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as of 12/31/20
Equity markets rose during the quarter as investors looked past the continued spread of the virus and instead focused on the successful development of COVID-19 vaccines and the resolution of the U.S. Presidential election. Other factors in play for the last nine months also contributed to market strength late in the year, including the ongoing tailwind from central bank liquidity measures, additional monetary policy accommodation, and economic and corporate earnings data that exceeded market forecasts. Investors shifted from growth and momentum stocks towards value and cyclical stocks that benefit from the reopening narrative. Small-cap stocks, which were out of favor for much of the year, outpaced their large-cap peers in the fourth quarter.
Baron FinTech Fund rose in the quarter. Information Technology (IT), Financials, and Industrials holdings were the top contributors. No sector detracted in the quarter. With all three top contributors within the sector, IT had a strong quarter. Financials appreciated on the strength of share price gains in 9 out of 11 holdings, led by MSCI, Inc. Shares of this leading provider of investment decision support tools rose on solid third quarter earnings despite the challenging COVID-19 backdrop. Management is continuing to manage its costs base and the company’s asset-based fee revenue has also contributed, driven by strong underlying market conditions and inflows. Industrials advanced on share price increases in all four holdings within the sector.
We start the new year saddened by the suffering from the ongoing pandemic but hopeful that vaccinations will soon bring a return to normal. Different parts of the economy are at varying stages of recovery with technology beneficiaries booming and travel and hospitality companies still struggling. We have a new President and Democratic control of Congress, and with a shift in political leadership comes the possibility of changing regulations and tax policy. After bottoming in August, long-term interest rates have risen steadily, signaling expectations for higher economic growth.
We believe the FinTech sector continues to offers attractive investment opportunities. The events of 2020 have vividly demonstrated the need for every business to better incorporate technology to operate in any environment. Many of the companies in the Fund are providing the necessary tools for businesses and consumers to thrive in the digital economy. These tools include business management software, electronic payment services, digital banking, e-commerce marketplaces, trading platforms, data, and analytics. We believe demand for these tools has only been accelerated by the pandemic and will continue growing for many years. A plethora of privately held FinTech companies are also benefiting from these same trends. After following these companies for years, we expect many of them to go public in the months ahead, further expanding our investment opportunity set.
as of 12/31/20
as of 12/31/20