Fenimore Asset Management has issued 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. The fourth quarter saw increased volatility stemming 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%.
Fenimore's Small Cap Strategy returned -4.12% in Q4 2025, underperforming the Russell 2000 Index, which gained 2.19%. The firm attributed this underperformance to an underweight exposure to 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% gain. Investments in the financial and industrial sectors contributed to the relative underperformance of the Value Strategy.
In the letter, Fenimore highlighted Dream Finders Homes, Inc. (NYSE:DFH) as one of the largest detractors from the performance of its Small Cap Strategy during the quarter. Dream Finders Homes is a U.S.-based home builder. On January 15, 2026, its stock closed at $20.30 per share. The stock had a one-month return of 13.41% but lost 15.87% of its value over the past 52 weeks. The company has a market capitalization of $1.88 billion.
The firm stated in the letter: "The biggest drags on performance were Dream Finders Homes, Inc. (NYSE:DFH), FirstService Corporation (FSV), and SPS Commerce (SPSC). DFH, the fast-growing home builder, struggled as affordability continued to be a challenge for first-time home buyers. While we expect these cycles to occur, we like DFH's asset-light approach to building homes and view its management as highly skilled."
Fenimore expects mixed market conditions in 2026. The firm noted that many AI-related stocks appear expensive, while high-quality companies are trading at multi-year lows, which it sees as creating opportunities.