LETTER FROM COBLESKILL: Spring 2024

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

Letter From Cobleskill: Autumn 2023

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

Firsthand Research: We Know Our Banks

Background and what makes our bank holdings different:

While the circumstances that led to the demise of these three banks are somewhat complex, their foundations were built with “hot deposits” whereas Fenimore’s banks are standing on primarily “core deposits.”

A typical bank is primarily funded by deposits from individuals and small businesses with balances well under the $250,000 FDIC maximum. Most banks have a limited number of uninsured deposits. Additionally, while they may have some bonds and loans with unfortunately low interest rates, most of their assets have interest rates that adjust automatically or reprice within a few short years. Additionally, many banks have plenty of liquidity and therefore could pay out all their uninsured deposits quickly.

Here is a basic summary and what it means to you:

• Transactional Business Model: The most recent failure, First Republic, specialized in providing fixed-rate jumbo mortgages to the elite at low interest rates. They also had a much higher level of uninsured deposits that far exceeded the $250,000 FDIC insurance limit. These “hot deposits” can leave quickly—and they did. When interest rates increased and Silicon Valley Bank and Signature Bank failed in March, First Republic depositors pulled their money causing another cascading effect and crash.

• Relational Business Model: Fenimore’s regional banks are in the relationship business. They receive deposits from the community primarily for consumer checking accounts, business accounts, and savings accounts. These banks then loan most of that money back into the same community. They keep a modest amount of the deposits in bonds to earn some money, yet diversify their risk intelligently in our opinion.
  
  By design, our banks rely almost entirely on core deposits that tend to be a vast collection of depositors with modest balances, so they are not dependent on a few customers or one industry of customers 

• Three Bank Holdings: While the banking industry has been facing various headwinds, we do not foresee a run on any of our banks. Additionally, across all portfolios and among our many holdings, Fenimore only owns stock in three  banks as of 5/3/2023 — our exposure is limited.

The federal government has stepped in and declared that all First Republic, Silicon Valley Bank, and Signature Bank depositors will have access to all of their money immediately. The Federal Reserve also created a new program that will lend money to banks for up to one year. It’s probable that the government could continue to intervene, as necessary, to calm any fears.

In April, most banks reported first quarter results that were impressive. Profits were generally solid with very few bad loans. Most banks saw only trivial amounts of deposits flow out during the tumultuous weeks of March. While there may still be a few outlier banks that are similar to the three major banks that have failed, it should be limited to a bank or two, not the whole system.

Finally, as we’ve stated in several recent communications, Fenimore believes that we have a collection of quality investments that are positioned well for the long term. We hope these insights are helpful.

As your trusted investment partner, we are here for you. Please do not hesitate to contact us at 800.721.5391 with any questions.

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

Important Disclosures

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 descriptionof 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.

Clients or prospective clients should consider the investment objectives, risks, and charges and expenses carefully before investing. FAM Funds’ mutual funds are offered through Fenimore Securities Inc., member FINRA/SIPC. You may obtain a copy of the most recent mutual fund prospectus by calling 800-932-3271 and/or visiting www.fenimoreasset.com.

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.