Baron Real Estate Fund (BREIX)
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 September 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 Real Estate Fund increased 2.21% in the third quarter and outperformed the MSCI USA IMI Extended Real Estate Index by 211 basis points. During the quarter, the Fund’s relative real estate category weights and, to a lesser extent, stock selection contributed to relative results.
Real estate services, infrastructure related & MLPs, and senior housing operators & health care facilities investments and larger exposure to outperforming real estate operating companies contributed the most to relative results. Within real estate services, outperformance of Kennedy-Wilson Holdings, Inc., Jones Lang LaSalle, Inc., and CBRE Group, Inc. and larger exposure to this better performing category aided relative results. Kennedy-Wilson was the third largest contributor to absolute performance, while leading commercial real estate services companies Jones Lang and CBRE benefited from Q2 financial results that exceeded Street expectations. Strength in the infrastructure related & MLPs category was due to outperformance of Macquarie Infrastructure Corporation, the second largest contributor on an absolute basis. Within senior housing operators & health care facilities, outperformance of the Fund’s only holding in the category, Brookdale Senior Living, Inc., added value. Shares of Brookdale, the leading owner and operator of senior housing communities in the U.S., rose as management continued to execute on its turnaround plan. The company’s operations appear to have stabilized, synergy savings flowing from the Emeritus merger are being realized, and rate growth has remained solid. The company also announced the planned divestiture of certain underperforming facilities with proceeds going towards debt repayment.
Hotels & leisure and tower operators & wireless telecommunication services investments were the largest detractors from relative performance. Within hotels & leisure, underperformance of cruise line operator Norwegian Cruise Line Holdings Ltd. detracted the most from relative results. Norwegian’s shares declined after the company lowered 2016 yield and EPS guidance due to continued challenges in Europe with terrorism, recent challenges in the Caribbean with the Zika virus, and ongoing concerns about increases in capacity in China where the company is building a ship to be deployed late next year. Weakness in the tower operators & wireless telecommunication services category was due to the underperformance of Indonesian tower operator PT Sarana Menara Nusantara Tbk., whose latest quarterly earnings report continued to reflect a period of low organic lease-up demand by its wireless carrier customers. We believe that wireless network spending in Indonesia will eventually climb as operators contend with significant growth in wireless data consumption.
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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.