Baron Real Estate Fund (BREFX)
Fund Manager since
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Baron Real Estate Fund invests in securities of real estate and real estate related companies of all sizes.
Review and Outlook
The Review and Outlook for period ending March 31, 2015 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.
The Baron Real Estate Fund (Retail Shares) rose 4.51% in the first quarter, yet modestly underperformed the MSCI USA IMI Extended Real Estate Index by 61 basis points. During the quarter, the Fund’s relative real estate category weights added value, but this positive effect was more than offset by the effect of stock selection.
Outperformance of the Fund’s hotels & leisure investments and its significantly lower exposure to lagging REITs contributed the most to relative performance. Strength in hotels & leisure was mostly attributable to the outperformance of Diamond Resorts International, Inc. and Norwegian Cruise Line Holdings Ltd., which were also two of the Fund’s largest contributors on an absolute basis. An accretive transaction contributed to Hilton Worldwide Holdings, Inc.’s outperformance during the quarter. Hilton sold the Waldorf Astoria in New York for $1.95 billion or 32 times EBITDA, and it redeployed the proceeds in five hotels in San Francisco and Florida at 13 times EBITDA. The Fund’s larger exposure to hotels & leisure stocks, which rose 6.6% as a group within the index, also aided relative performance.
Underperformance of the Fund’s tower operators & wireless telecommunication services investments, its average cash exposure of 4.5% in an up market, and its lower exposure to outperforming building products & services stocks detracted the most from relative results. The Fund’s three tower holdings trailed their counterparts in the index after falling 2.4% as a group, with Tower Bersama Infrastructure Tbk PT and Sarana Menara Nusantara Tbk PT declining. These companies, which are the two largest operators of tower assets in Indonesia, were hurt when their management teams cautioned investors to expect a muted new-build outlook for key customers in 2015. Stock selection in the senior housing & health care service providers and casinos & gaming operators also detracted from relative results. Weakness in senior housing was mainly due to the underperformance of Brookdale Senior Living, Inc., which offers residents in its senior living communities a full continuum of services, including independent and assisted living, memory care, and skilled nursing. Brookdale’s shares lagged after the company preannounced weaker-than-expected quarterly earnings and lowered guidance for 2015. This was a big disappointment in the first full quarter since it combined operations with Emeritus. Within casinos & gaming, the underperformance of Wynn Resorts Ltd. and Las Vegas Sands Corp., which were also the Fund’s two largest detractors from absolute performance, hampered relative results.
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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 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.