Review and Outlook
The Review and Outlook for period ending June 30, 2016 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.
Baron Opportunity Fund increased 3.44% in the second quarter and outperformed the Russell 3000 Growth Index by 264 basis points, primarily due to stock selection. Smaller cap stocks outperformed large cap stocks during the quarter, and greater exposure to smaller cap stocks also aided relative performance.
Outperformance of Information Technology (IT), Consumer Discretionary, and Financials investments contributed the most to relative results. IT holdings contributed 375 basis points, driven by outperformance of Internet software & services holdings CoStar Group, Inc., Zillow Group, Inc., and Benefitfocus, Inc. CoStar was the second largest contributor to absolute performance, while shares of real estate website operator Zillow rose on improving fundamentals and the favorable settlement of a lawsuit with Move, Inc. Shares of benefits software vendor Benefitfocus rose on outstanding financial results driven by traction in new logo acquisition and cross-sales of new modules. Favorable stock selection in Internet software & services was partly offset by meaningfully larger exposure to this poor performing sub-industry, which declined 2.0% in the index. Outperformance of application software holdings, led by Guidewire Software, Inc. and Mobileye N.V., and larger exposure to this strong performing sub-industry also added value. Guidewire was the third largest contributor to absolute performance, while Mobileye recouped first quarter losses after management allayed investor concerns with its announcement of two autonomous program wins. Lack of exposure to Apple, Inc., a sizeable position in the index whose shares fell nearly 12%, and outperformance of Gartner, Inc. also lifted relative performance in IT. Strength in Consumer Discretionary was mostly attributable to the outperformance of Amazon.com, Inc., the largest contributor on an absolute basis, and Manchester United plc, an English Premier League professional sports team. Manchester United’s shares recovered in anticipation of potentially better results on the field under the direction of new coach Jose Mourinho. Within Financials, outperformance of global colocation REIT Equinix, Inc. contributed the most to relative results.
Underperformance of Health Care investments and lack of exposure to Consumer Staples, which rose 3.9% in the index, detracted the most from relative performance. Weakness in Health Care was partly due to the underperformance of pharmaceutical holdings, led by Pacira Pharmaceuticals, Inc. and Allergan plc. Pacira was the third largest detractor from absolute results, while shares of Botox manufacturer Allergan fell after the U.S. Treasury disallowed the Pfizer-Allergan inversion. Investments in Illumina, Inc., the largest detractor on an absolute basis, and Alexion Pharmaceuticals, Inc., a biotechnology company serving orphan disease markets, also hurt relative performance. Alexion’s shares fell due to slowing growth of lead product Soliris and a light launch for new drug Kanuma.
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