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as of 12/31/23
The big headline in the Health Care sector in 2023 was investor excitement surrounding a new category of weight loss drugs. On the upside, shares of the companies that manufacture these drugs surged. On the other hand, some medical device companies lost ground due to concerns that the weight loss drugs will cut into their business. Elsewhere in the sector, multiple headwinds continued to weigh on performance. Managed care companies grappled with heightened political and regulatory scrutiny of the Medicare Advantage program and the pharmacy benefit management industry, less favorable Medicare Advantage rates for 2024, and an uptick in medical cost trends. The challenging funding environment for biotechnology continued. Life sciences tools stocks were impacted by a pullback in spending by pharmaceutical customers, less biotechnology funding, a slowdown in China, and inventory destocking. From a sector perspective, Health Care was simply out of favor with investors who eschewed sectors that are viewed as defensive to focus on mega-cap growth stocks, especially the large tech companies seen as potential beneficiaries of generative AI.
Baron Health Care Fund increased in the quarter. Holdings within the health care equipment, biotechnology, and pharmaceuticals sub-industries contributed the most. Positive returns within health care equipment were led by third largest contributor Intuitive Surgical, Inc. Top contributor Rocket Pharmaceuticals, Inc. led gains within biotechnology, and second largest contributor Eli Lilly and Company led appreciation within pharmaceuticals. Investments within health care technology detracted due to weakness in the share price of life sciences cloud platform provider Veeva Systems Inc.
Looking ahead, we believe Health Care stocks will benefit from relatively low valuations combined with powerful long-term innovations and trends that have just started to play out. Capital markets appear to be opening up again. More biotechnology funding should flow through to companies that sell products and services used in life sciences research. Innovation in life sciences is accelerating. Scientists have a better understanding of the genetic drivers of diseases, and clinicians have more tools to treat diseases. The FDA approved 55 novel drugs in 2023, up from 37 in 2022 and the most since 2018, and in December the FDA approved the first CRISPR-based gene editing treatment in the U.S. Large pharmaceutical companies facing upcoming patent expiries have stepped up their M&A activity, leading to a record number of transactions in 2023, despite increasing scrutiny from the FTC. Secular drivers like the aging population and rising health care spending continue unabated. Given this backdrop, we are optimistic heading into 2024.
as of 12/31/23
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The performance data quoted represents past performance. Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate; an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund’s transfer agency expenses may be reduced by expense offsets from an unaffiliated transfer agent, without which performance would have been lower. Current performance may be lower or higher than the performance data quoted.
Risks:All investments are subject to risk and may lose value.
The discussion of market trends is not intended as advice to any person regarding the advisability of investing in any particular security. The views expressed on this page reflect those of the respective writer. Some of our comments are based on management expectations and are considered “forward-looking statements.” Actual future results, however, may prove to be different from our expectations. Our views are a reflection of our best judgment at the time and are subject to change at any time based on market and other conditions and Baron has no obligation to update them
Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.
The index performance is not fund performance; one cannot invest directly into an index.