FAM Small Cap Fund & Your Portfolio

By Fenimore Research Team

Since the launch of the new FAM Small Cap Fund, we have fielded numerous questions about the Fund and its place in investment portfolios. We thought it would be helpful if we shared answers to some questions we have been receiving.

How does FAM Funds define small-cap stocks?
We define small-cap companies as ones that have market capitalizations of between $50 million and $1 billion. Essentially, market capitalization is the total dollar market value of all of a company’s outstanding shares.

Are small-cap stocks new to FAM Funds?
No. Fenimore Asset Management, the investment advisor to FAM Funds, has been investing in small-cap stocks since we opened our doors in 1974. This includes various industries such as banking, insurance, trucking, manufacturing, and technology.

What is your investment process?
We use Fenimore’s same time-tested, value-oriented investment approach. Our main focus is to seek stocks in high-quality, undervalued businesses that demonstrate long-term growth potential; financially strong companies with exemplary leadership that are profitable. It is the same process we have used for 38 years.

Are small-cap stocks riskier?
Overall, small-cap stocks are often characterized as riskier than larger ones due to their financial resources. We try to mitigate these risks. We do not invest in start-up businesses, but rather in ones that have been in operation for many years and meet our rigorous criteria. These are what we believe to be high-quality corporations with sound financials, manageable debt levels, strong free cash flows, solid management teams, and industry niches. Some of these smaller companies have been in business for more than 25 years.

What do you like about the small-cap space?
There are thousands of small-sized companies from which to choose. Some could even become the brand names of tomorrow. Wall Street analysts and institutional investors do not always follow this part of the stock market effectively – this can lead to a fair amount of mispricing which in turn creates opportunities. The key is to have the research depth and expertise to discover businesses with the most potential. We have invested in small-cap stocks since our beginning, we know them well, and we have a solid group of Research Analysts who have been focusing on small-sized companies for many years.

How does the Small Cap Fund fit into my investment portfolio?
You might consider small-cap stocks as a way to further diversify your portfolio. Small-cap stock prices typically fluctuate more than larger ones, but over the long term they can be an important part of your portfolio.

Please see Fenimore disclosure.