Fiduciary Management Inc., an investment counsel, issued its investor letter for the fourth quarter of 2025. The firm reported solid long-term performance but acknowledged lagging behind broader indices during a speculative, AI-driven market rally. Equity markets posted strong gains in 2025, driven by risk-seeking behavior and heavy concentration in a narrow set of AI-linked stocks, despite historically high valuations.
Quality-focused and value-oriented strategies underperformed during the year, particularly in small caps, as low-quality and high-beta stocks dominated returns. The letter expressed concern over excessive capital spending, stretched valuations, and rising capital intensity, while recognizing AI's long-term potential. The fund emphasized discipline, downside protection, and adherence to its quality-value approach as signs of a market bubble continue to build.
The fund highlighted Hayward Holdings, Inc. (NYSE:HAYW) as a small-cap holding benefiting from normalized demand after a post-pandemic slowdown, with earnings power well above what the market currently prices in. Despite cyclical pressure, Hayward Holdings maintains strong margins and cash-generation potential, allowing the fund to view the stock as undervalued relative to mid-cycle earnings. The investment case rests on recovery in volumes and a valuation that already discounts an overly pessimistic scenario.
On January 16, 2026, Hayward Holdings stock closed at approximately $16.85 per share, with a market capitalization of about $3.65 billion. The one-month return of Hayward Holdings was approximately 5.51%, and its shares gained about 11.59% of their value over the last 12 months.
Fiduciary Management Inc. stated the following regarding Hayward Holdings in its fourth quarter 2025 investor letter: "Hayward Holdings (NYSE:HAYW) is a leading global pool equipment manufacturer, primarily serving the residential pool market. North America accounts for 85% of sales and over 90% of profits. Product categories include Pumps, Automation and Sanitization, Heaters, Filters, Lighting and Water Features, and Cleaners. The company estimates that 80% of total sales come from their existing installed base of pools (50% repair and replacement), making the business relatively resilient to economic cycles. Hayward also exhibits strong pricing power as equipment purchase decisions are typically made by pool service professionals, who are less sensitive to price than the end customer. Pool service professionals also tend to be risk averse and primarily purchase equipment from the leading players in the industry. These dynamics lead to high margins and ROIC. The pool industry went through a period of supercharged growth in the early parts of Covid, which gave way to a period of extremely weak end-market demand, exacerbated by destocking in the distribution channel. The industry has since stabilized but is still experiencing lackluster demand for newly built and remodeled pools. We believe that over time, the discretionary sides of the business should recover. In the meantime, Hayward should be able to continue raising prices and growing volumes within the installed base of pools. They have a solid balance sheet, strong management team, and reasonable valuation multiple, particularly given their depressed earnings."