Review and Outlook

as of 12/31/23

​Following a downdraft from the end of July through October, the markets went on a bull run in the last two months of 2023. Improving inflation data coupled with dovish comments from the Federal Reserve spurred an “everything rally.” In a significant shift from its earlier stance, the Fed suggested it was planning three interest rates cuts over 2024. The end of “higher for longer” rate fears especially boosted growth and smaller-cap stocks, as the market views these categories as beneficiaries of lower rates. Despite low unemployment and robust consumer spending – typically viewed as inflation drivers -- inflation continued to trend lower, with the annual inflation rate dropping to 3.1% in November. Investor fears of a recession were replaced by optimism that the Fed had successfully orchestrated a “soft landing,” generating further cause for cheer on top of the prospect that the Fed would soon start cutting interest rates. The Russell Midcap Growth Index returned 14.55%.

Baron Asset Fund increased in the quarter. Information Technology (IT), Health Care, and Financials holdings contributed the most to performance. No sector detracted. IT had a strong quarter, with all nine holdings posting gains, led by top contributor Gartner, Inc. Appreciation within Health Care was led by second largest contributor IDEXX Laboratories, Inc. The Charles Schwab Corp. led advances within Financials, after shares of this leading online brokerage firm increased after the company reported a jump in core net new assets in November. Over the long run, we believe Schwab has powerful asset-gathering momentum and scale and a reinvestment tailwind from maturing securities being invested at higher rates.

As the economy stabilizes and the stock market continues its recovery, we expect the types of companies that the strategy favors to outperform – leading companies that benefit from secular growth drivers, secure competitive positions, and talented management teams. It is also worth noting that the primary mid-cap growth index has dramatically underperformed the primary mid-cap value index during the past three years. This has reduced the relative premium the market generally accords to faster growing stocks, and we believe it presents an attractive opportunity to invest in mid-cap growth stocks.

Top Contributors/Detractors to Performance

as of 12/31/23


  • Shares of Gartner, Inc., a provider of syndicated research, soared after reporting excellent quarterly earnings results. Gartner’s core subscription research businesses continued to compound at attractive rates, and growth is poised to accelerate over the next several quarters. We believe Gartner will emerge as a critical decision support resource for every company evaluating the opportunities and risks of AI for its business. We expect this development to provide a tailwind to Gartner’s volume growth and pricing realization over time. Gartner’s sustained revenue growth and focus on cost control should drive continued margin expansion and enhanced free cash flow generation. The company’s balance sheet is in excellent shape and can support aggressive repurchases and bolt-on acquisitions, in our view.
  • Shares of veterinary diagnostics leader IDEXX Laboratories, Inc. contributed to performance during the quarter. While foot traffic to veterinary clinics in the U.S. remained subdued, IDEXX’s excellent execution has enabled the company to continue to deliver robust financial results. We believe IDEXX’s competitive trends are outstanding, and we expect new proprietary innovations and field sales force expansion to be meaningful contributors to growth in 2024. We see increasing evidence that long-term secular trends around pet ownership and pet care spending have been structurally accelerated, which should help support IDEXX’s long-term growth rate.
  • Shares of Fair Isaac Corporation (FICO), a data and analytics company focused on predicting consumer behavior, contributed to performance. The company reported good earnings results and gave preliminary guidance that looks quite conservative, especially since pricing initiatives in the Scores business remain on track. CEO Will Lansing expressed confidence that the business can perform relatively well across different economic backdrops and expressed optimism about the momentum in the software business. We retain conviction, as we believe FICO will be a steady earnings compounder, which should drive solid returns for the stock over a multi-year period.


  • TransUnion is a consumer credit bureau that helps businesses make lending and marketing decisions. Shares fell after the company reported quarterly financial results that were below consensus expectations and reduced full-year guidance. Lending and marketing activity softened during the quarter, particularly among smaller, subprime lenders. Management believes the new financial guidance is highly achievable and is increasingly focused on cost efficiency to improve margins. We continue to own the stock because we expect earnings growth to improve as cyclical headwinds abate and the company integrates recent acquisitions.
  • West Pharmaceutical Services, Inc. manufactures components and systems for the packaging and delivery of injectable drugs. The stock declined after the company reported sales that missed analyst forecasts and cut guidance due to inventory management by certain customers which delayed orders into 2024. We believe this shortfall is a timing issue and does not detract from the positive long-term outlook for the business. We believe West has a competitively advantaged business that we estimate can grow revenue by 7% to 9% on a normalized basis, driven by mix shift, volume, and price.
  • Shares of specialty insurer Arch Capital Group Ltd. gave up some gains in the fourth quarter after solid performance for most of the year. We believe the share price weakness was primarily due to a sector rotation away from defensive stocks to more speculative stocks following a decline in interest rates. Company fundamentals remained strong, with net premiums written growing 23%, operating ROE expanding to 25%, and book value per share rising 30% in the third quarter. Management expects favorable market conditions will persist. We continue to own the stock due to Arch’s experienced management team and our expectation of solid growth in earnings and book value.

Investors should consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectus and summary prospectuses contain this and other information about the Funds. You may obtain them from the Funds’ distributor, Baron Capital, Inc., by calling 1-800-99BARON or visiting Please read them carefully before investing.

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.