Review and Outlook
The Review and Outlook for period ending March 31, 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 Fifth Avenue Growth Fund declined 4.92% in the first quarter and underperformed the Russell 1000 Growth Index by 566 basis points, mainly due to stock selection.
The Fund’s Financials and Energy investments and its cash exposure as the market declined precipitously early in the quarter contributed to relative performance. Strength in Financials was mostly due to the outperformance of Brookfield Asset Management, Inc., Equinix, Inc., and CME Group, Inc. Brookfield and Equinix were two of the largest contributors on an absolute basis, while CME, which operates a derivatives marketplace, benefited as volatility drove higher trading volumes. Within Energy, outperformance of Concho Resources, Inc. added value, but this positive result was mostly offset by slightly larger exposure to this poor performing sector, which was hurt by volatile oil prices. Shares of Concho, an exploration and production company focused on the Permian basin in West Texas and New Mexico, rose after the company enhanced its position in the Delaware basin, and provided a 2017 outlook that beat expectations.
Underperformance of the Fund’s Information Technology (IT), Consumer Discretionary, and Health Care holdings and its lower exposure to the outperforming Consumer Staples sector detracted the most from relative results. Within IT, underperformance of Internet software & services holdings, led by LinkedIn Corp. and Twitter, Inc., and meaningfully larger exposure to this lagging sub-industry hurt relative results. LinkedIn was the second largest detractor from absolute results before being sold in early February, while shares of Twitter declined after the company reported an outlook for Q1 that was weaker than Street estimates. Slowing user growth continues to be a concern, but we believe the change in senior leadership last year should lead to upcoming product enhancements. Underperformance of Mobileye N.V. and systems software holdings, led by FireEye, Inc., also weighed on relative results. Shares of Mobileye, which develops vision-based advanced driver assistance systems, declined on short seller allegations that its high valuation and competitive position are unsustainable. We retain conviction as we believe Mobileye has a dominant market position due to its solid technology and evidenced by its wins with top car manufacturers. Weakness in Consumer Discretionary was mainly due to the underperformance of Amazon.com, Inc., the largest detractor on an absolute basis. Amazon’s shares fell in the quarter after more than doubling in 2015. Health Care holdings trailed their index counterparts after falling 18.7%, with Illumina, Inc. and biotechnology holdings Alexion Pharmaceuticals, Inc. and Regeneron Pharmaceuticals, Inc. leading the decline. Shares of Illumina, a leading provider of DNA sequencing technology, fell after solid Q4 financial results were overshadowed by tempered expectations for sales of certain instruments. Shares of Alexion and Regeneron fell primarily as a result of a steep correction in the biotech/pharma space in the quarter.
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