Review and Outlook
The second quarter of 2016 continued to exhibit the unusual combination of macro developments of the previous quarter. Concerns about China’s growth outlook, wild swings in oil prices, inconsistent signals and pronouncements from the Federal Reserve, interest rates at record low levels, “Brexit,” fluctuating U.S. job growth figures, and an unconventional and divisive U.S. Presidential election year are a sampling of the stunning factors that impacted the markets in the first half of the year.
While we are mindful of macro influences, we have always believed it is most prudent to prioritize the “micro” rather than the “macro.” As such, we continue to carefully research quality companies, speak to management teams, and construct a balanced and diversified quality real estate portfolio. We meet with the top management of commercial and residential real estate-related companies, attend real estate conferences, tour real estate properties in different geographic markets, and speak to equity and debt capital providers and investors.
We maintain a favorable outlook for real estate and Baron Real Estate Fund for a number of reasons. (1) The factors that have fueled the resurgence in real estate largely remain in place, including demand that continues to outstrip supply in most U.S. markets, mostly solid balance sheets, and available credit at historically low interest rates. (2) Business conditions are solid for most of our real estate companies and the outlook does not portend a recession. (3) Substantial capital is still in pursuit of real estate ownership supported by widely available debt capital at historically low interest rates. (4) Key warning signs we always monitor include increases in construction activity, a deceleration in demand, more restrictive lending policies, spikes in interest rates, and elevated valuations. Our research continues to confirm our belief that the opportunities for real estate outweigh the warning signs. (5) We continue to identify attractively valued real estate-related companies.
We expect further macro-economic, political, stock market, and bond market twists and turns in the months ahead. We believe we have assembled an excellent real estate team that is smart, hard-working, energized, and equipped to perform well over the long term. We continue to believe that the Fund, with its expansive, balanced and differentiated approach to investing in real estate, provides the flexibility to perform well over the long term in several different market environments.
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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