| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 0.082 | -0.041 | -0.116 |
| 2025 |
|---|
| -11.6% |
Fenimore's Small Cap Fund returned -4.12% in Q4 2025, underperforming the Russell 2000's 2.19% gain as speculative and lower-quality businesses outperformed quality names. The underperformance stemmed from underweight positions in low-quality consumer discretionary, technology, and real estate sectors. Top contributors included Dutch Bros, Landstar System, and Trisura Group, while Dream Finders Homes, FirstService Corporation, and SPS Commerce weighed on performance. The firm continues prioritizing high-quality companies with strong balance sheets, consistent profitability, and prudent capital allocation despite ongoing market preference for AI-related speculation. Management believes current market dynamics mirror the late 1990s tech bubble, expecting quality fundamentals to eventually reassert themselves as primary stock price drivers. Looking ahead to 2026, the team anticipates continued volatility as investors balance solid earnings growth expectations and Fed rate cuts against questions about AI expansion sustainability. The firm remains disciplined in its quality-focused approach, finding compelling valuations within the existing portfolio and adding to select holdings during the quarter.
Fenimore maintains disciplined focus on high-quality small cap companies with strong fundamentals, believing that solid business characteristics should reassert themselves as primary stock price drivers despite current market preference for speculative AI-related investments.
Market conditions entering 2026 remain mixed with extended valuations for AI-related stocks while pockets of opportunity have emerged in quality franchises trading at relative multi-year lows. The research team expects continued market volatility as investors balance anticipated solid earnings growth and continued Fed rate cuts with questions about AI expansion sustainability and mid-term elections.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 13 2026 | 2025 Q4 | APH, BIPC, BROS, BWIN, CASS, CHH, CIGI, DFH, EXLS, EXPO, FND, FSV, FTDR, JKHY, LSTR, NOVT, OSW, PNFP, ROST, SPSC, TRRSF | AI, Quality, small cap, Speculation, underperformance, value | - | The update highlights selective small-cap growth investing focused on companies with niche leadership, strong balance sheets, and long runway opportunities. Volatility is viewed as a source of opportunity to add to high-quality businesses at reasonable valuations. Small-cap growth is positioned for recovery as earnings growth reaccelerates. |
| Oct 9 2025 | 2025 Q3 | APH, BROS, BWIN, CBZ, CHE, CIGI, CTAS, CWST, ENTG, EXPO, FSV, FTDR, GEHC, JKHY, LSTR, NOMD, POOL, ROST, SPSC, VRSK | AI, dividends, Quality, rates, small caps, value | CWST US | The fund discusses underperformance due to speculative rotation but reinforces conviction in quality small-cap names. Additions like Casella Waste Systems reflect focus on essential services, pricing power, and long-term compounding. It maintains discipline through volatility, adding selectively to industrials and service franchises. |
| Jun 30 2025 | 2025 Q2 | CHE, EXLS, FTDR, TSU CN | Balance Sheets, earnings stability, fundamentals, Quality, small caps | - | The letter highlights small-cap quality investing in an environment dominated by speculation and AI enthusiasm. Management focuses on financially strong companies with stable earnings that are temporarily out of favor. Long-term compounding and balance sheet strength anchor the strategy. |
| Mar 31 2025 | 2025 Q1 | BWIN, HGTY | - | - | |
| Dec 31 2024 | 2024 Q4 | CBIZ, CIGI, DFH, EXPO, SSB | - | - | |
| Sep 30 2024 | 2024 Q3 | BROS, CBZ, FTDR | - | - | |
| Jun 30 2024 | 2024 Q2 | BIPC, BROS, CBZ, DFH, EXPO | - | - | |
| Mar 31 2024 | 2024 Q1 | CBZ, CIGI, DFH, FTDR | - | - | |
| Dec 31 2023 | 2023 Q4 | CHH, CSV, DFH | - | - | |
| Sep 30 2023 | 2023 Q3 | - | - | - | |
| Jun 30 2023 | 2023 Q2 | G, IEX, THG, VRSK | - | - | |
| Mar 31 2023 | 2023 Q1 | CHH, TSU | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 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 |
DividendsJapanese companies paid record dividends of ¥18 trillion for fiscal year ending March 2025, a 13.8% year-over-year increase. Many major firms have adopted progressive dividend policies guaranteeing dividends will never be cut, only maintained or increased. |
Progressive Dividend Record Payouts Shareholder Returns Yield Growth | |
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 | |
| 2025 Q2 |
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 |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Oct 9, 2025 | Fund Letters | John Fox | CWST US | Casella Waste Systems, Inc. | Industrials | Environmental & Facilities Services | Bull | NASDAQ | acquisition, growth, infrastructure, Integration, Margins, Pricing power, Recycling, waste | Login |
| TICKER | COMMENTARY |
|---|---|
| APH | We trimmed Amphenol Corp. |
| BROS | Longer-term holdings such as Dutch Bros increased, outperforming benchmark returns |
| BWIN | The Baldwin Insurance Group (BWIN) is an insurance brokerage and advisory firm providing commercial, employee benefits, and specialty insurance solutions to businesses. |
| CASS | Cass Information Systems (CASS) is a fine business in our view, but given market volatility we took the opportunity to reinvest in what we consider to be businesses of even higher quality. |
| CHH | CHH is an asset-light, high-margin (60%+ EBITDA margin on revenue ex-pass-through costs) hotel franchisor trading at a distressed multiple due to cyclical top-line headwinds and KPI deterioration experienced in 2025, namely U.S. RevPAR declines and lack of U.S. room growth. The market has severely punished the stock—down from $154 in early 2025 to $106 today—now pricing in structural decline fears. However, the business is still growing earnings, is highly cash-generative, and may have the ability to unlock a significant amount of cash on the balance sheet to buy back shares at these historically low levels. CHH is currently trading around the bottom 2.5% of its historical valuation range over the past ten years at 10.7x EBITDA. If the stock reverts to its 20-year median valuation of 14x forward EBITDA (which would still be a 3-6x EBITDA discount to Hyatt, Hilton, and Marriott), the stock has ~50% upside. |
| DFH | DFH, the fast-growing home builder, struggled as affordability continued to be a challenge for first-time home buyers. While we expect these cycles to occur, we like DFH's asset-light approach to building homes and view its management as highly skilled. |
| EXPO | Exponent (EXPO) provides high-value engineering and scientific consulting services. |
| FND | Floor & Decor (FND) is a business I've wanted to own shares in for some time. They are the leading warehouse-style flooring store with higher in-stock inventory selection and lower prices than scaled competitors, and have been taking market share for years if not decades. In my opinion, they are following the Home Depot model to disrupt a profitable subcategory of home improvement. I still believe the current purchase price is not obviously cheap on near-term earnings, but the purchase price does reflect an attractive valuation on long-term margins. The company's current EBIT margins are about 30% below their long-term pre-COVID levels, and I believe EBIT margins should continue to scale towards the low-to-mid-teens as the company builds out its store base. Current sales per store are depressed by a post-COVID hangover and higher interest rates which have depressed existing home sales, a key catalyst for renovation activity. Higher sales per store will lead directly to higher store-level margins, which flow nicely through to EBIT margins. I believe, with a more favorable existing home sales macro backdrop, that sales can grow at double digits with significant flow-through to the bottom line. It would not surprise me to look a couple years out and see the company generating $6.5B of sales at 7.0% net margins, which would mean the company is trading at 16x that admittedly uncertain (due to macro uncertainty) future earnings with nearly a decade of future store growth and comp growth. I see the company generating nearly $12 earnings per share 10 years from now, when it's store growth plan should be essentially complete. |
| FSV | Our lone position in Real Estate during the fourth quarter, FirstService, was the portfolio's largest negative contributor. The company specializes in residential management and storm restoration, but it struggled following a soft Q3, as its newly acquired commercial roofing business experienced a slower than expected conversion of its backlog. Additionally, certain large projects have been on hold following a volatile macro environment. This has been happening for several quarters, and the lack of progress has been disappointing. We expect growth to bottom in Q4 and then pick back up, driven by expansion in its remaining business lines. |
| FTDR | Frontdoor sells home service plans to homeowners. Frontdoor spun out of ServiceMaster in October 2018. Frontdoor serves about 2% of U.S. homes, and uses its free cash flow to grow organically, pay down debt, repurchase shares, and acquire complementary businesses. |
| JKHY | Jack Henry & Associates, Inc. is a leading provider of technology solutions for community banks and credit unions. Shares rose after the company reported better-than-expected quarterly results and raised financial guidance. Adjusted revenue grew 9% and earnings per share increased 21% in the quarter, reflecting a favorable demand environment, market share gains, and strong margin expansion. |
| LSTR | LSTR has been patiently managing the longest extended soft-freight environment in company history. |
| NOVT | Novanta (NOVT) supplies proprietary precision components and systems used in mission-critical medical and advanced industrial applications. |
| OSW | OneSpaWorld is the leading provider of health and wellness services to cruise operators. We believe the company's strong labour management, logistics capabilities and continuous operational improvement can drive sustained growth. |
| PNFP | Pinnacle Financial Partners (PNFP) has been a successful holding for us; however, its recent merger with Synovus Financial Corporation makes Pinnacle too large for us to own. |
| ROST | ROST posted strong same-store sales in its fiscal third quarter. In our estimation, the new CEO is doing an excellent job of reviving growth. We also believe that this off-price retailer is advantaged over traditional apparel companies because of its everyday discounts. In the current economy, where certain consumers are stressed, ROST fills a critical need. |
| SPSC | SPSC reported a more muted near-term business outlook. Whereas there are certainly some environmental issues we think are temporary, we discovered recently that management made a poor acquisition. As a result, an activist has targeted the firm. We continue to believe the business is advantaged and see multiple avenues for value creation. |
| TRRSF | TRRSF reported broad-based growth across its business as well as a continued expansion in the U.S. |
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