Fenimore Asset Management has published its investor letter for the fourth quarter of 2025. The stock market in 2025 was solid but volatile, with investors balancing AI enthusiasm, economic uncertainty, and monetary policy concerns. A summer rally was driven by AI-related spending and economic resiliency, while the fourth quarter experienced increased volatility due to valuation pressures and macro uncertainty. Large-cap technology and communication services stocks led the market during the quarter, with the S&P 500 Index rising 2.66%.
The firm believes the trend of AI stocks outperforming high-quality stocks is unsustainable. In Q4 2025, the Fenimore Small Cap Strategy returned -4.12%, trailing the Russell 2000 Index's 2.19% return. Underweight exposure to low-quality stocks contributed to this underperformance. The Fenimore Dividend Focus Strategy declined -4.41% in Q4, compared to the Russell Midcap Index's 0.16% return. Similarly, the Fenimore Value Strategy declined -1.17% in Q4, against the same benchmark's 0.16% return. Investments in the financial and industrial sectors led to the relative underperformance of the Value Strategy in the quarter.
Fenimore expects mixed market conditions in 2026, noting 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, Fenimore highlighted FirstService Corporation (NASDAQ:FSV) as one of the largest performance detractors in its Small Cap Strategy during the quarter. FirstService Corporation is a real estate services company offering residential property management and other essential property services. On January 15, 2026, its stock closed at $163.13 per share. The stock had a one-month return of 5.46% but lost 10.55% of its value over the last 52 weeks. FirstService Corporation has a market capitalization of $7.469 billion.
Regarding FirstService Corporation, Fenimore stated in the letter: "The biggest drags on performance were Dream Finders Homes (DFH), FirstService Corporation (NASDAQ:FSV), and SPS Commerce (SPSC). FSV reported slower-than-expected results due to weather-related softness in its restoration business tied to roofing. We believe they have multiple avenues for reinvestment and that its management can generate shareholder value over the long term."