Baron Focused Growth Fund (BFGIX)

Portfolio Management

RonBaron
Ron Baron

Fund Manager since 1996

View All Commentary by Ron

Fund Description

Baron Focused Growth Fund invests in a focused portfolio of small and mid-size growth companies.

    

  

Portfolio Commentary

Institutional Performance

Review and Outlook (for quarter ended 3/31/2014)

The Review and Outlook for period ending March 31, 2014 is not yet available

Top Contributors/Detractors to Performance

Contributors (for quarter ended 3/31/2014)
  • Shares of Helmerich &Payne, Inc., the leading land drilling contractor in the U.S, rose signficantly in Q1. Over the past three years, Helmerich’s market share has increased to 23% from 16%, while generating higher margins and returns than its main competitors. Share price benefited from growing optimism that U.S. horizontal drilling activity will increase, spurring customer demand for new rigs. Helmerich also signed its biggest international contract in a decade in Q1. Helmerich is a best-in-class operator and remains a core position.

  • Shares of Colfax Corp., an industrial machinery company focused on infrastructure, increased in Q1 as the market reacted favorably to the announcement of the $947 million acquisition of Victor Technologies, Inc., a U.S.-based welding company. Victor expands the product portfolio of Colfax’s existing welding business and increases exposure to the higher margin U.S. market. The deal is consistent with Colfax’s strategy to make bolt-on acquisitions in existing platforms that serve to enhance the company’s growth prospects.

  • ITC Holdings Corp. is the nation’s largest independent transmission company. Shares of ITC climbed in Q1 in the context of the general outperformance of utilities. The stock also rallied due to increased investor conviction in ITC’s long-term growth target of low double-digit growth through the end of the decade. In addition, ITC announced a 3 for 1 stock split. 

Detractors (for quarter ended 3/31/2014)
  • Shares of Penn National Gaming, Inc., a regional gaming company, decreased in Q1 over investor concerns about the impact of revenue declines on the company’s ability to make its rent payments to Gaming and Leisure Properties. However, we believe that even with the drop in revenue, Penn’s rent payments are well covered. We also believe Penn has a strong pipeline of projects coming from Massachusetts and San Diego, as well as an expected ramp up in revenue at its Ohio casinos. The company has attractive cash flow which we think should increase over time.

  • After more than doubling in 2013, Benefitfocus, Inc. shares gave back some gains, as investors digested higher planned investment spending. Benefitfocus is the leading provider of cloud-based benefits software, offering an integrated suite of solutions to help customers more efficiently shop, enroll, manage, and exchange benefits information. The company serves an addressable market that is more than 100 times larger than its current business, which we think should allow it to compound revenue at more than 30% annually.

  • After doubling in 2013, shares of real estate information and marketing services provider CoStar Group, Inc. were largely unchanged in Q1. Ongoing investments in R&D and a doubling of the sales force should allow CoStar to sell an expanded array of tools to new and existing customers. Additionally, the acquisitions of LoopNet and Apartments.com extend CoStar’s reach into marketing services and multi-family lead generation, creating vast new opportunities. We expect rapid margin expansion and cash flow growth driven by growing scale and operating leverage.

Quarterly Attribution Analysis (for quarter ended 3/31/2014)

The Quarterly Attribution Analysis for period ending March 31, 2014 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. Investing in the stock market is always risky. Current and future portfolio holdings in the Fund are subject to risk.

Source: FactSet PA.