Fenimore Asset Management has published its investor letter for the fourth quarter of 2025. The document outlines the firm's performance during a period marked by stock market volatility.
The S&P 500 Index rose 2.66% in the quarter, with large-cap technology and communication services stocks leading. Fenimore's Small Cap Strategy returned -4.12%, trailing the Russell 2000 Index's 2.19% return. The firm attributed this underperformance to an underweight exposure to low-quality stocks.
Fenimore's Dividend Focus Strategy declined -4.41% in Q4, compared to the Russell Midcap Index's 0.16% return. The Value Strategy declined -1.17% against the same benchmark. Investments in the financial and industrial sectors contributed to the relative underperformance of the Value Strategy.
In the letter, Fenimore stated that the summer rally was driven by AI-related spending and economic resiliency. The fourth quarter saw increased volatility due to valuation pressures and macro uncertainty. The firm believes the trend of AI stocks outpacing high-quality stocks is unsustainable.
Fenimore expects mixed market conditions in 2026. Many AI-related stocks appear expensive, while high-quality companies are trading at multi-year lows, which the firm sees as creating opportunities.
The investor letter highlighted SPS Commerce, Inc. (NASDAQ:SPSC) as one of the largest performance detractors in the Small Cap Strategy. SPS Commerce, headquartered in Minneapolis, Minnesota, offers cloud-based supply chain management solutions.
On January 15, 2026, SPS Commerce stock closed at $91.24 per share. Its one-month return was 0.74%, but its shares lost 52.23% of their value over the last 52 weeks. The company has a market capitalization of $3.459 billion.
Regarding SPS Commerce, Fenimore Asset Management stated: "The biggest drags on performance were Dream Finders Homes (DFH), FirstService Corporation (FSV), and SPS Commerce, Inc. (NASDAQ:SPSC). SPSC reported a more muted near-term business outlook. Whereas there are certainly some environmental issues we think are temporary, we discovered recently that management made a poor acquisition. As a result, an activist has targeted the firm. We continue to believe the business is advantaged and see multiple avenues for value creation."
According to database information, 33 hedge fund portfolios held SPS Commerce at the end of the third quarter of 2025, compared to 34 in the previous quarter. The company's Q3 2025 revenue grew 16% year over year to $189.9 million, with recurring revenue growing 18%.