Fenimore Asset Management has published its investor letter for the fourth quarter of 2025. The document is available for download.
The stock market showed strength in 2025 but experienced significant volatility. Investors grappled with enthusiasm for artificial intelligence alongside economic and monetary policy concerns. A summer rally was fueled by AI-related spending and economic resilience, while the final quarter faced increased market swings due to valuation pressures and macroeconomic uncertainty.
Large-cap technology and communication services stocks led the market during the quarter, with the S&P 500 Index gaining 2.66%. Fenimore stated its belief that the trend of AI stocks outperforming high-quality stocks is not sustainable.
The firm's Small Cap Strategy returned -4.12% in Q4 2025, underperforming the Russell 2000 Index, which returned 2.19%. This underperformance was driven by an underweight position in low-quality stocks.
Fenimore's Dividend Focus Strategy declined 4.41% in the quarter, compared to the Russell Midcap Index's return of 0.16%. The firm's Value Strategy declined 1.17% in the same period, also against the Russell Midcap's 0.16% return. Investments in the financial and industrial sectors contributed to the relative underperformance of the Value Strategy.
Looking ahead, Fenimore anticipates mixed market conditions in 2026. It noted that many AI-related stocks appear expensive, while high-quality companies are trading at multi-year lows, which it sees as creating opportunities.
In its letter, the firm highlighted Paychex, Inc. (NASDAQ:PAYX) as a key performance detractor for its Dividend Focus Strategy during the quarter. Paychex, headquartered in Rochester, New York, provides human capital management solutions for small and medium-sized businesses.
On January 15, 2026, Paychex stock closed at $110.51 per share. The stock had a one-month return of -1.58% and has lost 24.46% of its value over the past 52 weeks. The company's market capitalization is $39.669 billion.
Fenimore Asset Management stated the following regarding Paychex in its fourth quarter 2025 investor letter: "Paychex, Inc. (NASDAQ:PAYX) performed the worst. Despite PAYX reporting strong earnings that exceeded expectations, the stock sold off 10% on economic concerns which mutes the near-term outlook. Employment numbers for small and midsized businesses remain weak which pressured the stock."