Baron Focused Growth Fund (BFGIX)
Fund Manager since
View All Commentary by
Baron Focused Growth Fund invests in a focused portfolio of small and mid-size growth companies.
Review and Outlook
U.S. stock markets were unusually volatile during the three months ended September 30, 2015. Most indexes fell sharply, with small and mid-cap stocks performing worse than large caps. The smid cap Russell 2500 Growth Index lost 11.05% in the third quarter.
The markets were pressured by several disruptive events in the period. China growth slowed and the China A shares market fell sharply. Oil prices remained depressed, and the share prices of energy businesses and companies that supply or service the energy industry fell sharply in the quarter. High yield spreads increased by almost 200 basis points. This market was negatively impacted by impending financial problems of leveraged energy companies and downgrades of Volkswagen and Glencore debt. Interest rates, however, did not change. It is now nine years since the last time the Fed raised rates. This decision was attributed to slower-than-expected growth, market turmoil, and lower-than-desired inflation. The Fed also considered developments in China and economies overseas.
Baron Focused Growth Fund declined by 13.77% in the quarter. Consumer Staples was a modest contributor. Sub-industries that materially contributed to performance included property & casualty insurance and electric utilities. Consumer Discretionary, Information Technology (IT), and Industrials were the top detracting sectors to performance.
Consumer Staples benefited from the performance of Church & Dwight Co., Inc., the Fund’s third largest contributor in the period. Top contributor Arch Capital Group, Inc., added to performance of the property & casualty insurance sub-industry. Electric utilities contributed on a stock rise by electric transmission company ITC Holdings Corp., which benefited from risk off investment into the defensive Utilities sector. Consumer Discretionary lost ground as the Fund’s seven sector holdings all lagged in the quarter. IT suffered from weak performance across the sector, led by the second largest detractor, Benefitfocus, Inc. Industrials also had a challenging quarter with declines in three of four holdings, led by top detractor CaesarStone Sdot-Yam Ltd.
The decline in the profitability of oil companies and their industrial suppliers has resulted in slower-than-desired economic growth and subdued inflation. We think the short-term slowdown caused by the decline in the profits of energy businesses will soon be offset by faster growth in the rest of the economy in part spurred by the lower cost of energy.
The U.S. stock market is closely aligned with GDP. Median stock values are presently 15X earnings, below the median for the last 55 years. Individual stock prices reflect growth of value in business. When earnings grow significantly and stock prices decline or remain steady, this creates investment opportunities. This is presently the case.
Top Contributors/Detractors to Performance
Quarterly Attribution Analysis
The Quarterly Attribution Analysis for period ending September 30, 2015 is not yet available
Back to Top
Invest In Baron Funds Today
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. Investing in the stock market is always risky. Current and future portfolio holdings in the Fund are subject to risk.
Source: FactSet PA.