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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"FMI is maintaining a defensive, quality-value posture in a highly speculative, AI-inflated market that mirrors the late 1990s tech bubble. Proceeding with restraint, the firm avoids low-quality junk rallies and overvalued tech capex plays, instead selecting high-quality businesses with strong balance sheets and attractive valuations to provide crucial downside protection before a correction occurs."
FMI believes that in a highly speculative, AI-driven market characterized by record valuations and a low-quality junk rally, adhering to a disciplined, high-quality value investment process is the only path to ensure superior downside protection and long-term outperformance. FMI notes that the intoxication with artificial intelligence and speculative junk rallies continued to reward risk-takers in 2025, pushing major indices to double-digit gains while shunning quality-value disciplines. FMI compares the narrow market concentration and immense capital expenditure on AI infrastructure to the late 1990s tech bubble, warning of a potential crash. They point out that outside the tech sector, economic indicators in employment, housing, and manufacturing reveal underlying weakness. In response to these elevated risks, FMI proceeds with restraint, maintaining limited exposure to speculative sectors. Instead, they find selective, attractive value in high-quality businesses with solid balance sheets and depressed valuations, such as Hayward Holdings, Accenture, and Smiths Group.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
FMI displays moderate-to-high conviction in its long-held quality-value discipline, explicitly stating they will stay the course despite current headwinds. While the letter covers multiple strategies and presents only a few specific stock examples without detailed portfolio sizing, their commitment to their core process is resolute.
Growth Outlook
FMI expresses deep caution regarding current market valuations and speculative behavior, pointing to a potential AI and junk stock bubble. They warn that the high market concentration and extreme capital intensity of AI spending could lead to a significant downturn, similar to the 2000 tech crash.
Risk Appetite
FMI maintains a highly defensive posture, refusing to chase the speculative AI or low-quality junk rally. They emphasize protecting downside risk by sticking to companies with strong balance sheets, predictable cash flows, and attractive valuations, and they hold limited exposure to speculative sectors.
Capital Deployment
FMI indicates a balanced approach to capital deployment, selectively purchasing out-of-favor businesses with a margin of safety (like Hayward and Accenture) while maintaining general restraint in an expensive market. There is no mention of large-scale cash additions or liquidations.
Forward Guidance
FMI plans to stay the course and buy strong companies that make money, avoid stressed balance sheets, and stay disciplined on valuation. They present specific value opportunities (Hayward, Accenture, Smiths Group) where they are selectively finding attractive risk-rewards, but emphasize overall restraint and prudence.
Language Signal
The letter's directional language is heavily weighted toward warnings of bubbles, speculative excesses, junk rallies, and economic cracks beneath the surface. Although they discuss a few bullish stock-specific ideas, the overarching narrative is dominated by caution and downside-protection terminology.
Perceived Risk
FMI perceives market risks to be very high, drawing direct parallels to the 1990s dot-com bubble and pointing out that Nasdaq fell 77% after that peak. They highlight specific macro-level concerns including extreme tech capital intensity, AI overcapacity, and broad economic flatlining outside the AI sector.
Opportunity Density
FMI views the broad opportunity set as sparse and distorted by record U.S. valuations and a speculative junk rally. However, they highlight that they are still finding selective, attractive value opportunities in high-quality businesses that have been shunned or misperceived by the market.
Time Horizon
FMI reiterates their long-term focus, citing their 45+ year history of utilizing business quality, balance sheet strength, and valuation discipline. They emphasize that while quality value may face short-term headwinds, its long-term compounding outperformance is unmistakable.
