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Earnings, Tariffs and Market Declines

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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IRA and Retirement Plan Limits for 2025

IRA and Retirement Plan Limits for 2025

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    Many IRA and retirement plan limits are indexed for inflation each year. While some of the limits remain unchanged for 2025, other key numbers have increased.

    IRA contribution limits

    The maximum amount you can contribute to a traditional IRA or a Roth IRA in 2025 remains $7,000 (or 100% of your earned income, if less). The maximum catch-up contribution for those age 50 or older remains $1,000. You can contribute to both a traditional IRA and a Roth IRA in 2025, but your total contributions cannot exceed these annual limits.

  • 2021 Action Plan

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Income limits for deducting traditional IRA contributions

If you (or if you’re married, both you and your spouse) are not covered by an employer retirement plan, your contributions to a traditional IRA are generally fully tax deductible. If you’re married, filing jointly, and you’re not covered by an employer plan but your spouse is, your deduction is limited if your modified adjusted gross income (MAGI) is between $236,000 and $246,000, and eliminated if your MAGI is $246,000 or more.

If your 2025 federal income tax filing status is: Your IRA deduction is
limited if your MAGI is
between:
Your deduction is eliminated
if your MAGI is:
Single or head of household $79,000 and $89,000 $89,000 or more
Married filing jointly or qualifying
widow(er)
$126,000 and $146,000
(combined)
$146,000 or more (combined)
Married filing separately $0 and $10,000 $10,000 or more

If your filing status is single or head of household, you can fully deduct your IRA contribution up to $7,000 ($8,000 if you are age 50 or older) in 2025 if your MAGI is $79,000 or less. If you’re married and filing a joint return, you can fully deduct up to $7,000 ($8,000 if you are age 50 or older) if your MAGI is $126,000 or less.


Income limits for contributing to a Roth IRA

The income limits for determining how much you can contribute to a Roth IRA have also increased from 2024.

If your 2025 federal income tax
filing status is:

Your Roth IRA contribution is
limited if your MAGI is:
You cannot contribute to a Roth
IRA if your MAGI is:
Single or head of household More than $150,000 but less than
$165,000
$165,000 or more
Married filing jointly or qualifying
widow(er)
More than $236,000 but less than
$246,000 (combined)
$246,000 or more (combined)
Married filing separately More than $0 but less than
$10,000
$10,000 or more

If your filing status is single or head of household, you can contribute the full $7,000 ($8,000 if you are age 50 or older) to a Roth IRA if your MAGI is $150,000 or less. And if you’re married and filing a joint return, you can make a full contribution if your MAGI is $236,000 or less. Again, contributions can’t exceed 100% of your earned income.


Employer retirement plan limits

The maximum amount you can contribute (your “elective deferrals”) to a 401(k) plan is $23,500 in 2025, increased from 2024. This limit also applies to 403(b) and 457(b) plans, as well as the Federal Thrift Plan. If you’re age 50 or older, you can also make catch-up contributions of up to $7,500 to these plans in 2025. [Special catch-up limits apply to certain participants in 403(b) and 457(b) plans.] The amount you can contribute to a SIMPLE IRA or SIMPLE 401(k) is $16,500 in 2025, and the catch-up limit for those age 50 or older remains $3,500.

Plan type: Annual dollar limit: Catch-up limit:
401(k), 403(b), governmental 457(b),
Federal Thrift Plan
$23,500 $7,500
SIMPLE plans $16,500 $3,500

Note: Contributions can’t exceed 100% of your income.


IMPORTANT FENIMORE ASSET MANAGEMENT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax
professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

The views and opinions expressed in this article are those of Broadridge Investor Communication Solutions, Inc. and do not necessarily reflect the views of Fenimore Asset Management or its officers. Fenimore Asset Management or its officers have no editorial control over the content of the article or subject matter, and is independent of Broadridge Investor Communication Solutions, Inc.

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.

In part, the purpose of this presentation may be 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.

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. 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.

Fenimore Asset Management Inc. is an SEC registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made.

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Investing In Community: A Celebration of Renewal and Teamwork

Investing In Community: A Celebration of Renewal and Teamwork

For the second year in a row, Fenimore proudly partnered with Siena College Men’s and Women’s Basketball teams to host the Court Rehab Dedication and Ice Cream Social. This year’s event took place at the newly renovated George Street basketball court in Green Island, New York—a space that now stands as a testament to the power of community and the impact of teamwork.

The George Court, nestled under a highway bridge, had seen better days. Over time, it had been neglected due to necessary work on the bridge above, leaving the court in disrepair. But Green Island’s spirit never waned, and when the community voted for this court’s renovation during last season’s Siena basketball games, they chose to invest in a better future for their children and neighbors.

On July 29, the teams, local fans, and community gathered to celebrate the transformation of this vital community space. “Think about how many different kids this court can impact,” said Gerry McNamara, Head Coach of Siena Men’s Basketball. “They get a chance to come here on this incredibly refurbished court to have a safe place in a community environment.”

The dedication event wasn’t just about the court; it was about coming together to create something that will have a lasting, positive impact. We believe Fenimore’s commitment to community and teamwork was evident throughout the day, reflecting our core belief that by working together, we can build spaces where everyone can thrive.

The revitalized George Court is now more than just a place to play—it’s a symbol of what can be achieved when we all invest in our community.

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The Potential Benefits of Roth IRAs for Kids

The Potential Benefits of Roth IRAs for Kids

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    Most teenagers probably aren’t thinking about saving for retirement, buying a home, or even paying for college when they start their first jobs. Yet a first job can present an ideal opportunity to explain how a Roth IRA can become a valuable savings tool in the pursuit of future goals.

    Rules of the Roth

    Minors can contribute to a Roth IRA as long as they have earned income and a parent (or other adult) opens a custodial account in the child’s name. Contributions to a Roth IRA are made on an after-tax basis, which means they can be withdrawn at any time, for any reason, free of taxes and penalties. Earnings grow tax-free, although nonqualified withdrawals of earnings are generally taxed as ordinary income and may incur a 10% early-withdrawal penalty.

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A withdrawal is considered qualified if the account is held for at least five years and the distribution is made after age 59½, as a result of the account owner’s disability or death, or to purchase a first home (up to a $10,000 lifetime limit). Penalty-free early withdrawals can also be used to pay for qualified higher-education expenses; however, regular income taxes will apply.

In 2024, the Roth IRA contribution limit for those under age 50 is the lesser of $7,000 or 100% of earned income. In other words, if a teenager earns $1,500 this year, his or her annual contribution limit would be $1,500. Other individuals may also contribute directly to a teen’s Roth IRA, but the total value of all contributions may not exceed the child’s annual earnings or $7,000 (in 2024), whichever is lower. (Note that contributions from others will count against the annual gift tax exclusion amount.)

Lessons for life

When you open a Roth IRA for a minor, you’re giving more than just an investment account; you’re offering an opportunity to learn about important concepts that could provide a lifetime of financial benefits. For example, you can help explain the different types of investments, the power of compounding, and the benefits of tax-deferred investing. If you don’t feel comfortable explaining such topics, ask your financial professional for suggestions.

The young people in your life will thank you — sooner or later.

For questions about laws governing custodial Roth IRAs, consult your tax or legal professional. There is no assurance that working with a financial professional will improve investment results.

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.

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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SPOUSAL INDIVIDUAL RETIREMENT ACCOUNT (IRA)

spousal individual retirement account (IRA)

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    What is a spousal individual retirement account (IRA)?

    If you meet certain conditions, you can set up and contribute to an IRA (traditional or Roth) for your spouse, even if he or she receives little or no taxable compensation for the year of the contribution. Such an IRA is commonly referred to as a spousal IRA. A spousal IRA is not, however, a special type of IRA. It is merely a way of describing the fact that you are making a contribution to your spouse’s traditional or Roth IRA. To contribute to a spousal IRA, you must meet four conditions:

    • You must be married at the end of the tax year
    • You must file a joint federal income tax return for the tax year
    • You must have taxable compensation for the year
    • Your spouse’s taxable compensation for the year must be less than your taxable compensation
  • Andrew Boord, Portfolio Manager - Fenimore Small Cap Strategy

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Taxable compensation includes wages and salaries, commissions, self-employment income, and taxable alimony or separate maintenance. It does not include earnings and profits from property (such as rental income, interest income, and dividend income), pension or annuity income, deferred compensation received, or any items that are excluded from income.

Example(s): You have taxable compensation of $80,000 for 2024. Your spouse has no taxable compensation. Assuming you file a joint federal income tax return and are married at the end of the tax year, you may be able to contribute up to $7,000 to an IRA in your spouse’s name ($8,000 if your spouse is age 50 or older). If you do this and are also able to contribute $7,000 to your own IRA ($8,000 if you are age 50 or older), your total IRA contribution for 2024 to the two IRAs can be as much as $14,000 ($16,000 if you are both 50 or older).

Traditional spousal IRAs and Roth spousal IRAs

If you meet the above conditions for spousal IRAs, you can contribute to a traditional IRA in your spouse’s name. All or part of your contribution to your spouse’s traditional IRA may even be tax deductible under certain conditions.

You may also be able to contribute to a Roth IRA in your spouse’s name if you meet the above conditions and your combined modified adjusted gross income (MAGI) is within certain limits (see last paragraph). Roth IRA contributions are never tax deductible, but withdrawals may be tax free under certain conditions.

How much can you contribute to a spousal IRA?

Unless your spouse is age 50 or older, you can contribute no more than $7,000 to a spousal IRA for 2024 (up from $6,500 in 2023). To be more specific, the maximum amount that you can contribute to a spousal IRA for 2024 is the lesser of:

  • $7,000 ($8,000 if your spouse is age 50 or older)
  • The combined taxable compensation of you and your spouse, less any amounts contributed to your own traditional and Roth IRAs

Example(s): You have $7,000 in taxable compensation for 2024. Your spouse has $500 in taxable compensation for 2024. Both of you are younger than age 50. You contribute $5,500 to your own Roth IRA. The maximum amount that you can contribute to your spouse’s IRA (traditional or Roth) is $2,000.

If your and your spouse’s combined MAGI for the year is more than $230,000 in 2024 ($218,000 for 2023), your ability to contribute to a Roth IRA in your spouse’s name is limited, and phased out entirely if your combined MAGI in 2024 is $240,000 or more in 2024 ($228,000 or more for 2023). If either you or your spouse is covered by an employer-sponsored retirement plan and your combined MAGI exceeds certain levels, your ability to make deductible contributions to a traditional IRA in your spouse’s name may also be limited (or phased out entirely).

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Serving With Love

SERVING WITH LOVE

Ronald McDonald House Charities of the Capital Region stands by families in their toughest moments and, at Fenimore, we’re proud to stand by them.

For seven nights, Fenimore Associates came together to support The Albany Ronald McDonald House ‘Love is Served’ meal program. We cooked up love in the form of comforting meals like Mac-N-Cheese, Sliders, Tacos, Pasta, Meatloaf, and Chicken Parm.

Ronald McDonald House Charities of the Capital Region promotes the health, development and well-being of children and their families through the Ronald McDonald House, a home away from home for families of seriously ill children, and by creating and supporting programs that directly improve the lives of children and their families.

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Investing at Market Highs

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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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.

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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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Gary Dake Joins Fenimore’s Board

Gary Dake Joins Fenimore’s Board

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    Fenimore Asset Management, an independent, Capital Region-based investment advisory firm and manager of the FAM Funds family of mutual funds, announces that business leader Gary Dake has joined its board of directors.

    Mr. Dake is President of Stewart’s Shops Corporation. Stewart’s is a large, privately owned, and vertically integrated chain of convenience stores and gas stations with more than 355 shops in New York and Vermont. Mr. Dake is an accomplished and acclaimed leader who heads a team of more than 5,000 partners (employees). These partners own more than 40% of the company through their Employee Stock Ownership Plan. Employed at Stewart’s since 1985, he holds a BA in Economics from St. Lawrence University.

    “Gary is a well-respected and admired leader both within his company and throughout the Capital Region community,” shared Tom Putnam, Founder and Executive Chairman of Fenimore Asset Management. “His integrity, expertise, success, and entrepreneurial spirit should benefit our investors over the long term.”

    In addition to his extensive business career, Mr. Dake is very active as a community leader and Stewart’s Shops is dedicated to community giving and support. Between the company, Dake family foundations, and Stewart’s “Holiday Match Program,” millions of dollars have been donated to thousands of local charities. Mr. Dake is also the founder of the Dake Foundation for Children. The nonprofit was established “to provide opportunities for children with disabilities to enjoy more independence, inclusion, and fun.”

    Founded in 1974, Fenimore Asset Management is an independent, nationally recognized investment manager with more than $4.12 billion in assets under management (as of September 30, 2023) through its Cobleskill and Albany offices. The firm’s team focuses on in-depth research, investing in the stocks of carefully selected quality businesses, and providing its investors with highly personalized investment services. Fenimore offers both individually managed portfolios and a family of mutual funds (FAM Funds) that can be used for retirement and other long-term investment planning.

  • Gary Dake Joins Fenimore’s Board

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