, were thriving on low interest rates, or were saddled with much debt. Instead, our team held firmly to our steadfast investment philosophy that has guided us for nearly a half-century.

    For example, many people hopped on the technology wave during COVID. One stock went from a $100 per share in 2019 to nearly $600 during 2020’s last quarter. Today, it’s right back to where it started. The wave crashed. For this specific firm, there was simply no long-term value in our view — and we’re looking to create long-term value for our investors.

    OUR MARKET-TESTED APPROACH
    Fenimore seeks to invest in quality small to mid-size companies that are available at a price below what we estimate to be their intrinsic value. We define “quality” as companies that have:

    • Business models we understand, strong balance sheets, clear competitive advantages, free cash flow, and growing cash profits.
    • The potential to thrive in the best economic times and weather the inevitable storms to deliver long-term, sustainable growth.
    • Established and ethical management teams that we know, welcome our visits and questions, and talk candidly with us about their opportunities and challenges.

    A STATEMENT OF CONFIDENCE
    As we head into the fourth quarter, our research team continues to hit the road and phone to talk with the companies we own and those we’re considering buying — gathering insights into their businesses, fact-checking our instincts, and seeking to ensure that the investments we’re making on your behalf meet Fenimore’s stringent criteria.

    In just the week before I’m writing this, we visited with five companies including a swimming pool supplier, software developer, and an electronic parts manufacturer. Each time we came away with strengthened confidence in their long-term potential and the role they play in delivering value to our investors.

    We are optimistic that inflation could be under control next year, and economic growth and business fundamentals will be the main topics of discussion. Meanwhile, our analysts are avoiding industries that are sensitive to interest rates and susceptible to credit losses. We are planting quality seeds that we believe should produce value over time.

    OUR NEW CEO
    As Fenimore looks ahead to an exciting future, it’s my pleasure to congratulate Anne Putnam on her promotion to Chief Executive Officer (CEO), effective October 1, 2023.

    A second-generation Fenimore leader and founding family member, Anne grew up in the firm her father, Tom Putnam, founded. After earning her professional credentials outside our walls, she returned 17 years ago to help us chart our future. Anne has contributed significantly to Fenimore’s growth, most recently as Senior Vice President since 2017. She has played a key role in maintaining and enhancing our strategic vision and value investment philosophy, as well as our enduring commitment to community philanthropy.

    What’s next for me? After serving in the dual roles of CEO and Chief Investment Officer (CIO) since 2019, I am pleased to focus full time on my CIO role and the work I love most — guiding the firm’s investment management strategies and leading our talented research team as we seek quality companies that we believe should provide long-term value for our investors.

    LET’S TALK
    Any time you have questions or want to talk about your investments, please visit us in either our Cobleskill or Albany office, call 800-932-3271, or email us at info@fenimoreasset.com.

    Best wishes for a wonderful conclusion to 2023 and thank you for your confidence.

    Sincerely,
    John D. Fox, CFA®
    CHIEF INVESTMENT OFFICER

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    Marc Roberts

    MID-YEAR INVESTOR UPDATE: Resiliency amidst signs of moderation.

    Written by Wright Design on . Posted in Featured News & Insights, Investment Insights, Uncategorized.

    MID-YEAR INVESTOR UPDATE:
    Resiliency amidst signs of moderation.

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      As we approach the middle of the year, we thought it would be appropriate to provide an update of what we are seeing, hearing, and thinking regarding the economy and your portfolios.

      Following the close of Q1, our in-house investment research team has been busy parsing through 100+ earnings calls and transcripts from the companies they follow. No doubt, we did hear signs of moderation, particularly towards the end of the quarter. This moderation is being felt across a wide range of industries including industrial distribution, technology hardware, healthcare analytical equipment, and consumer facing businesses—particularly those impacted by higher interest rates like used autos and homebuilding supplies. In some cases, moderation means that businesses in these industries will grow at a slower rate, while in other cases certain businesses may see a decline compared to the high levels of activity achieved in 2021 and 2022.

    • Marc Roberts

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      Marc Roberts, CFA®
      Portfolio Manager, FAM Value Fund

    Encouragingly, despite signs of moderation, we heard an equal amount about resiliency. Consumer spending and the labor market has remained robust, despite the pace of interest rate increases aimed at combating higher levels of inflation. Resiliency was felt across several industries including insurance brokerage, health care procedures, travel, and general industrial. For some businesses, positive results are being driven by continued solid demand, while others are benefiting more from latent pricing power. Our focus on investing in businesses that possess differentiated attributes has helped with navigating this dynamic environment and we’ve been pleased with our companies ability to get the appropriate value for the products and services they provide.  

    Resiliency has not only been present in the economy, but in the stock market as well.  Despite news headlines and concerns at the macroeconomic level, the broader market has achieved gains year to date. 

    LOOKING AHEAD

    We continue to monitor the ongoing developments in the banking and commercial real estate industries (read our latest banking update). Tightening credit standards and greater risk aversion may have been a culprit behind the moderation that corporate America began feeling late in the quarter and could serve to further moderate activity going forward.

    At Fenimore, we know that we can’t predict potential macro eventuality. However, we continue to have high conviction in our ability to mitigate risk, and our approach to selecting quality, resilient businesses.  We remain confident that over the long-term, our businesses and the leadership teams behind them can drive long-term value creation, that is expected to benefit our collective portfolios.    

    STAY CONNECTED

    If you have any questions about your investments, you can call 800-721-5391, email us at info@fenimoreasset.com, or stop by either our Albany or Cobleskill location.

    Thank you for your ongoing trust and we hope you have a safe and enjoyable summer.

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    Letter From Cobleskill: Autumn 2023

    Letter From Cobleskill: Spring 2023

    Written by Wright Design on . Posted in Featured News & Insights, Investment Insights.

    Letter From Cobleskill: Spring 2023

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      Dear Fellow Shareholder,

      As we head into the second quarter of 2023, the investment conversation in the news media and on Wall Street continues to fixate on the following questions:

      How high are interest rates going to rise? What did the Federal Reserve say today? Are we entering a recession? Are we already in one? When will inflation recede? How long is this all going to last?

      Additionally, questions are now swirling regarding the two banks that collapsed and the banking industry.

      We hope the email our team sent to you in mid-March on this topic was helpful. The main points we stressed were how we personally know our bank holdings and how confident we are in them.

    • Andrew Boord, Portfolio Manager - Fenimore Small Cap Strategy

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    Legendary investor Warren Buffett once said, “What you really want to do in investments is figure out what’s important and knowable. If it’s unimportant or unknowable, you forget about it.”

    Interest rates, inflation, and other economic and stock market influencers are certainly important, but they are “unknowable” because they are unpredictable and beyond our control. At Fenimore, we study them and keep them in our peripheral vision, but our focus is on what we know — the strengths, weaknesses, opportunities, and threats of the businesses we invest in on your behalf.

    Instead of prognostication, our time is much better spent striving to ensure that your, and our, money is invested in what we believe are quality companies. These enterprises should be built to weather these turbulent times, and potentially become stronger, while emerging from the clouds poised for sustained growth and attractive returns.

    KNOWING WHAT WE OWN
    How do we know our businesses? By meeting regularly with their leadership teams, visiting their facilities, talking to their customers and competitors, analyzing their financials, and building a deep knowledge in the industries in which they compete. From Fenimore’s perspective, the most valuable information we garner for assessing the quality characteristics and long-term prospects of our holdings comes from our sessions with management.

    Here’s a notable example. In March, our research analysts participated in a virtual meeting with an insurance holding. They impressed us with their presentation on how they use data collected from cell phones to learn about people’s driving behavior and then use that data to price insurance appropriately. We came away saying, “Wow! This company is so far ahead of their competition when it comes to data and insights, and we believe it’s so well-run, that we will continue to hold their stock for the long term.” Without a doubt, the 90 minutes we spent with their leadership was much more valuable than spending 90 minutes trying to guess whether inflation will go up or down.

    LOOKING FOR STRONG OPPORTUNITIES
    From a macro standpoint, we are closely watching the impacts of higher interest rates on certain sectors of the economy, such as banking and housing, and applying greater scrutiny to our holdings in those areas.

    For instance, we’re extremely impressed with the steps taken by one of our holdings in the home fixtures and building materials industry to prepare for and adapt to the slowdown in demand. We’re confident in their long-term prospects and see them as a quality holding.

    Overall, insurance, industrial, technology, and travel businesses are doing well. Our research analysts are looking for opportunities to increase our presence in these industries if the right companies and prices present themselves.

    LOOKING AHEAD
    We will stick to our playbook and focus most of our time on what is important and knowable — the businesses behind your investments. Fenimore’s team will continue to hit the road and conduct firsthand research. From the beginning of January through March, our analysts have already had 22 face-to-face meetings with both existing and prospective holdings as well as four virtual discussions.

    STAY IN TOUCH
    Our associates are working diligently as we strive to protect and grow your capital by investing in what we consider to be quality companies that can expand and produce attractive returns over time. Please visit us in either our Cobleskill or Albany office, call 800-932-3271 or email us at info@fenimoreasset.com if you have questions or would like to talk about your investments. Thank you for your trust and friendship.

    Sincerely,
    John D. Fox, CFA
    CHIEF EXECUTIVE OFFICER

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