| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | - | - |
| 2024 | 2023 | 2022 | 2021 | 2020 |
|---|---|---|---|---|
| 10.5% | 21.2% | -13.7% | 18.8% | 10.7% |
Fiduciary Management maintains their disciplined quality value approach despite 2025's junk rally that rewarded speculative behavior and AI-related investments. While AI companies representing 45% of S&P 500 market cap drove 78% of index returns, FMI questions the sustainability of massive capital spending with hyperscalers expected to invest over $500 billion in capex. The firm acknowledges their portfolios have generated solid double-digit returns over three years but lagged broader indices given the current environment favoring low-quality businesses. Quality has underperformed sharply in 2025, particularly in small caps where money-losing, high-beta companies dominated. FMI continues finding attractive opportunities in companies like Hayward Holdings, Accenture, and Smiths Group that exhibit strong fundamentals at reasonable valuations. They warn of increasing bubble-like conditions with record valuations failing to dampen speculation, noting economic cracks beneath the surface. The firm remains confident in their time-tested approach of buying advantaged businesses with strong balance sheets at discount valuations, viewing current quality underperformance as a historical anomaly that will eventually reverse.
FMI maintains their disciplined approach to quality value investing despite current market conditions favoring speculative low-quality companies, believing that their focus on businesses with sustainable competitive advantages, strong balance sheets, and attractive valuations will ultimately prevail as market conditions normalize.
FMI believes that while the market is less interested in their types of quality stories today, they view that as a historical anomaly and will stay the course with confidence that better days lie ahead. They follow their DNA of buying strong companies that make money, avoiding stressed balance sheets, staying disciplined on valuation, and keeping it simple.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 11 2026 | 2025 Q4 | ACN, CAT, HAYW, JPM, MSFT, NVDA, SMIN.L, UNP | AI, Bubble, capital intensity, Quality, small caps, technology, value | - | AI-related companies continued to dominate markets in 2025, with 42 AI stocks representing 45% of S&P 500 market cap and accounting for 78% of returns. The top five hyperscalers are expected to spend over $500 billion on capex this year, with capital intensity reaching 29% of revenue by 2026. FMI questions whether the enormous capital spending will generate attractive returns and warns of potential downside risks similar to the 2000 tech bubble. High-quality businesses have underperformed low-quality sharply in 2025, despite outperforming over the long run. FMI maintains their focus on quality businesses with sustainable competitive advantages, strong balance sheets, and ROIC above cost of capital. They believe quality value investing offers superior downside protection during market downturns and creates a powerful compounding effect over time. Small cap active managers have struggled to keep pace during the junk rally, with companies that lose money, have low ROE, or are high beta dominating since April 2025. The Russell 2000 gained 12.81% in 2025, but quality has been a meaningful laggard as investors extended out along the risk curve and were rewarded for taking on more speculative positions. |
| Oct 14 2025 | 2025 Q3 | BDX | Artificial Intelligence, Defensive Investing, Mega Caps, Quality, valuation | BDX US | The letter underscores record valuation levels across major indices and likens the current AI frenzy to prior speculative booms. FMI stresses the risks of overconcentration in AI mega-caps and warns that returns may disappoint if capital intensity outpaces profitability. The firm maintains a defensive, value-driven allocation focused on quality balance sheets and cash flow resilience. |
| Jun 30 2025 | 2025 Q2 | MAS | cash flows, Discipline, earnings, fundamentals, Pricing Power | NSIT | The letter emphasizes that future equity returns are likely to be driven primarily by earnings growth rather than valuation expansion. Management notes that large-cap companies with durable cash flows, pricing power, and balance sheet strength are best positioned in a slowing-growth environment. Discipline and fundamental analysis remain central as expectations remain elevated. |
| Apr 14 2025 | 2025 Q1 | ALLE | - | - | |
| Dec 31 2024 | 2024 Q4 | ALLE, OMC | - | - | |
| Sep 30 2024 | 2024 Q3 | ARMK, DG | - | - | |
| Jun 30 2024 | 2024 Q2 | DGX | - | - | |
| Apr 15 2024 | 2024 Q1 | SCHW | - | - | |
| Jan 14 2024 | 2023 Q4 | CARR | - | - | |
| Oct 21 2023 | 2023 Q3 | SYY | - | - | |
| Jun 30 2023 | 2023 Q2 | CDW | - | - | |
| Mar 31 2023 | 2023 Q1 | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
AIAI has been integrated into RGA's research process through tools like NotebookLM, Gems in Gemini, and Claude Code. The firm views AI as a force multiplier for human judgment rather than a replacement, emphasizing the Kasparov Law principle. They believe the market narrative around AI displacement is swinging to unhelpful extremes, creating investment opportunities. |
Machine Learning Automation Software Productivity Innovation |
QualityThe company emphasizes investing in businesses with excellent economics, durable competitive advantages, and high-integrity management. This quality focus is evident in concentrated equity holdings and operating business acquisitions. |
Durable Advantages Management Quality Economic Moats Competitive Position | |
Small CapsSmall caps getting strong start in 2026 supported by easing monetary conditions and constructive fiscal backdrop. Small caps more sensitive to economic cyclicality which is overdue for expansion. Expected to grow at better pace than large caps in 2026 after long period of underperformance. |
Value Growth Cyclical Monetary Policy Fiscal Policy | |
| 2025 Q3 |
AIAI has been integrated into RGA's research process through tools like NotebookLM, Gems in Gemini, and Claude Code. The firm views AI as a force multiplier for human judgment rather than a replacement, emphasizing the Kasparov Law principle. They believe the market narrative around AI displacement is swinging to unhelpful extremes, creating investment opportunities. |
Machine Learning Automation Software Productivity Innovation |
Quality Investing |
||
| 2025 Q2 |
EarningsEarnings are central to the manager's optimism with consensus expectations pointing to meaningful acceleration in small-cap earnings in 2026, with growth projected in the low-to-mid teens and exceeding that of large-cap companies. This anticipated rebound reflects easier year-over-year comparisons, improving operating leverage, and broadening demand across cyclical and value-oriented sectors. |
Earnings Growth Operating Leverage Cyclical Sectors Consensus Estimates Earnings Revisions |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Oct 14, 2025 | Fund Letters | Jonathan T. Bloom | BDX US | Becton Dickinson & Co. | Health Care | Health Care Equipment | Bull | NYSE | Consumables, Devices, growth, healthcare, innovation, Margins, recurring revenue, valuation | Login |
| Jun 30, 2025 | Fund Letters | Jonathan T. Bloom | NSIT | Insight Enterprises Inc. | Information Technology | Electronics & Computer Distribution | Bull | NASDAQ | buybacks, cloud, IT services, Modernization, scale | Login |
| TICKER | COMMENTARY |
|---|---|
| ACN | Accenture is the world's leading IT consultant, with advantages stemming from their depth and breadth across products, geographies, and industries. Over the last four years, Accenture's valuation has roughly halved. They've faced headwinds in IT spending and suffered from the perception that they are an AI loser. We believe that AI will cause deflationary pressure in parts of their business, but that it will be more than offset by the work required for enterprises to adopt AI. This is recently evidenced by partnerships with OpenAI and Anthropic. |
| CAT | Construction + Mining at low mid-cycle levels; dealer destock largely complete. Non-Residential + manufacturing starts inflecting (manufacturing starts 5X trailing 12-month average in June). Pricing Re-Accelerating, inventories bottoming → classic machinery trough signals. De-Globalization + OBBB tailwinds (bonus depreciation = ~700bps spend tailwind). Five Prior Cycles = ~150% avg alpha vs. S&P 500® Index from trough to peak. |
| HAYW | Hayward Holdings is a leading global pool equipment manufacturer, primarily serving the residential pool market. North America accounts for 85% of sales and over 90% of profits. The company estimates that 80% of total sales come from their existing installed base of pools (50% repair and replacement), making the business relatively resilient to economic cycles. They have a solid balance sheet, strong management team, and reasonable valuation multiple, particularly given their depressed earnings. |
| JPM | JPMorgan (JPM) has identified 42 AI-related stocks in the S&P 500, which today represent 45% of the index's market cap. They estimate that these stocks have accounted for 78% of S&P 500 returns, 66% of earnings growth, and 71% of capital spending growth since ChatGPT launched in November 2022. As it relates to the impact on the U.S. economy, JPM estimates tech sector capital spending contributed 40%-45% of U.S. GDP growth through the first 9 months of the year, up from less than 5% during the same period in 2023. |
| MSFT | MSFT was a detractor in 4Q25 following its fiscal first-quarter 2026 earnings report released on October 29. While results were better than expected operationally, investor reaction was driven by guidance and capital expenditure intensity rather than headline performance. Revenue grew 17% year-over-year, exceeding consensus expectations, and Azure revenue increased 39% year-over-year, also ahead of estimates. However, management guided to a sequential deceleration in Azure growth in fiscal Q2, signaling some moderation after a period of exceptional demand. |
| NVDA | AI bellwether NVIDIA's very strong set of earnings in late November helped the AI theme re-assert its dominance when investors breathed a sigh of relief following the results. |
| SMIN.L | Smiths is making tangible progress in its transition toward a more focused, higher-performing portfolio of industrial technology businesses. The pro forma company (John Crane and Flex-Tek) is positioned for structurally higher growth, margins, and returns than the legacy conglomerate. Their improved growth and profitability profile is complemented by a pristine balance sheet and substantial shareholder returns. While the shares have performed well recently, Smiths continues to trade at a modest valuation relative to its fundamental outlook and at a discount to its estimated break-up value. |
| UNP | Union Pacific, the largest freight rail operator in the western United States, has announced plans to merge with Norfolk Southern, one of its major eastern counterparts. If approved, the merger would create the first coast-to-coast rail network in the U.S. |
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