Review and Outlook
The Review and Outlook for period ending March 31, 2015 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.
The Baron Global Advantage Fund (Institutional Shares) gained 2.52% in the first quarter, yet underperformed the MSCI ACWI Growth Index by 184 basis points, mainly due to stock selection.
For the quarter, outperformance of the Fund’s investments within developed markets added value, led by those in the U.K., the U.S., and Canada. This positive effect was more than offset by emerging markets stock selection in Indonesia, India, and China. The Fund’s higher exposure to China and India contributed to relative performance, but the value this added was mostly offset by its larger exposure to Brazilian equities, which fell sharply in the quarter due mostly to macro factors and currency depreciation.
On a sector basis, outperformance of the Fund’s investments within the Consumer Discretionary and Utilities sectors contributed the most to relative results. Strength in Consumer Discretionary was largely attributable to the outperformance of Amazon.com, Inc. and Qunar Cayman Islands Ltd., two Internet retailers. Amazon was the Fund’s second largest contributor on an absolute basis, while shares of China-based online travel company Qunar increased on the strength of its quarterly earnings. The Fund’s meaningfully larger exposure to outperforming Internet retailers also helped relative performance. Another contributor to relative performance was TAL Education Group, a leading K-12 after school tutoring provider in China. With the company reporting accelerating student enrollments in January and continued strength in its fundamentals, TAL meaningfully outperformed education services companies. Within Utilities, outperformance of TerraForm Power, Inc. added the most value. Shares of TerraForm increased 19.2% on news that the company and its parent, SunEdison, had closed a transformational acquisition of First Wind Energy for $2.4 billion.
The Fund’s investments within the Health Care and Telecommunication Services sectors were the primary detractors from relative results. Within Health Care, the Fund’s lower exposure to pharmaceutical stocks, which rose 10.3% as a group within the index, detracted the most from relative performance. Underperformance of Grifols SA, a Spanish biotechnology company that manufactures and sells plasma derivative health care products, and Illumina, Inc., a U.S. life sciences tools & services company that develops and commercializes tools and services for genetic analysis, also hampered relative results. Shares of Grifols declined due to weak quarterly results and concerns surrounding increased competition in the U.S. plasma market. Weakness in Telecommunication Services was mainly due to the underperformance of Sarana Menara Nusantara Tbk PT and Tower Bersama Infrastructure Tbk PT, which are the two largest tower operators in Indonesia. These companies were hurt when their management teams cautioned investors to expect a muted new-build outlook in 2015 and were also negatively affected by macro factors and significant currency depreciation in Indonesia.
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