Review and Outlook
The year 2015 was characterized by steadily increasing volatility, although this volatility is not reflected in the final 2015 results for the averages and indexes. The Dow Jones Industrial Average traveled over 31 thousand points during the year only to close essentially flat. The broader based S&P 500 and Russell 1000 Growth indexes had many violent daily swings, especially in the latter part of the year, but with little to show for it in the end. The glaring disparity in stock price performance between the leaders and the laggards was even more profound than in years past, and we participated meaningfully on both sides.
For the year ended December 31, 2015, Amazon, Alphabet (formerly Google), Facebook, Starbucks, Equinix, Ctrip, and Regeneron Pharmaceuticals all appreciated over 30% and were among Baron Fifth Avenue Growth Fund's largest winners. Visa, MasterCard, Red Hat, Priceline, Verisk Analytics, Costco, and Charles Schwab all posted double digit percentage gains and contributed nicely to the Fund’s overall performance.
On the other side, FireEye, Alibaba, Tallgrass Energy, Twitter, Wynn Resorts, and Vmware were all down over 20%, and, combined with other double-digit laggards Monsanto, ASML Holdings, Fastenal, and Brookfield Infrastructure Partners, damaged our returns. And then there was SunEdison and its related yieldco TerraForm Global, where in our opinion, management’s awful decision making, combined with our inability to recognize it and move quickly, inflicted a 4.3% loss on the Fund’s overall results.
Every year we make some good decisions and some bad ones. Though we manage a high conviction portfolio, it is rare for a single decision or one investment to have a profound impact on the portfolio’s overall performance over a 12-month period. This year we had two. Our decision to make Amazon the largest investment in the Fund after it declined 22% in the prior year paid massive dividends after the stock rose 118% in 2015. The costly mistake of getting involved in SunEdison and its yieldco proved to be the difference between a respectable year and a very good one.
We live and invest in a world full of uncertainty. China, oil, potential for rising interest rates, and terrorism are all serious challenges with clearly uncertain outcomes. The business of capital allocation (or investing) is the business of taking risk, managing the uncertainty, and taking advantage of the long-term opportunities that those risks and uncertainties create.
Our goal remains to maximize long-term returns without taking significant risks of permanent loss of capital. We will continue to focus on identifying and investing in what we believe are unique companies with sustainable competitive advantages that have the ability to compound capital at high rates of return for extended periods of time.
Top Contributors/Detractors to Performance
Quarterly Attribution Analysis
The Quarterly Attribution Analysis for period ending December 31, 2015 is not yet available
Yearly Attribution Analysis
The Yearly Attribution Analysis for period ending December 31, 2015 is not yet available
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