Review and Outlook

as of 03/31/24

The Review and Outlook for period ending March 31, 2024, is not yet available.

Top Contributors/Detractors to Performance

as of 03/31/24

Contributors

  • The contributors to performance for period ending March 31, 2024 is not yet available

Detractors

  • The detractors to performance for period ending March 31, 2024 is not yet available

Quarterly Attribution Analysis (Institutional Shares)

as of 03/31/24

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.

as of 03/31/24

Baron Asset Fund (Institutional Shares) appreciated 6.00% in the first quarter, trailing the Russell Midcap Growth Index by 350 basis points due to stock selection and headwinds from style biases. The Fund was hurt most by its underexposure to securities with robust short-term momentum and elevated idiosyncratic volatility, which were strong performers in the period.

Investments in Industrials, Financials, Health Care, and Information Technology (IT) were largely responsible for the relative shortfall in the period. Stock selection in Industrials accounted for about a third of the underperformance, owing mostly to modest declines from the Fund’s sizeable positions in data and analytics vendor Verisk Analytics, Inc. and global payroll and HCM (human capital management) software leader Dayforce, Inc. Verisk’s shares fell slightly in the period, giving back all of last year’s relative gains. The company reported solid quarterly earnings, but the stock lagged as part of a broader market rotation away from steady, compounding stocks. We maintain conviction in the competitive positioning, long-term growth, margin expansion, and capital deployment prospects for the business. Dayforce shares fell on concerns that slowing employment growth will reduce the company’s growth rate in the near term. While Dayforce has some direct exposure to employment levels, it is benefiting from powerful secular trends around the modernization of HCM software and growing adoption of SaaS. We believe that Dayforce can continue to grow above 20%, helped by continued share gains, a move up-market, early international traction, and increasing success in cross-selling to existing customers. Private rocket and spacecraft manufacturer Space Exploration Technologies Corp. was another drag on performance in the sector.

Performance in Financials was hindered by FactSet Research Systems Inc., a leading provider of investment management tools. Despite reporting solid quarterly earnings, the company revised its fiscal year 2024 growth in annual subscription value towards the lower end of the prior guidance range given ongoing challenges in the financial services end market. FactSet has a strong pipeline and is seeing signs of stabilization, but client caution continues to delay purchasing decisions. While there is some near-term uncertainty, we maintain long-term conviction in FactSet due to the company’s large addressable market, consistent execution on both new product development and financial results, and robust free cash flow generation.

Adverse stock selection in Health Care was driven by single-digit declines from veterinary diagnostics leader IDEXX Laboratories, Inc. and life sciences tools developer Bio-Techne Corporation. IDEXX’s shares fell as foot traffic to veterinary clinics in the U.S. remained uneven, modestly hampering aggregate revenue growth. We retain conviction. IDEXX’s excellent execution has enabled the company to continue to deliver robust financial results. IDEXX’s competitive trends are outstanding, and we expect new proprietary innovations and field sales force expansion to be meaningful contributors to growth this year. 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. Bio-Techne was a top detractor due to weak fourth-quarter financial results, including a 2% decline in organic growth, driven by a slowdown in China and ongoing biotech funding constraints. We remain shareholders.

Weakness in IT was broad based, led by disappointing performance from internet infrastructure company VeriSign, Inc. and physics-based simulation software leader ANSYS, Inc., whose shares pulled back for company-specific reasons. VeriSign’s shares declined due to continued pressure on domain growth stemming from weaker demand in China, while ANSYS stock was pressured by questions about the company’s proposed merger with Synopsys. We retain conviction in both companies. Syndicated research provider Gartner, Inc. also underperformed in the period, relinquishing a portion of last year’s strong relative gains. The company’s core subscription research businesses continued to compound at attractive rates, and we believe that growth is poised to accelerate over the next several quarters. We think Gartner will emerge as a key decision support resource for every company evaluating the opportunities and risks of AI on its business, providing a tailwind to volume growth and pricing realization. We expect Gartner’s sustained revenue growth and focus on cost control to 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.

Somewhat offsetting the above was solid stock selection in Communication Services, where internet advertising demand-side platform The Trade Desk bounced back during the quarter. The company delivered a solid beat and raise quarter after experiencing some macroeconomic-related softness in late 2023. The 2024 setup appears promising for Trade Desk, as the company continues to benefit from tailwinds in Connected TV, a secular growth category capturing spend at an increasing pace from linear TV, retail media, platform upgrade adoption, audio, and more. Longer term, we remain positive on the company given its technology, scale, and estimated 10% share in the $100 billion programmatic advertising market, a small and growing subset of the $700 billion global advertising market.

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 www.BaronFunds.com. 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.