Baron Growth Fund (BGRFX)
Fund Manager since
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Baron Growth Fund invests primarily in small growth companies.
Review and Outlook
Last year’s volatility continued into 2016, with the U.S. equity markets plunging dramatically during the first six weeks of 2016 before executing an about-face to recover much of their losses, although small cap stocks fared worse than their larger cap counterparts. Concerns around the implications of a tightening credit market in the face of a possible U.S. recession, signs of slowing global growth, China and the RMB, and continued low oil prices drove the U.S. equity markets into correction territory by early February. During the quarter, oil prices declined at one point to near 15-year lows of $26/barrel, before rebounding to near $40/barrel by quarter end. In addition, slowed global growth and deflationary pressure early in the quarter prompted the central banks in Europe and Japan to ease monetary policy, including several that pushed interest rates into negative territory. As global concerns subsided, oil prices ticked up, and domestic job numbers improved, stock markets rallied strongly. In March, the U.S. Federal Reserve boosted equity markets even further with its suggestion that it would defer interest rate hikes that it earlier had been contemplating for 2016.
Baron Growth Fund increased modestly in the first quarter. Investments in the Consumer Discretionary and Financials sectors contributed to performance. Information Technology (IT) and Industrials were the top sector detractors. Consumer Discretionary had a solid quarter, with the top three contributors all within the sector. Top five contributor Vail Resorts, Inc. also added to sector performance. Shares rose on strong earnings results as good ski conditions drove visitation to, and increased spend at, its resorts. Strong performance of asset manager Cohen & Steers, Inc. and gaming REIT Gaming and Leisure Properties, Inc. boosted performance of the Financials sector. Shares of Cohen & Steers rose as the Fed suggested it would delay planned interest rate hikes, which would likely benefit the company's REIT-heavy portfolio. Shares of Gaming and Leisure Properties rose on increasing expectations that it will close its acquisition of Pinnacle Entertainment’s real estate assets. The second largest detractor, CoStar Group, Inc., led the decline of the IT sector. SS&C Technologies Holdings, Inc. was another notable detractor. Shares of this financial technology vendor fell over concerns that a broader market correction would impact SS&C’s growth. Industrials holdings had a mixed quarter, although losses outweighed gains. Weak performance was led by quartz countertop manufacturer CaesarStone Sdot-Yam Ltd., whose stock price fell as a result of delays in the production ramp at a new manufacturing facility.
Overall, we think the U.S. economy is doing well. Wages have increased somewhat. Income growth and low prices at the gas pump are providing consumers with more money for discretionary spending. Until now, much of the savings from low energy prices was being used to pay down debt, as consumers and businesses were not convinced that prices would stay low. With the extended low oil price environment, we believe assets previously allocated to energy costs will soon start to be redeployed to other parts of the economy.
Top Contributors/Detractors to Performance
Quarterly Attribution Analysis
The Quarterly Attribution Analysis for period ending March 31, 2016 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 advise to any person and are subject to chage 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 PA2.0 Performance Analytics Software.