Review and Outlook
During the three-month period ended September 30, 2015, most market indexes dropped sharply. Stocks began their decline in late August, before partly recovering, and then falling sharply again in late-September. Baron Asset Fund fell 8.25%; the Russell Midcap Growth Index declined 7.99%, and the S&P 500 Index declined 6.44%. The reasons for the market decline included increased uncertainty about the health of the Chinese economy, and the potential ramifications this might have on global growth; the continued decline in energy and commodity prices; and the shockwaves from a rapid decline in biotechnology shares, driven by concerns about that industry’s pricing trends. Although we believe the Fund had limited direct exposure to these developments, many of our investments suffered over these concerns, nonetheless.
The investments that performed best against this challenging backdrop included Health Care companies that lacked even tangential exposure to the drug pricing concerns that affected many important participants in the sector, including IDEXX Laboratories, Inc., a veterinary diagnostic firm. Several Information Technology businesses reported good results, indicating that they were insulated against these issues, including VeriSign, Inc., SS&C Technologies, Inc. and Equinix Inc. (a data center and co-locator provider that is classified by GICs as a REIT). Finally, companies with proprietary data and analytics, characterized by highly-recurring, largely subscription-based revenues, also performed relatively well, including Verisk Analytics, Inc., Nielsen Holdings Plc and Gartner, Inc.
The worst performers included DNA sequencer manufacturer Illumina, Inc., which suffered from company-specific issues and fall-out from the sell-off in biotechnology shares. China-related concerns affected Mettler-Toledo, Inc., a weighing device manufacturer with an important presence in that market. The continued drop in energy prices hurt midstream energy master limited partnerships Shell Midstream Partners LP and Tallgrass Energy GP LP, as well as FleetCor Technologies, Inc., which provides credit card processing services for large oil companies.
Nothing has changed our longstanding view that high-quality, mid-sized growth stocks represent an attractive long-term investment opportunity. The U.S. economy is among the world’s healthiest, and, particularly after this quarter’s stock market correction, its equity market multiples are within the range of their long-term historic averages. Interest rates remain at historic lows, and although past performance is not indicative of future performance, we believe history demonstrates that equity markets often perform well even after rates increase. Employment and housing trends continue to improve, and energy prices remain meaningfully below their recent levels. We believe that our portfolio of well-managed, competitively advantaged, fast growing companies will have the potential to perform well in this environment.
Top Contributors/Detractors to Performance
Quarterly Attribution Analysis
The Quarterly Attribution Analysis for period ending September 30, 2015 is not yet available
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