Baron Global Advantage Fund (BGAFX)
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Baron Global Advantage Fund invests in growth companies of all sizes anywhere.
Review and Outlook
Baron Global Advantage Fund was up 11.1% in the third quarter of 2016. We saw broad-based strength across the portfolio with 22 of our 39 investments rising over 10%.
Our core holdings performed well. This time we also received significant contributions from smaller investments with ARM Holdings rising 45% after being acquired by Softbank, and our two lesser known health care investments in Glaukos (up 29%) and Aerie Pharmaceuticals (up 115%) working out nicely as well. The third quarter was a favorable investment environment, as we undoubtedly benefited from rising tides lifting all boats, and from playing a bit of catchup after falling behind earlier in the year.
Information Technology (IT), Consumer Discretionary, and Health Care holdings were the top contributing sectors in the period. IT performance was led by second largest contributor Alibaba Group Holding Ltd. Online food delivery marketplace JUST EAT plc also contributed to sector performance as a result of an increase in share price following the release of financial results for the first half of 2016 that exceeded Street estimates. Consumer Discretionary advanced on double digit share price increases in all five Fund holdings, led by top contributor Amazon.com, Inc. Health Care benefited from strong performance of third largest contributor Illumina, Inc., as well as the aforementioned Aerie and Glaukos. Telecommunication Services was the only sector to detract in the period, as the Fund’s two sector holdings, both of which are Indonesian tower companies, fell as telcos continued to defer network equipment upgrades.
While we expect the markets to remain volatile, we remain positive on the overall environment. Over the last 50 years, despite the doubling of the population, average global income per capita has tripled, life expectancy has risen by a third, and child mortality is down 70%. Literacy rates are up meaningfully, and average IQs are considerably higher even after adjusting for inflation and better nutrition. People are healthier, smarter, and more prosperous than they have ever been. All predictions of doom have repeatedly proved wrong. Despite disasters and reverses, quality of life, material wealth, and prosperity have continued to increase everywhere in the world, and we think that’s unlikely to change.
Our goal remains to maximize long-term returns without taking significant risks of permanent loss of capital. We believe the best strategy for long-term capital appreciation is to collect a mix of unique companies that sell into different end markets and different geographies. We will continue to focus on identifying and investing in companies that we believe have sustainable competitive advantages and the ability to reinvest excess capital at high rates of return.
Top Contributors/Detractors to Performance
Quarterly Attribution Analysis
The Quarterly Attribution Analysis for period ending September 30, 2016 is not yet available
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