Baron Asset Fund (BARIX)
Review and Outlook
The Review and Outlook for period ending June 30, 2016 is not yet available
Top Contributors/Detractors to Performance
Quarterly Attribution Analysis
When reviewing performance attribution on our portfolio, please be aware that we construct the portfolio from the bottom up, one stock at a time. Each stock is included in the portfolio if it meets our rigorous investment criteria. To help manage risk, we are aware of our sector and security weights, but we do not include a holding to achieve a target sector allocation or to approximate an index. Our exposure to any given sector is purely a result of our stock selection process.
Baron Asset Fund increased 2.79% in the second quarter and outperformed the Russell Midcap Growth Index by 123 basis points. Relative sector weights and, to a lesser extent, stock selection contributed to relative performance.
Consumer Discretionary and Information Technology (IT) investments and larger exposure to the strong performing Health Care sector contributed the most to relative results. Within Consumer Discretionary, lower exposure to lagging apparel retail and apparel accessories & luxury goods sub-industries and outperformance of ski resort operator Vail Resorts, Inc. added the most value. Vail’s stock price rose on reports of a strong 2015/2016 ski season, with increased visitation and spend across its resorts. Management also indicated that 2016/2017 season pass sales were off to a robust start as units were up 29% over last year. Strength in IT was partly due to the outperformance of Gartner, Inc. and Zillow Group, Inc., which were the second and third largest contributors on an absolute basis. Investments in application software, led by Guidewire Software, Inc. and Mobileye N.V., also aided relative performance. Shares of property and casualty insurance software vendor Guidewire increased on reports of near-perfect retention rates, a growing installed base, and accelerating adoption. Guidewire is early in its core system replacement cycle, and is expanding its addressable market through persistent innovation. Mobileye recouped losses suffered in the first quarter after management allayed investor concerns regarding competitive threats by announcing two autonomous program wins. The Fund’s investment in real estate information and marketing services company CoStar Group, Inc. also lifted relative performance after the company reported outstanding financial results.
Lack of exposure to the outperforming Consumer Staples sector and underperformance of Industrials investments detracted the most from relative performance. The Fund’s Industrials holdings trailed their counterparts in the index after falling 2.8%, with Westinghouse Air Brake Technologies Corporation, Roper Technologies, Inc., and Fastenal Co. driving the decline. Shares of Westinghouse, the market leader in transportation products that improve railroad safety and productivity, declined due to uncertainty around global freight volumes, continued volatility in commodities and the potential impact of “Brexit” on foreign operations. Shares of Roper, which manufactures industrials controls, fluid handling, and analytical instrumentation products, fell after a short report expressed concerns about second half growth and the company’s acquisition-driven growth strategy. The concerns were fairly general in nature and not necessarily specific to Roper in our view. Roper’s strategy has consistently generated value over time, and we believe it has the potential to outperform as it completes additional deals.
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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.