Marc Roberts, Portfolio Manager, FAM Value Fund, explains why visiting companies, meeting with management, and discovering what’s new are an integral component of our distinctive investment research process.
By John Fox, CFA®
CEO
After two years of limited travel, Fenimore’s investment research analysts are back in full swing meeting with management teams in person at their headquarters, conferences, and industry events. During the last month, we met with a couple dozen companies. While there are certainly challenges, executives are not pessimistic.
Insights from Our Travels
Fenimore’s firsthand, in-depth research helps us know our holdings well and this gives us confidence as we seek to protect and grow your capital over the long term. We hope our research insights from these face-to-face meetings give you assurance too.
Please call us at 800-721-5391 if we can assist you. Thank you for your ongoing trust.
The following table presents the year-to-date capital gains and income for each fund for 2021.
| type | Long-Term Capital Gains | Short-Term Capital Gains | Net Income |
|---|---|---|---|
| FAM Value Fund Investor Share Class |
$4.9129 | $0.0363 | $0.0215 |
| FAM Value Fund Institutional Share Class |
$4.9129 | $0.0363 | $0.1966 |
| FAM Dividend Focus Fund Investor Share Class |
$0.6951 | $0.0035 | $0.0000 |
| FAM Small Cap Fund Investor Share Class |
$1.6346 | $0.0000 | $0.0000 |
| FAM Small Cap Fund Institutional Share Class |
$1.6346 | $0.0000 | $0.0000 |
This is not tax advice. Please await your year-end tax documents for final amounts. Shareholders should contact their tax advisors to review the tax implications of capital gain and income distributions.
To view IRS Form 8937 Download PDF
By John Fox, CFA®
CEO
After a terrific 2021, the stock market peaked on the first business day of the new year and has been declining ever since. So far, stocks are down 10% to 20% for the year depending on the index you watch.[1] The stocks of smaller companies have fallen the most.
While the current headlines are on Russia’s invasion of the Ukraine, we believe this is just one of multiple reasons for the drop in stock prices. As long-term stock investors, it’s always helpful to remember that price declines are part of the experience. I mentioned in a recent video we distributed that I have been at Fenimore for 26 years and in every one of those years, but one, the market had a decline of 5% or more during the year. This is a normal part of stock investing.
Of course, the reasons for the declines are always different. Today, we see three primary reasons:
1) High Valuations: After great market returns in 2021, stock valuations were at a high level. Because of low interest rates and many years of terrific returns, investors were willing to pay more for a dollar of earnings. This left stock prices at an all-time high and susceptible to a decrease as we turned the calendar. It’s impossible to know when a decline might occur, even if you think prices look high.
2) High Inflation: It’s very clear that inflation is not “transitory” using an often-quoted word from the Federal Reserve Chairman. We believe some parts of inflation will recede over time; other factors are here to stay. As a consequence, the Federal Reserve will be raising interest rates this year beginning at their March meeting in a few weeks. Answers to important questions like how high these rate increases will go and how fast they will occur are unknown. Interest rates have already moved up in anticipation of the Fed’s moves. The 30-year mortgage rate has increased from last year’s low of 2.67% to 4% today.[2] We should point out that while the Fed is raising interest rates, they remain low by historical standards.
3) Russia’s Invasion: Russia’s invasion of Ukraine creates a lot of uncertainty around politics and Europe’s state of affairs. From a purely economic point of view, Russia is a major producer of oil and other commodities like wheat. If this conflict continues, it may increase the prices of these commodities which will impact inflation. Higher inflation brings us right back to the previous point about an interest rate increase.
As you can see, there are a number of interrelated issues. However, even if it seems like one storm ends and another surfaces, this is usually the story in economics, politics, and markets. We have been through numerous international events like the Asian financial crisis in 1998 and two wars in Iraq.
Looking Ahead
At this time, we expect companies to grow earnings over 2021 levels and generate cash profits to invest in growth and return to shareholders through stock buybacks and increased dividends. As I stated in our year-end newsletter, “You don’t have to know the future, but you do have to know your companies.”
This gives us the confidence we need to execute our long-term strategy: investing in what we believe are quality businesses that meet our rigorous financial standards with strong leadership teams that can create value for our investors over time.
Please contact us at 800-721-5391 if you have questions or concerns. Thank you for the opportunity to serve you.
[1] FactSet as of 2/24/2022
Fenimore’s associates are grateful for our longtime partnership with the Boys & Girls Clubs of Schenectady. It’s an honor to support their life-changing work and help provide state-of-the-art spaces equipped with technologies designed to protect their children and teens.
“The Mission of the Boys & Girls Clubs of Schenectady is to inspire and enable all young people, especially those who need us most, to reach their full potential as productive, caring, responsible citizens.”
Fenimore Asset Management, an independent, Capital Region-based investment advisory firm and manager of the FAM Funds family of mutual funds, has hired Michael Weaver as a Business Development Specialist on its sales team.
Mr. Weaver is responsible for the firm’s customer relationship management system and optimizing data and reporting procedures while providing other sales team support. He earned his bachelor’s degree in economics from Siena College in 2021, with minors in both business and data science.
“Michael’s combined knowledge of economics and business with technology make him a valued and versatile addition to our team,” said Fenimore Senior Vice President Anne Putnam. “At Fenimore, we work to build strong relationships with our investors and intermediaries so that we understand their goals and provide appropriate solutions. Michael will play an integral role in that relationship building going forward.”
Founded in 1974, Fenimore Asset Management is an independent, nationally recognized investment manager with more than $4.6 billion in assets under management (as of December 31, 2021) through its Cobleskill and Albany offices. Fenimore offers both customized separately managed accounts and a family of mutual funds that can be used for retirement and other long-term investment planning. The firm’s team of professionals prides itself on investing in carefully selected quality businesses and providing its investors with highly personalized investment services.
Fenimore Asset Management’s 2021 newsletter features:
Throughout the month of December and through many organizations, the Fenimore team participated in several opportunities to spread cheer in our community.
Fenimore associates helped to make Christmas merry and bright for 3 families by working with the Joshua Project to provide over 65 gifts.
Continuing our tradition, Fenimore was happy to fill a box for the Toys for Tots program.
The 23rd annual celebration Middleburgh’s Miracle on Main Street was held on December 10th. The streets were filled with carolers, a musical light show, a petting zoo, and Mr. & Mrs. Claus. Fenimore sponsored the horse and carriage ride that was available to all attendees and we added to the festive glow of the evening by handing out Santa hats and light-up necklaces.
Fenimore associates, spouses, siblings, and kids all came together to deliver 60 gift bags to Seniors in the Mechanicville area in partnership with the Mechanicville Community Center. We hope the socks, blankets and warm wishes will help keep everyone cozy throughout the season.
Fenimore associates kept the tradition alive of gathering at the Cobleskill Fairgrounds on the fourth Saturday in September. Fenimore did not hold the Annual FAM 5K “Fund” Run/Walk this year due to COVID-19, but the team met up on Saturday, September 25th to assist in the maintenance and closing of the fairgrounds for the season.
Projects for the Fenimore team included:
We wanted to extend our support and “thanks” to the Cobleskill Fairgrounds as well as the other local charities the race supports, including:
