Baron Global Advantage Fund (BGAIX)

Portfolio Management

AlexUmansky
Alex Umansky

Fund Manager since 2012

View All Commentary by Alex

Fund Description

Baron Global Advantage Fund invests in growth companies of all sizes anywhere.

  

Portfolio Commentary

Institutional Performance

Review and Outlook (for quarter ended 3/31/2015)

The Review and Outlook for period ending March 31, 2015 is not yet available

Top Contributors/Detractors to Performance

Contributors (for quarter ended 3/31/2015)
  • Shares of Just Eat plc, an online restaurant delivery marketplace in Europe, Latin America, and Canada, rose in Q1. Just Eat reported solid results for the back half of 2014, guided toward sales slightly above Street estimates for 2015, and demonstrated execution across its European footprint and evidence that its #1 position across most of its markets is defensible and sustainable. We believe Just Eat will benefit from the trend toward online delivery ordering and its large lead in a winner-take-all industry.

  • Shares of Amazon.com, Inc., the world’s largest retailer, rose on a better-than-expected profitability outlook for Q1. The company also provided greater disclosure on its business and plans to break out Amazon Web Services' contribution separately on its next earnings call. Visibility into improving profitability, especially in North America, buoyed investor confidence in Amazon’s long-term opportunity to grow profits while investing for future growth.

  • Shares of renewable energy company SunEdison, Inc. rose in Q1 on increased investor confidence in its strategy to develop cash-generating assets and drop them down to its yieldco TerraForm Power. We believe SunEdison’s recent acquisition of First Wind will help accelerate SunEdison’s development pipeline and TerraForm’s portfolio. Over time, we think the yieldco structure will allow SunEdison to monetize the value of its solar assets and raise capital at a low rate, creating a cycle of growth and value creation.

Detractors (for quarter ended 3/31/2015)
  • Alibaba Group Holding Ltd. is the largest e-commerce company in China and the world. Shares declined due to a revenue miss as a result of increased mobile contribution, a greater mix of sales through its Taobao marketplace, and an algorithm change. The stock has also been weak ahead of lock-up expirations. We view these issues as temporary. We believe Alibaba’s market leading position, positive network effects, asset-light business model, and high cash generation give it a long runway for continued growth.

  • Coupons.com Incorporated is the leading digital couponing platform. Shares fell in Q1 due to lower-than-expected Q4 revenue and Q1 outlook as a result of the failure of large advertiser campaigns held a year ago to repeat. Management expects transaction volumes to be weighted more toward the second half of 2015, aided by the roll out of its new Retail IQ product with several grocery chains. With online couponing less than 5% of the $315 billion in annual coupon transactions, we see a long runway of growth ahead.

  • Cetip SA - Mercados Organizados administers over-the-counter markets in Brazil for trading of fixed income securities, derivatives, and auto liens. Cetip reported double-digit revenue and earnings growth during Q1, and returned excess capital to shareholders through dividends. However, the weakening Brazilian economy and depreciation of the Brazilian Real weighed on the stock. We maintain conviction based on, in our view, Cetip’s durable competitive advantages, solid growth prospects, and inexpensive valuation.

Quarterly Attribution Analysis (for quarter ended 3/31/2015)

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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