Review and Outlook
During the three-month period ended June 30, 2015, Baron Asset Fund gained 0.76%, the Russell Midcap Growth Index declined 1.14%, and the S&P 500 Index gained 0.28%.
The Fund’s positive return was driven by strong performance among several health care-related companies, including Illumina, Inc., a leading technology provider to the DNA sequencing market, and Universal Health Services, Inc., an operator of acute care and behavioral health hospitals. In addition, Pall Corp., a filtration technology company with significant customers in the health care industry, agreed to sell itself at a large premium. Financial Services holdings also did well, as Arch Capital Group, Ltd rose on merger speculation in the insurance industry, and Charles Schwab Corp. benefited from rising interest rates during the period. Rising commodity prices during the quarter were a positive driver of the Fund’s Energy sector holdings, including Shell Midstream Partners LP. Laggards included several companies that missed earnings expectations for company-specific reasons, including veterinary diagnostic firm IDEXX Laboratories, Inc. and social network LinkedIn Corp. The hotel sub-industry also lagged, as Choice Hotels International, Inc. and Hyatt Hotels Corp. detracted from results. Despite continued strong financial results, Hyatt lost ground as a result of investor concerns over a potential slowdown in the lodging cycle, as well as muted travel to South Korea in reaction to the MERS virus outbreak.
During the quarter we initiated a position in the newly issued Tallgrass Energy GP, LP, the general partner of a fast-growing master limited partnership. Tallgrass has an interest in various assets that transport, store and process natural gas and crude oil, primarily in the Appalachian Basin. We have been following this company (and its management team) for a long time through our Firm’s investment in Tallgrass Energy Partners, LP, which is led by many of the same executives. We have high conviction in the ability of Tallgrass Energy GP to grow its cash distributions at a rapid pace for the foreseeable future through its economic interest in the cash flow streams of high-quality infrastructure assets with limited exposure to commodity price and volume risk.
Nothing has changed our longstanding view that high-quality, mid-sized growth stocks represent an attractive investment opportunity. The U.S. economy remains among the world’s healthiest, its equity market multiples remain within the range of their long-term historic averages, and we expect that interest rates will continue to remain quite low by historic standards. 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 continue to perform well in this environment.
Top Contributors/Detractors to Performance
Quarterly Attribution Analysis
The Quarterly Attribution Analysis for period ending June 30, 2015 is not yet available
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