Baron International Growth Fund (BIGFX)
Fund Manager since
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Baron International Growth Fund invests primarily in non-U.S. growth companies.
Review and Outlook
After a marked decline in the third quarter, the fourth quarter of 2015 began with an abrupt and powerful rally in international equities, commodities and credit. Coincident with the Fed’s deferral of an October rate hike, indicators began to suggest improving economic growth, global trade, and stabilization in China and the RMB. Such stability inspired the Fed to signal the start of a rate hike cycle in December, which seemed to act as an immediate financial tightening and stunted the rally. An increase in terrorism and rising Middle East tensions exacerbated the mid-quarter rise in risk premium, leading international equities to fade into year end.
For the year ahead, we expect further volatility. In our view, the key variables are the Chinese economy, policy and the RMB; the slope and duration of Fed tightening; commodity and oil prices; and increasing Middle East hostilities. We see the first two as directly related; any increase in the market-discounted rate of Fed tightening will force a more aggressive response from China and increase the risk of a more material RMB depreciation. This phenomenon was on display in the second half of 2015. RMB depreciation acts as a safety valve for China and deflects the deflationary pressure being absorbed back at the rest of the world. In the zero-sum world of subpar global economic growth and credit saturation, we continue to expect the “whac-a-(deflation) mole” policy response initiated by the Fed in 2009 and carried on by the Bank of Japan and the European Central Bank; in our view, it is now simply China’s “whac.”
The silver lining is that much of the developed world continues to exhibit reasonable economic growth and momentum while much damage has already been done in the emerging and commodity-sensitive markets. To us, the key question is whether the current tightening of financial conditions triggers an international credit event or enough RMB depreciation to suggest global contagion and the risk of recession. Should this occur, we believe associated volatility would likely force the Fed to reverse course, with the most likely result an abrupt and sustainable market recovery. It is also possible that global growth and leading economic indicators continue to improve upon what appeared a bottoming in early October; in effect, the Fed would now be appropriately hiking into a global re-acceleration, reducing the odds of a credit incident.
Over the past 18 months, we have maintained below-market exposure to emerging market equities given prevailing headwinds, while we have increased our investments in what we believe are well-positioned and high-quality domestic European and U.K.-based companies. While we remain comfortable that our current positioning is well aligned given the existing environment, we believe there are substantial investment opportunities ahead, and are identifying specific candidates, as well as a strategy to take advantage.
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Quarterly Attribution Analysis
The Quarterly Attribution Analysis for period ending December 31, 2015 is not yet available
Yearly Attribution Analysis
The Yearly Attribution Analysis for period ending December 31, 2015 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. Investing in the stock market is always risky. Current and future portfolio holdings in the Fund 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 advice to any person and are subject to change 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.
Source: FactSet PA