Review and Outlook

as of 03/31/23

Stocks mostly increased during the first quarter, with the Russell 2000 Growth Index advancing 6.07%. The first two months were more or less a continuation from the end of 2022, with the market’s primary focus on inflation and the Federal Reserve’s next move. That shifted dramatically with the unexpected collapse of Silicon Valley Bank on March 10. Concerns about contagion and the overall health of the banking sector sent shares of many financial institutions into a steep slide. The Fed acted quickly to quell the panic, assuring depositors with assets above the FDIC insurance threshold that they would be made whole. With the banking sector narrowly averting a crisis, and mid-sized and regional banks facing renewed scrutiny and tighter regulations, market expectations are that the SVB failure may act as an additional headwind to an already slowing economy due to higher interest rates. As a result, some investors are now anticipating that the Fed will, in fact, pull back on its aggressive tightening program.

Baron Growth Fund advanced 7.88% in the quarter. Holdings within Financials, Information Technology (IT), and Health Care contributed the most. Industrials and Real Estate investments were material detractors. Top contributor MSCI Inc. led positive performance within Financials, while third largest contributor ANSYS, Inc. led gains within IT. IDEXX Laboratories, Inc., a leading veterinary laboratory diagnostics company, and West Pharmaceuticals Services, Inc., which makes components for the delivery of injectable drugs, drove appreciation within Health Care. Top detractor CoStar Group, Inc. led negative performance within Industrials. Depreciation within Real Estate was driven by Alexandria Real Estate Equities, Inc., a life sciences office and facilities REIT, and Douglas Emmett, Inc., an office and apartment REIT with a portfolio concentrated in Los Angeles and Honolulu. 

The near-term outlook remains highly uncertain. Investors are still weighing the possible impacts of SVB’s failure on the economy, including credit availability and corporate earnings. Inflation appears to have peaked, with economists now projecting a yearly rate of around 4.0% by the end of 2023, although this number is still ahead of the Fed’s targeted rate of 2.0%. While the job market remains strong, there are signs it is cooling, and housing prices have trended lower due to higher mortgage rates.

As long-term investors, we look past the short-term noise, which we believe is largely unpredictable, to stay true to our time-tested investment process, assembling and managing a portfolio of what we view as well-managed, competitively advantaged companies with durable growth opportunities at attractive valuations.

Top Contributors/Detractors to Performance

as of 03/31/23


  • Shares of MSCI Inc., a leading provider of investment decision support tools, contributed to performance. The company reported resilient Q4 2022 earnings results and gave a cautiously optimistic outlook for 2023. MSCI also benefited from improved performance in the global equity markets in the quarter, which most directly impacts MSCI's asset-based fee revenue. We retain long-term conviction, as MSCI owns strong, "all weather" franchises and remains well positioned to benefit from numerous secular tailwinds in the investment community.
  • Iridium Communications Inc. is a leading mobile voice and data communications services vendor offering global coverage via satellite. Shares increased following the company's announcement of a strategic partnership with Qualcomm aimed to integrate Iridium’s satellite communication technology into Qualcomm’s Snapdragon chip series. This partnership should provide a large growth opportunity for Iridium by significantly simplifying the integration of its technology with a slew of new devices including smartphones, laptops, tablets, and other connected devices within the Internet-of-Things (IoT) ecosystem. The relationship should generate revenue for Iridium not only through subscription services to potentially millions of devices but also through royalty and development payments. In addition, Iridium continued to see healthy growth across all key segments and has accelerated its robust shareholder return program with the announcement of its first cash dividend.
  • Shares of ANSYS, Inc., a leading provider of physics-based simulation software, contributed following another robust quarterly report. ANSYS benefits from strong secular trends, a broad product line, solid execution, and its strategic relationship with its customers. Together, these attributes have helped the company to generate resilient growth across revenue and cash generation that, despite foreign exchange and Russia-related headwinds, came in well above analyst expectations. In spite of general macroeconomic weakness, management described continued traction among large customers and a healthy demand environment, especially in key verticals including technology, alternative energy, automotive, and aerospace. ANSYS continues to invest in its core technology while adding new capabilities to support future growth initiatives including artificial intelligence and cloud. Its multiyear transition of its licensing model should allow for better growth predictability and further margin expansion in coming years.


  • CoStar Group, Inc. is the leading provider of information and marketing services to the commercial real estate industry. After two straight quarters of robust performance, shares detracted during the quarter, likely due to profit taking. The company is generating robust financial performance, with net new sales growing 15% in the quarter, and margins expanding by 200 basis points excluding growth investments. We expect the company’s core businesses to continue to benefit from the migration of real estate market spend to online channels. CoStar has begun to invest aggressively in building out its residential marketing platform. We estimate CoStar invested around $230 million in this initiative in 2022, and its initial 2023 guidance implies a total investment approaching $500 million. While this is a significant upfront commitment, we believe the residential market represents a transformative opportunity. The company’s proprietary data, broker-oriented approach, and best-in-class management position it to succeed in this endeavor, in our view.
  • Bio-Techne Corporation is a leading developer and manufacturer of reagents, instruments, and services for the life sciences research, diagnostics, and bioprocessing markets. The stock detracted from performance following two consecutive quarterly earnings misses, combined with temporary headwinds including weakness in the company’s large order consumables business due to reduced biotechnology funding as well as COVID curbs in China. We believe the company is well positioned for long-term growth, with competitive advantages including a core research reagents business, a rapidly expanding cell and gene therapy manufacturing tools business, and an emerging cancer diagnostics business.
  • After meaningfully increasing last year, shares of Gartner, Inc., a provider of syndicated research, gave up some gains in the first quarter. Business conditions have softened modestly, as Gartner’s IT vendor customer base is being negatively impacted by layoffs and cost reductions across the sector. Despite this headwind, Gartner is still generating attractive double-digit growth in research contract value. We expect sustained revenue increases and renewed focus on cost control to drive margin expansion and enhanced free cash flow generation over time. The company’s balance sheet is in excellent shape and can support aggressive repurchases and bolt-on acquisitions, in our view.

Quarterly Attribution Analysis (Institutional Shares)

as of 03/31/23

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 03/31/23

Baron Growth Fund (Institutional Shares) was up 7.88% in the first quarter, outperforming the Russell 2000 Growth Index by 181 basis points due to stock selection.

Investments in Financials, Health Care, and Communication Services along with lack of exposure to the lagging Energy sector added the most value. Positive stock selection in Financials accounted for most of the relative gains in the period, with investment decision support tools provider MSCI Inc. leading the way in the sector. MSCI was the top contributor after reporting resilient quarterly earnings results and providing cautiously optimistic guidance for 2023. The company also benefited from improved performance in global equity markets, which directly impacts asset-based fee revenue. Insurers Primerica, Inc., Kinsale Capital Group, Inc., and Arch Capital Group Ltd. also bolstered relative returns thanks to solid quarterly financial results. These favorable impacts were partially offset by the Fund’s considerably higher exposure to Financials given the banking turmoil associated with the collapse of Silicon Valley Bank and Signature Bank weighed heavily on the sector. Within Health Care, lack of exposure to biotechnology stocks, which were down 7.2% in the index, and double-digit gains from pharmaceutical packaging manufacturer West Pharmaceutical Services, Inc. and veterinary diagnostics leader IDEXX Laboratories, Inc. added the most value. West’s financial results surpassed Street expectations and management provided solid guidance for fiscal year 2023. Excluding COVID-related product revenue, the company’s organic sales growth was 14% in the fourth quarter, and management expects mid-teens base business organic growth in 2023, well above its long-term target. IDEXX’s shares rose in response to better-than-expected financial results and multiple expansion. The rate of decline in veterinary visits appears to have stabilized, and we believe that increased pet ownership and pet care spending remain long-term secular trends. Strength in Communication Services came from satellite communications company Iridium Communications Inc., whose shares increased after the company announced a strategic partnership with Qualcomm aimed at integrating the company’s satellite communication technology into Qualcomm’s Snapdragon chip series.

The above-mentioned gains were somewhat offset by disappointing stock selection in Consumer Discretionary, Industrials, and Real Estate. Adverse stock selection in Consumer Discretionary, mostly attributable to the underperformance of global ski resort operator Vail Resorts, Inc., was partly offset by higher exposure to this better performing sector. Vail’s stock was pressured by a lack of snow at its East Coast resorts coupled with an overabundance of snow at its Tahoe resorts, which together hurt visitation and resulted in reduced EBITDA guidance for the year. Weakness in Industrials came from CoStar Group, Inc., the leading provider of information and marketing services to the commercial real estate industry. CoStar’s shares declined after earnings and guidance fell short of Street expectations due to aggressive investment in the company’s residential real estate segment. Within Real Estate, life sciences REIT Alexandria Real Estate Equities, Inc. and coastal-focused office REIT Douglas Emmett, Inc. were a drag on performance. Alexandria’s shares were pressured by concerns that tighter lending conditions for the biotechnology segment could lead to diminished leasing activity across the company’s real estate footprint. Additionally, the amount of new life science office buildings planned to come online over the next couple years remains elevated, which could weigh on rents across Alexandria's markets. Douglas Emmett’s stock declined given challenging business fundamentals, driven by slower leasing activity, elevated vacancies, and diminished pricing power across the company's submarkets. Aside from stock selection, the Fund’s lack of exposure to strong performing semiconductor stocks within the Information Technology sector hampered performance.

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.