Fenimore Asset Management has published its investor letter for the fourth quarter of 2025. The document outlines the firm's performance during a period of market volatility.
The stock market in 2025 showed strength but experienced fluctuations. A summer rally was fueled by spending related to artificial intelligence and economic resilience, while the fourth quarter faced increased volatility from valuation pressures and macroeconomic uncertainty. Large-cap technology and communication services stocks led the market, with the S&P 500 Index rising 2.66% for the quarter. Fenimore believes the trend of AI stocks outperforming high-quality stocks is not sustainable.
Fenimore'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. The Fenimore Dividend Focus Strategy declined -4.41% compared to the Russell Midcap Index's 0.16% return. The Fenimore Value Strategy declined -1.17% against the same benchmark's 0.16% return. Investments in the financial and industrial sectors contributed to the relative underperformance of the Value Strategy.
The firm anticipates mixed conditions for 2026, noting that many AI-related stocks appear expensive while high-quality companies are trading at multi-year lows, which may present opportunities.
In the letter, Fenimore highlighted Trane Technologies plc (NYSE:TT) as a key performance detractor in its Dividend Focus Strategy during the quarter. Trane Technologies provides solutions for heating, ventilation, air conditioning, and transport refrigeration. On January 15, 2026, its stock closed at $387.27 per share. The one-month return was -0.66%, and the 52-week return was -0.49%. The company has a market capitalization of $86.174 billion.
Fenimore Asset Management stated regarding Trane Technologies in the letter: "Trane Technologies plc (NYSE:TT) continued to be a juggernaut, in our view, as earnings and backlog remained strong. AI data center cooling was a strong contributor while its residential HVAC business is experiencing weakness as the industry changes over to a new refrigerant. This softness runs across all residential HVAC firms and we expect clarity regarding this challenge in the near future."