Fenimore Asset Management has issued its investor letter for the fourth quarter of 2025. The document is available for download. The stock market in 2025 was solid but experienced volatility. Investors navigated enthusiasm for artificial intelligence, economic uncertainty, and monetary policy concerns.
A summer rally was fueled by AI-related spending and economic resilience. The fourth quarter saw increased market volatility stemming from valuation pressures and macroeconomic uncertainty. Large-cap technology and communication services stocks led the market during the quarter. The S&P 500 Index rose 2.66%.
The firm stated that the trend of AI stocks outperforming high-quality stocks is unsustainable. Fenimore's Small Cap Strategy returned -4.12% in Q4 2025, underperforming its benchmark, the Russell 2000 Index, which returned 2.19%. An underweight position in low-quality stocks contributed to this underperformance.
The Fenimore Dividend Focus Strategy declined 4.41% in the quarter, compared to the Russell Midcap Index's return of 0.16%. The Fenimore Value Strategy declined 1.17% against the same benchmark's 0.16% return. Investments in the financial and industrial sectors led to the strategy's relative underperformance for the period.
Fenimore expects mixed market conditions in 2026. Many AI-related stocks appear expensive, while high-quality companies are trading at multi-year lows, which may present opportunities.
In its letter, the firm highlighted Fastenal Company (NASDAQ:FAST) as a key performance detractor for its Value Strategy during the quarter. Fastenal is a wholesale distributor of industrial and construction supplies. On January 15, 2026, its stock closed at $43.53 per share. The stock's one-month return was 2.79%, and it gained 14.43% over the past 52 weeks. Fastenal has a market capitalization of $49.97 billion.
Fenimore Asset Management stated the following regarding Fastenal Company in the letter: "Our underperformance versus the Russell Midcap was attributable to our choice of investments in the financial and industrial sectors. Our allocation to those sectors was a net neutral. Brown & Brown (BRO) and Fastenal Company (NASDAQ:FAST) weighed most heavily on our relative performance. FAST’s main drag on performance was the weakness in U.S. industrial manufacturing. Major industrial customers made considerable production cuts in December which led to a sales decline. Gross margin compression occurred as sales shifted toward lower-margin services. Additionally, FAST carried higher inventory costs to hedge against incoming tariff hikes."