Baron Fifth Avenue Growth Fund (BFTHX)
Review and Outlook
In the second quarter of 2015, U.S. market participants appeared to continue to worry about the debt crisis in Greece and the timing of the Federal Reserve’s initial move to start raising interest rates. Though not without some volatility, the U.S. large cap market proved to be relatively quiet with the indexes ending the quarter more or less where they began. We generally tend to do well in these kinds of environments.
As was the case last quarter, most excess returns in Baron Fifth Avenue Growth Fund were generated through stock selection, with 10 of our investments appreciating more than 10% during the quarter. Unlike last quarter, the effect of sector allocation was modestly positive this time. Once again portfolio returns were led by strong performances from Amazon.com, Starbucks, and FireEye. This quarter Illumina, Mobileye, MasterCard, YUM! Brands, and Equinix also made strong contributions, which explains why Consumer Discretionary, Health Care, and Information Technology highlighted the sectors where our stock selection was strongest.
The quarter was not without some disappointments. Twitter and LinkedIn “blew up,” Wynn Resorts finally exceeded our pain tolerance threshold, and Google made a rare appearance on the “significant” detractors list, but all in all, the good outweighed the bad.
In the last couple of weeks of the quarter and into July, the China A share markets collapsed, giving back roughly half of their prior twelve month gains. This dramatic turn of events has prompted yet another prediction of a Chinese “debacle” and global contagion. Though the Greek crisis seems to have been averted (or postponed), the U.S. Federal Reserve will likely begin to raise interest rates in September, making many investors nervous. We do not have any insight on the direction of the market. However, we do observe that unemployment in the U.S. continues to decline, the economy appears to be strengthening, and the decline in oil prices should provide meaningful savings to consumers. While we expect the market to be volatile, we remain positive on the overall environment.
Our goal remains to maximize long-term returns without taking significant risks of permanent loss of capital. We continue to focus on identifying and investing in unique companies with sustainable competitive advantages that we believe have the ability to reinvest capital at potentially high rates of return.
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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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 judgement 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. I Investing in the stock market is always risky. Current and future portfolio holdings in the Fund are subject to risk.
Source: FactSet PA.