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FAM Small Cap Portfolio Manager Talks Valuations

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

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

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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.

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: Spring 2023

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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Firsthand Research: We Know Our Banks

Firsthand Research: We Know Our Banks

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    Updated May 5, 2023

    Our independent, in-depth research approach brings confidence amidst stress in the banking sector.

    Despite recent news about the collapse of First Republic, following Silicon Valley Bank and Signature Bank, we want to give you comfort about Fenimore’s bank holdings. A hallmark of our investment process is to personally know what we own and be guided by quality—the banks in which we invest are no different.

    Given the current state of the banking industry, our research analysts responded as you would expect—they got on the phone and the road to talk with our banks. Sure, they read all the public materials available to investors, however, the value of our research philosophy is the relationships we have built with the management teams of the banks we invest in. In the past few weeks, we have confirmed our assumptions through a combination of phone calls, video meetings, and trips to visit our banks. This work has been reassuring, and we remain convinced that the banks we invested in on your behalf are sound.

  • Andrew Boord

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    Andrew Boord
    Portfolio Manager, FAM Small Cap Fund

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.

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Q4 Earnings Takeaway: Strategic Capital Allocation is Key

Q4 Earnings Takeaway: Strategic Capital Allocation is Key

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    In an environment where significant free cash flow generation, strong balance sheets, and superior management teams are crucial to company performance (and even survival), we believe our focus on high-quality enterprises with solid financials is more important than ever.

    Strategic capital allocation is one of the most important activities management teams do based on our experience of nearly 50 years. We strive to invest in companies that, after paying business expenses, generate more cash than they need and in turn seek to increase shareholder value.

    With excess free cash, leadership has five capital allocation choices.

  • Capital Allocation is Key

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1. Invest in the Business

  • This includes building new plants, adding more stores, increasing inventory, and research and development.

2. Impact the Balance Sheet

  • Put cash on the balance sheet.
  • Pay down debt.

3. Conduct Mergers and Acquisitions

  • Companies can acquire businesses to accelerate their growth.
  • When they acquire another firm, this tends to increase sales, profits, and their stock price.

4. Pay a Dividend

  • We seek companies that pay a dividend and consistently increase that dividend over time. We believe dividend growth is important because only businesses that are growing their cash flow are able to consistently grow their dividends. We favor investing in businesses that are growing their dividends quickly because it means the underlying operation is expanding.

5. Buy Back Stock

  • A stock buyback is when a corporation purchases its own shares in the stock market and it demonstrates the management team’s confidence in their business.
  • A buyback reduces the number of shares outstanding and this increases earnings per share and, frequently, the stock’s value. 
  • All buybacks are not alike. Just as we seek to purchase shares at a discount to a company’s value, we prefer businesses that repurchase their shares at reasonable valuations as well.

Across Fenimore’s three mutual funds (FAM Funds), 100% of our holdings are employing one or more of these strategic tools. This bolsters our confidence in their leaders and business.

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Quality Investing: Its Impact During Down Markets

Quality Investing: Its Impact During Down Markets

Investment Insights: Fenimore’s Latest White Paper

William Preston, Portfolio Manager of the FAM Dividend Focus Fund, discusses how Fenimore’s mutual funds have performed in down markets over the decades and analyzes their quality characteristics.

Highlights Include:

  • Achieving long-term investment goals usually depends on staying invested during down markets and having an established risk management process.
  • The downside capture ratio of Fenimore’s three equity mutual funds helps quantify the benefits of our risk management approach.
  • Fenimore Asset Management conducts firsthand research and seeks to invest in select, quality businesses. We believe it is our holdings’ collective quality characteristics that have helped our mutual funds typically outperform during down markets.

Read Here

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Letter From Cobleskill: Autumn 2022

Letter From Cobleskill: Autumn 2022

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    Dear Fellow Shareholder,

    As the leaves begin to change color in Upstate New York and the nights become chilly, my fall routine kicks into gear. The first thing I do is call my perennial firewood supplier to negotiate the price and place an order. After much friendly banter during our recent call, this hard-working entrepreneur said that there will be a large price increase in 2022. Higher labor, gasoline, truck and equipment maintenance, and overall operational costs give him no choice but to raise the price. This pattern is being repeated throughout our economy.

    So, it’s not surprising that shareholders are primarily asking us the following questions:

    1. Are we in, or headed for, a recession?
    2. What does this mean to me and my investments?
  • FAM Letter From Cobleskill Autumn 2022

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1. RECESSION OR NOT?

There is a current debate about the official definition of a recession. Whether we are technically in a recession or not, there’s no doubt that most consumers are feeling the pain of higher interest rates and high inflation.

The National Bureau of Economic Research (NBER) defines a recession’s start and end dates. It relies on government information that takes time to compile, so it cannot officially designate a recession until after it starts. At the same time, the NBER’s research shows that, from February 1945 to June 2009, recessions averaged 10.8 months in duration and the expansionary periods that followed averaged 60.2 months.

Since no one knows how much longer this difficult environment will last, it can understandably create apprehension. After many conversations about this first question, however, we’ve come to understand that shareholders are ultimately seeking an answer to the second question.

2. WHAT ABOUT MY FAM FUNDS INVESTMENTS?

If you’re wondering if your FAM Funds investments are strong enough to weather the downturn, we believe the answer is “yes.” Our goal is to invest in quality businesses that have a strong balance sheet and manageable debt; cash profits to invest in growth or pay dividends; a distinct competitive differentiator; and a talented and ethical management team.

We want these companies to be positioned to not only perform well in good times, but to endure the most challenging economic conditions — and even increase market share — while emerging on the other side poised for future growth.

ON THE ROAD AGAIN

Fenimore’s research analysts continue to visit businesses, tour facilities, and have face-to-face meetings with management teams of existing holdings and prospective investments. During the month of September alone, we had 32 meetings throughout the U.S. and 8 phone calls.

This firsthand, in-depth, company-level research provides invaluable insights that help us gain a better understanding of the current challenges facing businesses while reinforcing our confidence in our holdings’ abilities to persevere and potentially thrive during a variety of environments. We believe we have a collection of quality companies that can build wealth over the long term.

HELLO AND GOOD-BYE

Fenimore is pleased to welcome Christian Snyder as our new president. He succeeds Debra Pollard, who announced her retirement after 30 years of service to our investors, associates, and community. A Cobleskill native, Deb returned to her hometown after college. During her tenure, Deb earned a steady series of promotions culminating in her appointment as president in 2016. She will remain here to help with the transition over the next few months. Deb is a dear friend and we wish her all the best as she moves into a new phase of life!

Christian joins us after working in the financial services industry for nearly two decades, most recently serving as Chief Operating Officer of the Wealth Strategies Group at Goldman Sachs Ayco Personal Financial Management. He will work closely with our management team to help guide the firm. Christian earned his bachelor’s degree in mathematical economics from Colgate University, law degree from Suffolk University Law School, and Chartered Financial Analyst (CFA) designation. He and his family live in Saratoga Springs, NY.

STAY IN TOUCH

Whenever you have questions about your investments, please contact us. Everyone has unique needs, plans, and life circumstances. For example, you may be relying on your investments to pay bills or preserve your principal, or you may be in a position to purchase more mutual fund shares while stocks are on sale.

Through one-on-one conversations, we can get to the heart of your financial objectives, explain your options, and give you the information and confidence you need to make an educated decision. Our associates are invested alongside you, so we are sensitive to your concerns and goals.

Please remember that our team is here for you at our Cobleskill and Albany offices, by phone at 800-932-3271, or via email at info@fenimoreasset.com.

Thank you for your trust and friendship.

Sincerely,
John D. Fox, CFA
CHIEF EXECUTIVE OFFICER

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Firsthand Research Gives Us Confidence

Firsthand Research Gives Us Confidence

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    At Fenimore Asset Management, we never try to avoid an economic slowdown. Instead, our investment research team spends its energy on finding and owning what we believe are quality companies that can weather economic turbulence and emerge from volatile periods even stronger. This includes businesses with strong, sustainable cash generation, sound balance sheets with little financial leverage, and capable management teams.

    To ensure that we have our finger on the pulse of their operations, our investment research analysts are on the road visiting companies, touring facilities, and having face-to-face meetings with management teams. It’s these in-person meetings — a longtime tenet of Fenimore’s research process — that help us gain a better understanding of the current macroeconomic challenges facing businesses while reinforcing our confidence in our holdings’ abilities to persevere and potentially thrive during a variety of environments.

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    Fenimore’s Investment FEATURES
    • Independent, In-Depth Research
      Fenimore’s extensive due diligence begins with a detailed analysis of the business, leadership, and markets to understand company fundamentals and the competitive landscape.
    • Guided by Quality
      We seek to invest in quality businesses that demonstrate defensible competitive differentiators.
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    Business-First Approach

    For nearly five decades, we have followed our business-first investment approach of conducting in-depth research at the company level. Fenimore’s steadfast focus is to invest in a collection of quality businesses that we think are becoming more valuable over time — regardless of the short-term political or economic environment.

Will Preston Quote Will Preston
Looking Ahead

During these uncertain times, it is certain that our team will remain committed to Fenimore’s investment philosophy and principles that have successfully guided us through difficult times since 1974. We believe that our holdings will partake in future growth because their management teams are focused on shareholder interests and they possess strong financial footings to help them endure the current decline and potentially prosper when the markets recover.

John Fox John Fox Quote

All investing involves risk including the possible loss of principal. Before investing, carefully read the fund’s prospectus which includes investment objectives, risks, charges, expenses and other information about the fund. Please call us at 800-721-5391 or visit fenimoreasset.com for a prospectus or summary prospectus.

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


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