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 Global Advantage Fund declined 4.93% in the first quarter and trailed the MSCI ACWI Growth Index by 463 basis points, largely due to stock selection.
On a country basis, stock selection in developed markets detracted the most from relative results, mainly due to underperformance of the Fund’s investments in the U.S. and U.K, although stock selection in Israel was a noteworthy contributor to relative results.
On a sector basis, Financials investments contributed to relative results. Strength in the sector was partly due to the outperformance of Cetip SA - Mercados Organizados, which administers over-the-counter markets in Brazil for trading and registration of fixed income securities, derivatives, and auto liens. Cetip’s shares rose following the announcement of a takeover offer from BM&FBOVESPA at a premium valuation. The company also benefited from appreciation of the Brazilian Real against the U.S. Dollar and strong quarterly financial results. We continue to own the stock because we expect the merger with BM&FBOVESPA has the potential to create significant shareholder value. The Fund’s lower exposure to this lagging sector, which declined 2.2% in the index, also helped relative performance.
Underperformance of Health Care, Utilities, Consumer Discretionary, and Information Technology (IT) investments detracted the most from relative results. All six Health Care investments underperformed, led by Pacira Pharmaceuticals, Inc. Pharmaceutical holdings Allergan plc and Aerie Pharmaceuticals, Inc., were noteworthy detractors after their stock prices fell as a result of the correction in the biotech/pharma space. Shares of DNA sequencing company Illumina, Inc. also weighed on relative sector performance. Despite solid Q4 financial results, Illumina’s shares fell in response to moderated sales forecasts. These negative effects were partly offset by lack of exposure to underperforming biotechnology stocks, which declined 14.8% within the index. Weakness in Utilities was mostly attributable to the underperformance of renewable energy company TerraForm Global, Inc., the third largest detractor on an absolute basis. Within Consumer Discretionary, underperformance of Internet retailer Amazon.com, Inc. and meaningfully larger exposure to this lagging sub-industry, which declined 10.5% in the index, hurt relative performance. Shares of Amazon, the second largest detractor from absolute results, gave back some gains after more than doubling in 2015. Another detractor from relative performance in the sector was Smiles SA, the second largest loyalty program in Brazil. The Fund exited its position. IT holdings trailed their index counterparts after falling 1.2%, with U.K. holdings JUST EAT plc and Worldpay Group plc driving the decline. JUST EAT was the largest detractor from absolute performance, while shares of payment processing company Worldpay declined after earnings results fell short of expectations due to weakness in the U.S. segment. Underperformance of IT investments was somewhat offset by greater exposure to strong performing semiconductor and semiconductor equipment stocks.
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