| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | - | - |
| 2024 | 2023 | 2022 | 2021 | 2020 |
|---|---|---|---|---|
| 10.7% | 25.4% | -5.7% | 30.8% | 3.6% |
Fiduciary Management Inc. navigated a challenging 2025 environment dominated by AI-related speculation and a low-quality junk rally that rewarded risk-taking over fundamental analysis. While FMI's portfolios generated solid double-digit returns over the past three years, they underperformed broader indices due to their disciplined focus on business quality, balance sheet strength, and valuation. The firm highlights concerning market dynamics, including record valuations, massive AI capital spending that may not generate attractive returns, and underlying economic weakness masked by AI-driven growth. Despite 42 AI-related stocks representing 45% of S&P 500 market cap and accounting for 78% of returns since ChatGPT launched, FMI questions the sustainability of this concentration. The firm continues finding attractive opportunities in quality businesses like Hayward Holdings, Accenture, and Smiths Group, maintaining their conviction that current market preferences represent a historical anomaly. FMI remains committed to their proven investment process, believing that quality businesses with competitive advantages and strong balance sheets will ultimately be rewarded when market conditions normalize.
FMI maintains a disciplined focus on quality businesses with sustainable competitive advantages, strong balance sheets, and attractive valuations, believing that the current market preference for low-quality speculative investments represents a temporary anomaly that will eventually revert to favor their quality-oriented approach.
FMI acknowledges the challenging backdrop but expresses confidence that better days lie ahead for their quality-focused investment approach. While the market is currently less interested in their types of stories, they view this as a historical anomaly and plan to stay the course with their disciplined investment process.
| 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 has driven massive market concentration with 42 AI-related stocks representing 45% of S&P 500 market cap and accounting for 78% of returns since ChatGPT… |
| Oct 14 2025 | 2025 Q3 | OMF | financials, industrials, inflation, small caps, valuation | - | The fund highlights improving small-cap performance as valuations remain attractive relative to large caps. Industrial and financial companies are benefiting from cyclical recovery and easing… |
| Jun 30 2025 | 2025 Q2 | NSIT | alpha, earnings recovery, small caps, Valuations, volatility |
NSIT MAS |
The commentary highlights small-cap equities as an area of opportunity due to historically wide valuation discounts and improving earnings potential. The manager argues that volatility… |
| Apr 14 2025 | 2025 Q1 | FCFS | - | - | - |
| Dec 31 2024 | 2024 Q4 | HAYW, IPG | - | - | - |
| Sep 30 2024 | 2024 Q3 | ARMK, FN | - | - | - |
| Jun 30 2024 | 2024 Q2 | HSIC | - | - | - |
| Apr 15 2024 | 2024 Q1 | GTES | - | - | - |
| Jan 14 2024 | 2023 Q4 | BJ | - | - | - |
| Oct 21 2023 | 2023 Q3 | VVV | - | - | - |
| Jun 30 2023 | 2023 Q2 | RHI | - | - | - |
| Mar 31 2023 | 2023 Q1 | ZION | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
AIThe extended federal government shutdown added volatility during what was otherwise a risk-on environment, with a mid-quarter shift in market behavior for AI-related equities as the exuberant narrative evolved to one more balanced in assessing the technology's enormous potential against staggering capital spending plans and high expectations. The team initiated a position in Credo Technology as a more diversified way to gain exposure to strong trends in AI-connectivity. |
Connectivity Semiconductors Infrastructure Capital Spending |
QualityThe portfolio has shifted toward higher quality businesses with better profitability, lower leverage, and less volatile earnings. Quality stocks underperformed significantly in 2025, creating attractive entry points for value investors. The manager maintains price discipline while seeking quality companies trading at discounts to intrinsic value. |
Quality Profitability Leverage Earnings | |
Small CapsThe fund invests in a portfolio of competitively advantaged small and medium-sized businesses, which remained out of favor for most of the quarter. The strategy of owning leading small-cap businesses has been the foundation since inception, delivering 354 basis points of annual outperformance over the benchmark since inception despite recent headwinds. |
Growth Outperformance Benchmark Russell Businesses | |
| 2025 Q3 |
Industrial Recovery |
|
Small CapsThe fund invests in a portfolio of competitively advantaged small and medium-sized businesses, which remained out of favor for most of the quarter. The strategy of owning leading small-cap businesses has been the foundation since inception, delivering 354 basis points of annual outperformance over the benchmark since inception despite recent headwinds. |
Growth Outperformance Benchmark Russell Businesses | |
ValuationAI-related companies continue to command premium valuations while other sectors remain reasonably priced. This valuation divide continues to guide investment activity, with the fund remaining wary of companies trading at exceedingly high valuations that imply exceptional multi-year earnings growth. |
Premium Divide Discipline Stretched Reasonable | |
| 2025 Q2 |
SmallCaps |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| 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 |
| Jun 30, 2025 | Fund Letters | Jonathan T. Bloom | MAS | Masco Corp. | Industrials | Building Products & Equipment | Bull | NYSE | brands, Free Cash Flow, Remodeling, ROIC, valuation | 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 | Capital spending from Google, Microsoft, Amazon, Meta, OpenAI, and more have led to Nvidia becoming the Rrst 5 trillion market cap company. |
| 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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