Baron Asset Fund (BARAX)
Review and Outlook
During the quarter ended June 30, 2016, equity markets increased before falling suddenly on June 24, when British voters unexpectedly voted in favor of leaving the European Union, the so-called Brexit. After digesting the likely implications of Brexit, U.S. investors appeared to change their view, and the markets rose sharply during the last few days of June and through early July.
Baron Asset Fund increased in the quarter. The top sector contributors to performance were Health Care, Information Technology (IT), and Financials. Industrials and Consumer Discretionary detracted. While results were mixed, contributors among Health Care holdings outweighed detractors. The sector benefited in particular from the strong performance of top contributor IDEXX Laboratories, Inc. Positive performance of the IT sector was largely driven by Gartner, Inc. and Zillow Group, Inc., the second and third largest contributors to performance respectively. A strong showing by property and casualty insurance software vendor Guidewire Software, Inc. also helped boost performance. Contribution of the Financials sector was led by specialized REIT Equinix, Inc. Weakness in the Industrials sector was driven primarily by holdings in the construction machinery & heavy trucks and trading companies & distributors sub-industries, including top five detractor Westinghouse Air Brake Technologies Corp., which manufactures safety equipment for the rail industry. Consumer Discretionary detracted primarily due to the weak performance of investments in the hotels, resorts & cruise lines and specialty stores sub-industries.
Despite the near-term uncertainty created by various global events, most notably Brexit, we continue to believe that high-quality, mid-sized growth stocks represent an attractive long-term investment opportunity. During the past 30 years, mid-cap growth stocks, as a category, have outperformed small-cap and large-cap growth stocks. We believe that this trend will continue.
The U.S. economy continues to rank among the world’s healthiest, and its equity market multiples are within the range of their long-term averages. Although interest rates declined again during the quarter, perhaps the most prevalent concern among equity investors is uncertainty about what will happen to stocks when interest rates finally begin to increase. We believe that equity markets often perform well during a rising rate environment. Separately, employment and housing trends continue to improve, and energy prices still remain meaningfully below recent levels. We think that our portfolio of what we believe are well-managed, competitively advantaged, fast growing companies will continue to perform well in this environment, although we cannot guarantee that they will.
Top Contributors/Detractors to Performance
Quarterly Attribution Analysis
The Quarterly Attribution Analysis for period ending June 30, 2016 is not yet available
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The prospective performance of the companies discussed herein is based on our internal analysis and reflect our opinions only. We cannot promise future returns and our opinions are a reflection of our best judgment at the time of publication. Our views are not intended as recommendations or investment advice to any person and are subject to change at any time based on market and other conditions and Baron has no obligation to update them. Investing in the stock market is always risky. Current and future portfolio holdings in the Baron Funds are subject to risk.