Review and Outlook

as of 03/31/23

The first quarter began much as 2022 ended: falling inflation expectations, downward pressure on bond yields, and a recovery in global stocks. Then, in early February, stubbornly high U.S. inflation readings caused an increase in rate hike expectations, and stocks retreated. On March 9, everything shifted again with the sudden collapse of SVB Financial Group and resulting fallout, including Switzerland’s forced takeover of troubled bank Credit Suisse by UBS. Toward the end of the quarter, investors appeared to embrace the use of emergency liquidity measures as a bullish signal for stocks, while the abrupt cooling of bond yields also supported stock valuations, and the markets ended on a rebound.

Against this backdrop, Baron Global Advantage Fund increased in the quarter. Information Technology (IT), Consumer Discretionary, and Health Care investments contributed the most. Communication Services and Financials holdings detracted. The Materials sector was also a slight detractor. IT had a strong quarter as technology stocks rallied. NVIDIA Corporation and Shopify, Inc., respectively the second and third largest contributors, led gains within the sector. Top contributor MercadoLibre, Inc. drove much of the appreciation within Consumer Discretionary. Electric vehicle company Tesla, Inc. was another noteworthy contributor within the sector. Increases within Health Care were led by chemical simulation software company Schrodinger, Inc. ZoomInfo Technologies Inc., which provide business intelligence software, led weakness within Communication Services. Second largest detractor Bajaj Finance Limited drove declines within Financials.

We often hear from skeptical investors that if we have no confidence in short-term forecasting, it seems illogical to have confidence forecasting 5 or 10 years out. While this skepticism is understandable, we believe it is misplaced. Short-term price moves are disproportionately affected by macro factors that are impossible to predict accurately and consistently, in our view. However, a business’s uniqueness, the durability of its competitive advantages, and its ability to prudently allocate capital and earn high rates of return can be analyzed and therefore forecasted far more accurately over longer periods of time. While qualitative factors like company culture and the strength of its management team are subjective and require a healthy margin of safety, at the end of the day, only a handful of variables go into the intrinsic value equation, including the size of the opportunity, a reasonable expectation of market share, profitability at maturity, cost of capital, and terminal growth rate.

These are the variables long-term owners of a business care about and research. We also believe these variables have started moving in the right direction for many of our companies. We remain optimistic about our holdings’ prospects and continue to search for new ideas and opportunities while remaining patient and investing only when we believe our target companies are trading at attractive prices relative to their intrinsic values.

Top Contributors/Detractors to Performance

as of 03/31/23


  • MercadoLibre, Inc., the dominant e-commerce platform in Latin America, contributed in the first quarter. The company reported a significant fourth quarter earnings beat, driven by strong performance on essentially all key drivers of operating margins across both the commerce and fintech segments. On its earnings call, the company suggested these drivers will continue to generate sequential margin expansion in the coming quarters and years, and we believe retrenchment by some top e-commerce competitors could lead to a possible acceleration of MercadoLibre's market share growth, especially in Brazil. We remain shareholders.
  • NVIDIA Corporation is a fabless semiconductor mega cap company and global leader in gaming cards and accelerated computing hardware and software. Despite subdued demand for gaming cards due to an ongoing PC slowdown and inventory correction, shares of NVIDIA rose nearly 90% during the first quarter as a result of material developments in generative AI as evidenced by the release of ChatGPT and GPT-4. These technologies hold the promise of enabling significant productivity gains across domains from content creation, coding, and even biologic discovery. During its annual GTC conference in March, NVIDIA announced new products that expand its addressable market such as the L4 chip, which opens the opportunity for video processing, representing 80% of internet traffic. We continue to believe NVIDIA’s end-to-end AI platform and leading market share in gaming, data centers, and autonomous machines, along with the size of these markets, will enable the company to benefit from durable growth for years to come.
  • Shopify Inc. is a cloud-based software provider for multi-channel commerce. Shares rose nearly 40% in the first quarter as a result of a broad rebound in growth stocks as well as the company's solid fourth quarter results showing 13% year-on-year growth in gross merchandise value and 26% growth in revenue, driven by increasing adoption of the company's solutions including payments, Shopify Capital, Shopify Markets, and Shop Pay. Shopify also continued to show an impressive velocity of product innovation, with recent updates across fulfillment (Shop Promise), marketing (Shopify Audiences), and Enterprise (Commerce Components by Shopify). We remain shareholders due to Shopify’s strong competitive positioning, innovative culture, and long runway for growth, as it still holds less than 2% share of global commerce spending.


  • Endava plc provides outsourced software development for business customers. Shares fell after the company reduced financial guidance to reflect slower bookings as macroeconomic uncertainty weighed on client decision-making in December. Nevertheless, the company reported solid quarterly results, with 30% revenue growth and 26% EPS growth. Management noted that bookings have improved in the first couple of months of 2023, and they expect annualized revenue growth to quickly return to greater than 20%. We remain investors because we believe Endava will continue gaining share in a large global market for IT services.
  • Bajaj Finance Limited is a leading non-banking financial corporation in India. The stock detracted during the quarter due to a near-term slowdown in business activity amid rising competition and moderating consumer spend in India. We believe Bajaj is well positioned to benefit from growing demand for consumer financial services including mortgages, personal and credit card loans, and vehicle financing. We retain conviction in Bajaj given its best-in-class management team, robust long-term growth outlook, and conservative risk management frameworks.
  • Afya Limited is a Brazilian for-profit education company specializing in medicine, including undergraduate and graduate coursework, residency preparatory and specialization programs, and digital solutions for physicians. Shares declined during the first quarter due to investor concerns over potential regulatory changes in the Brazilian education system. We remain shareholders. Afya reported robust fourth quarter results, with revenue growth of 18% and adjusted EBITDA margins of 41%, and a 2023 outlook above investor expectations, with projected revenue growth of 20% and stable EBITDA margins. We anticipate continued long-term appreciation driven by Afya’s pricing power, maturation of its undergraduate program, and expansive digital offerings. We also believe the stock has over-discounted the potential risks of regulatory changes.

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.