Review and Outlook

as of 09/30/21

For much of the past year and a half, equity markets have been in a steady upward trajectory following the steep decline at the onset of the COVID-19 pandemic. The third quarter of 2021 saw that trend level off notably, pressured by a spike in cases due to the Delta variant, the expiration of government support programs, a pullback in fourth quarter earnings projections, and upheaval in China. The S&P 500 Index market notched a small positive return for the quarter, although much of the growth was driven by megacap tech companies. U.S. small-cap growth companies – as measured by the Russell 2000 Growth Index – were hit the hardest, finishing down 5.65%.

Against this backdrop, Baron Growth Fund increased in the third quarter. Holdings within Financials, Information Technology (IT), and Health Care contributed the most to performance. Positive performance within Financials was driven by MSCI, Inc. and FactSet Research Systems, Inc., respectively the top and third largest contributor to performance. Second largest contributor Gartner, Inc. drove appreciation within IT. Gains within Health Care were led by West Pharmaceutical Services, Inc. Shares of this manufacturer of components and systems for the packaging and delivery of injectable drugs rose on financial results that exceeded Street expectations in both the base business and products related to COVID-19 and raised guidance. Materials was the only sector to detract, driven down by Zymergen Inc. Shares of this company dedicated to biofacturing, or harnessing bacteria to manufacture materials, fell following an unexpected update announcing both a major delay in the launch of lead product Hyaline and the removal of CEO Josh Hoffman, who was replaced by company chairman and former Illumina CEO Jay Flatley.

While we are certainly aware of current events that impact the markets, we do not invest based on our insights into short-term macroeconomic, political, or public health issues. We continue to adhere to our time-tested approach, investing for the long-term in businesses that we believe will benefit from long-lived secular growth trends, with sustainable competitive advantages, led by best-in-class management. We remain optimistic that this approach will generate strong performance for our portfolio, regardless of the economic climate.

Top Contributors/Detractors to Performance

as of 09/30/21


  • Shares of MSCI, Inc., a leading provider of investment decision support tools, contributed to performance. The company reported strong second quarter earnings results and management continued to express optimism regarding the economic and market backdrop moving forward. MSCI also enhanced its private markets capabilities with the acquisition of Real Capital Analytics. We retain long-term conviction as the company owns strong, "all weather" franchises and remains positioned, in our view, to benefit from numerous secular tailwinds in the investment community.
  • Shares of Gartner, Inc., a provider of syndicated research, contributed to performance after reporting financial results that exceeded Street estimates. Growth in the company’s research business reaccelerated to double-digit levels. Research growth is led by the company’s GBS segment, which is benefiting from a multi-year investment cycle. We expect improved revenue growth and focus on cost control to drive margin expansion and enhanced cash generation. The company’s balance sheet is in good shape and can support aggressive share repurchases and bolt-on acquisitions, in our view.
  • Shares of FactSet Research Systems, Inc., a leading provider of investment management tools, contributed to performance. FactSet reported strong earnings and provided encouraging guidance as technology and content investments the company has been making over the past few years started to pay off with stronger growth. We retain conviction in FactSet due to the large addressable market, consistent execution on both new product development and financial results, and robust free cash flow generation.


  • Shares of regional casino company Penn National Gaming, Inc. declined in the quarter on investor concerns about lost online sports betting market share as well as increased competition as rivals spend large sums of capital on new customer acquisition. We remain investors. We believe Penn's recently announced acquisition of Score Media and Gaming, combined with its Barstool acquisition last year, should help drive customers to its betting app. Penn has a strong balance sheet with earnings growth accelerating over time.
  • Schrodinger, Inc. is a hybrid biotechnology and technology company that uses molecular dynamics and free energy perturbations to model drug/target interactions for both third parties and its own internal efforts. Shares fell following second quarter financial results in which the company did not raise guidance and noted that revenue was weighted toward the fourth quarter. As we focus on company fundamentals and not these types of short-term issues, we remain shareholders.
  • Denali Therapeutics Inc. is a biotechnology company developing drugs to treat neurological disorders. Shares fell after an interim update reporting mixed results from its Phase 1/2 study of a program in treating Hunter syndrome. We remain convicted in Denali for its suite of approaches toward targeting the brain.

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.