Review and Outlook
Through much of the second quarter, the market continued to recover nicely from the sharp risk-off mindset that prevailed the first six weeks of the year. In January and February, investors appeared to put significant weight on macro downside risks: a sharp economic slowdown in China, the end of the U.S. economic recovery, persistent low and even negative sovereign interest rates, collapsing oil prices, etc. It appears that concerns over these fears have turned more optimistic as the data (including expanding U.S. leading indicators, rising oil prices, and declining high yield credit spreads) has improved. In the last week of the quarter, the surprising Brexit vote drove a temporary sell-off in the market.
While we, of course, stay well-versed on such things as the domestic and global economy, the Fed, terrorism and military actions, politics, and anomalous events like Brexit, these have little impact on Baron’s investing philosophy and approach. Yes, Brexit has created uncertainty regarding whether Great Britain will abide by the referendum vote and leave the European Union; what the terms of an exit, if it occurs, will ultimately be; and what impact an exit or merely the risk of one will have on the global economy and the tone of the world’s stock markets. While we intend to stay informed, it is almost impossible to predict what will happen. Who would have thought that all British politicians involved in both sides of the Brexit vote would have lost power? Or that the market would have shot up after just a two-day sell-off? We have not made any changes to the portfolio due to Brexit alone and have no present intention of doing so.
With Baron Opportunity Fund, we aim to offer our investors a portfolio focused on high growth, innovative businesses capitalizing on powerful secular trends – a Fund highly differentiated from a passive index or ETF, as well as a generalized growth fund. We aim to differentiate not by trying to figure out cyclical growth drivers but by focusing, almost exclusively, on secular growth. We seek to identify powerful long-term trends – which we refer to as generational, paradigm, or tectonic shifts – that will drive robust growth regardless of the strength or weakness of the underlying economy.
Some of the secular themes in which we invest include cloud computing and software-as-a-service (SaaS), mobile, big data, digital media, targeted digital advertising, e-commerce, genetics, electronic medical records, immune-oncology, cybersecurity, electric vehicles and autonomous driving, and electronic payments. These themes span industries and represent the world’s future, not its past. They are visible, impactful, and persistent. They will play out over a long period of time, literally 10 years or more. They will disrupt existing industry dynamics. We believe the winners will capture large profit pools from the legacy way of doing things. By investing in these themes, our goal is to deliver dependable high-growth rates that are greater than the general economy, as reflected in broad market indexes, although we cannot guarantee it.
Top Contributors/Detractors to Performance
Quarterly Attribution Analysis
The Quarterly Attribution Analysis for period ending June 30, 2016 is not yet available
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