Review and Outlook

as of 03/31/22

The past quarter was a challenging one for investors in emerging markets (EM) equities. The collateral financial and market impact of Russia’s invasion of Ukraine on February 24 resonated across the globe. Russian equities were effectively written down to zero, while Russia will be excluded from the major indexes going forward.

Regardless of how the crisis evolves in coming weeks and months, we believe there are some lasting conclusions: 1. Putin has overplayed his position and leaves himself and Russia more vulnerable; 2. A new global theme has emerged, which we have dubbed “Global Security,” requiring a shift in capital allocation in the direction of energy, commodity and food/agricultural security, and infrastructure as well as an increase in defense spending; 3. The U.S./NATO response to Putin’s war, by wielding financial weapons of mass destruction, is likely to accelerate the decline in demand for dollars while encouraging the longer-term emergence of alternative reserve currencies, which, in turn, would likely favor and EM equities on a relative basis; 4. The European Union, NATO, and the U.S./EU alliance have been greatly fortified; and 5. India is a likely winner in this new paradigm, as its strategic value is on the rise as the largest developing world democracy and ally of the U.S. and other NATO members, while it also is the greatest likely beneficiary of multinational manufacturers’ intent to diversify production and supply chains.

A critical question for EM investors relates to whether China remains an attractive and viable investment jurisdiction. After experiencing a wholesale loss of capital on Russian exposure, some investors began to fear that China may also present Russia-related geopolitical risk. We discount the likelihood of China overtly allying itself with or providing military or financial support to aid Russia’s aggression because it simply is not in China’s interest nor demeanor to do so. Russia has always been about chaos and disruption; China’s mantra is stability and peace. Russia is a country of minor economic significance with little to lose; China is a rising superpower with everything to lose. Direct support for Putin’s war would trigger a strong reaction and substantial isolation, reverse decades of economic progress, and compromise China’s desire to become the Asian hegemony with a competitive reserve currency. We also remain encouraged by evidence of impending regulatory relief, financial easing, and economic stimulus in China. While the recent wave of COVID defers China’s recovery somewhat, we think the mid-March equity market capitulation may represent a bottom for this asset class, and perhaps by extension, for EM equities in general.

Top Contributors/Detractors to Performance

as of 03/31/22


  • Glencore PLC is a diversified natural resources company operating in metals, mining, and commodities trading. It is a large producer of copper, cobalt, and other key metals for batteries used in electric vehicles and energy storage. Shares increased due to the rise in copper prices. We expect a multi-year supply deficit for copper driven by a structural demand increase. Electric vehicles and wind/solar power plants require four to five times more copper than their conventional counterparts.
  • Grupo México, S.A.B de C.V. is a conglomerate that owns copper mines, railroads, and infrastructure projects in Mexico and South America. Shares increased on a rally in copper prices. We remain shareholders, as we believe Grupo México is a well-managed company trading at a meaningful discount to the sum of its parts. The copper segment includes some of the world's largest, lowest-cost copper mines in safe jurisdictions. Copper production should grow significantly over the next several years from brownfield expansions and construction of a new mine, in our view.
  • South Africa-based Gold Fields Limited is one of the world's largest gold mining companies. Shares increased during the period held due to a rally in gold prices driven by increased inflation and downward pressure on real yields. We remain shareholders as we expect more than 20% production growth over the next two years as the company ramps up volumes from its high-quality Salares Norte project in Peru, which should drive a re-rating for the company. We are positive on gold prices and expect improvements in the company's cash costs.


  • Russia-based Novatek PJSC is one of the largest and lowest-cost liquified natural gas producers in the world. Shares of Novatek collapsed following Russia's invasion of Ukraine and subsequent package of economic sanctions including those on the Central Bank of Russia. London-listed depository receipts of Novatek are suspended from trading, and we have marked the shares at a price that is close to zero.
  • Sberbank of Russia PJSC is Russia’s largest lender. Shares of Sberbank collapsed following Russia’s invasion of Ukraine and the subsequent economic sanctions imposed by Western governments. London-listed depository receipts of Sberbank are currently suspended from trading.
  • Tencent Holdings Limited operates the leading social network and messaging platforms (QQ, WeChat), the largest online entertainment and media business, and the largest online gaming business in China. Shares of Tencent were down given crackdowns by Chinese regulators on aspects of digital technology and consumerism in an attempt to re-focus investment in China on the community. Despite the near-term regulatory uncertainty, we retain conviction that Tencent can sustain durable growth given its track record of execution, scale, and unique and diversified online assets.

Quarterly Attribution Analysis (Institutional Shares)

as of 03/31/22

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 03/31/22

Baron Emerging Markets Fund (Institutional Shares) was down 14.11% in the first quarter, trailing the MSCI EM Index by 714 basis points as disappointing stock selection was somewhat offset by cash exposure in a difficult period for emerging market equities.

On a country level, unique exposure to the U.K. and Italy along with favorable stock selection in Mexico added value. Lower exposure to lagging Korean stocks and higher exposure to strong performing Latin American equities, particularly those in Brazil and Peru, also contributed to relative performance. These positive effects were undone by adverse stock selection in China, Brazil, and India, which together accounted for almost three-quarters of the relative shortfall. The Fund’s exposure to Russia also proved costly as the country was hit with harsh economic sanctions following Vladimir Putin’s decision to invade Ukraine. Russian equities were revalued to near zero after being halted on exchanges around the world, resulting in a 135-plus basis point hit to relative performance. Lastly, minimal exposure to Saudi Arabia and South Africa hurt relative performance as stocks in these countries benefited from surging commodity prices.

Apart from cash, investments in Consumer Staples and Materials added value, with most of the strength coming from the Fund’s EM consumer and sustainability/ESG themes. Favorable stock selection in Consumer Staples was related to the outperformance of Wal-Mart de Mexico, S.A.B. de C.V. and Budweiser Brewing Company APAC Limited, while performance in Materials was bolstered by double-digit gains from Glencore PLC, Grupo Mexico, S.A.B. de C.V., and Gold Fields Limited. Aside from stock selection, the Fund’s lower exposure to Energy contributed to relative results as the sector was hurt by sharp declines from several Russian oil majors, including Gazprom PJSC, Lukoil PJSC, and Rosneft Oil Co.

Underperformance of investments in Financials, Industrials, Communication Services, and Information Technology (IT) detracted the most from relative results. Weakness in Financials was mostly due to the underperformance of Russian fintech companies Sberbank of Russia PJSC and TCS Group Holding PLC, whose shares were revalued sharply lower during the period. Lower exposure to diversified banks, which benefited from rising rates, and declines from several members of the Fund’s India wealth management/consumer finance theme also hampered performance. Adverse stock selection in Industrials and IT was driven by significant declines from Zhejiang Dingli Machinery Co., Ltd., Han’s Laser Technology Industry Group Co., Ltd., Will Semiconductor Co., Ltd., Yonyou Network Technology Co., Ltd., and Kingdee International Software Group Co. Ltd., which are part of the Fund’s China value-added theme. Automation/robotics businesses Keyence Corporation and Estun Automation Co., Ltd. also weighed on performance in these sectors. Chinese software and internet services company Kingsoft Corporation Ltd. and digitization-related holdings Yandex N.V. and Tata Communications Limited were responsible for most of the relative shortfall in the Communication Services sector.

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.