Baron International Growth Fund (BIGFX)

Portfolio Management

Michael Kass

Fund Manager since 2008

View All Commentary by Michael

Fund Description

Baron International Growth Fund invests primarily in non-U.S. growth companies.



Fund Resources

side column img example
Michael Kass sees growth opportunities overseas.

Watch Video

Latest Fact Sheets

Standard Fact Sheet

Expanded Fact Sheet - Institutional Shares


Portfolio Commentary

Retail Performance

Review and Outlook (for quarter ended 9/30/2015)

International equities declined in the third quarter in response to diminishing growth prospects, widening credit spreads, and a broad increase in risk premium. In our view, a key catalyst was a volatile progression of policy moves in China; first a failed attempt to stabilize the local A Share equity markets, and subsequently a modest, but meaningful, devaluation of the RMB. Such measures resulted in rising uncertainty over economic and financial stability and political leadership in China, an undisputed driver of global investment and growth over the past decade.

The other major catalyst of market activity was the shifting anticipation over a rate hike by the U.S. Federal Reserve. Although expectations of such an event have been pushed out for now, a significant tightening of conditions has been priced into the high-yield and emerging market sovereign bond markets. While we believe we have progressed into late stages of the current market correction, we note that such tightening conditions have increased the likelihood of a related credit event, which in our view could mark the “ninth inning” and perhaps set up a solid reversal. Also worth noting on the positive side, immediate concerns over a Greek insolvency and Euro exit faded as a referendum resulted in a pro-Euro parliamentary majority.

What is the way forward from here? To answer we must first analyze the root cause. We believe the headwinds international markets face today stem largely from aggressive quantitative easing by developed world central banks in recent years. After the 2008 financial crisis, U.S. QE led to a decline in global interest rates and expectations for sustained dollar weakness. As the U.S. economy slowly healed, the Fed passed the monetary baton to Japan and the ECB. This easing in Japan and Europe in the context of Fed tapering represented a tightening elsewhere, particularly in China, whose competitive position is directly impacted as the RMB remains largely pegged to the dollar. We were not entirely surprised by China’s depreciation of the RMB; we see no reason to expect China to unilaterally absorb the deflationary pressure resulting from a rising dollar as its neighbors devalue.

We see three possible scenarios for international markets in the near term. First, the global economic indicators could sustainably improve of their own accord in response to months of developed world easing in the pipeline. We suggest this is possible but unlikely. Second, China could engage in aggressive stimulus and/or devalue materially – also possible but unlikely given recent official statements. Third, the Fed could indefinitely defer rate hikes and perhaps even signal possible further easing, an outcome we would tend to expect if the market-based tightening referenced above were to result in a credit event. We believe any of the above could create an important bottom in global markets, and would likely trigger a reversal in the relative performance of hard hit asset classes such as energy, commodities, cyclicals, and the emerging markets.

Top Contributors/Detractors to Performance

Contributors (for quarter ended 9/30/2015)
  • Shares of Ryanair Holdings plc rose in Q3 after reporting stronger-than-expected full-year guidance. Ryanair is a European budget airline. While we think low oil prices will buoy all airlines in the short term, we expect Ryanair to attract passengers with the lowest fares in the industry, leading to profitability in any oil price environment. We believe that Ryanair’s cost advantage is sustainable, and that it will continue to gain significant market share in the European short haul passenger market.

  • Arch Capital Group Ltd. is a Bermuda-based specialty insurance and reinsurance company. Shares rose on reports of good quarterly financial results with 9% growth in book value per share. Despite soft industry pricing conditions, Arch continues to generate above-average returns due to profitable underwriting, benign catastrophe losses, and favorable reserve development. The recently acquired mortgage insurance business is scaling up. M&A activity in the property & casualty insurance industry has also helped boost share prices.

  • Shares of easyJet plc rose in Q3 after reporting a stronger-than-expected summer result and expectation for the fall period. EasyJet is a low-cost European airline. While average fares can fluctuate over a short period of time due to incremental capacity shifts from competitors over specific routes, we believe the long-term consolidation underway will be difficult to reverse, and we expect easyJet to continue gaining market share from larger, loss-making incumbent airlines.

Detractors (for quarter ended 9/30/2015)
  • TerraForm Global, Inc. is a dividend growth-oriented renewable energy company (a yieldco) focused on emerging markets. The company went public in Q3 at a lower-than-expected valuation. Its debt capital raise was also more expensive than anticipated, given difficult conditions in high yield and emerging markets. We believe in the secular renewable energy story and that parent SunEdison, Inc.’s large development pipeline will benefit its yieldcos. We think the market dislocation is technical and temporary and that TerraForm Global will resume future growth.

  • Nomad Foods Limited owns Iglo Foods, Europe’s leading frozen-food company. Nomad gave back some of its Q2 gains as its business remained challenging as a result of discounting and more private label competition. To grow, Nomad continues to acquire, recently purchasing Findus. A European seafood and frozen food business, we think Findus overlaps nicely with Iglo’s products and geography, presenting the potential for significant synergies for Nomad, and we retain conviction in the company.

  • Shares of Kingdee International Software Group Ltd. declined during Q3 amidst significant volatility in the Chinese market. Kingdee is a software vendor to small and medium-sized businesses in China. Following an investment from leading Chinese e-commerce operator, Kingdee is undergoing a strategic transformation from a direct to an indirect sales model. We think the indirect sales model will allow Kingdee to reach more potential customers more profitably and earn higher returns on its capital over the long run.

Quarterly Attribution Analysis (for quarter ended 9/30/2015)

The Quarterly Attribution Analysis for period ending September 30, 2015 is not yet available

Back to Top

Invest In Baron Funds Today

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 PA