Review and Outlook

as of 12/31/23

Early in the fourth quarter, an increasingly restrictive rise in real yields and slowing employment and inflation momentum triggered a re-evaluation of U.S. Federal Reserve policy, which was confirmed by Fed comments suggesting its hiking cycle was complete. The Fed then surprised markets by communicating that rate cuts would likely occur sooner and in larger magnitude than expected. Bond yields and financial conditions reacted swiftly, pricing in rate cuts and easing liquidity conditions. The Fed’s pivot meaningfully increased the likelihood of a soft landing, in effect declaring it was shifting its attention from pure inflation fighting to a dual-mandate and a desire to balance growth and inflation. While global markets cheered the news, we believe this event also foreshadows the end of the 14-year U.S. dollar bull market and will usher in a cycle of relative outperformance by non-U.S. equities. Although we suspect financial markets may have moved a bit too far, too fast and expect some consolidation of gains and market volatility, we believe the time has come for investors to rebalance portfolios in favor of international equities.

Developed international markets historically perform favorably in an environment of declining rates and appreciating non-U.S. dollar currencies, as peaking real interest rates presage a transition from a slowing global economy towards re-acceleration and such markets tend to be more economically and interest-rate sensitive, while U.S. equities often lag on a relative basis as they traditionally outperform during the slowdown. We anticipate a sustainable period of enhanced relative earnings growth potential in most international jurisdictions – essentially a mean reversion or mirror image of the past several years.

We also expect the emerging markets in general, and particularly those economies and companies most geared to the improvement in domestic growth, consumption, and investment, to benefit most from this inflection point in financial conditions and capital flows. In anticipation of such an environment, we increased the portfolio's exposure during the year, and we entered 2024 with roughly 31% of assets in developing world investments, one of the higher weights in the strategy's history and well above the peer average.

Historically, the interest-rate and bond-yield sensitive markets and regions such as Europe, Latin America (particularly Brazil), India and Southeast Asia are disproportionate beneficiaries, and we believe our portfolios are well-positioned to benefit, given our overweight positions in Europe, India and LatAm/Brazil, and our structural and thematic bias towards domestic consumer, financial, and industrial leaders. In addition, our healthy exposure to mid and small-cap investments should also shift from a performance headwind to a tailwind in an environment of declining real rates.

Top Contributors/Detractors to Performance

as of 12/31/23


  • eDreams ODIGEO SA is an online travel agency based in Spain that offers a subscription-based travel savings program for flights and hotels. Shares were up this quarter, as the company had strong net adds to its Prime subscription program and showed leverage from Prime in its financials, getting closer towards FY 2025 targets. eDreams has improved its fundamental positioning with a total of 5.1 million subscribers and demonstration of relative competitive strength in Europe. The product roadmap should also materially improve the customer value proposition, with the addition of hotels (particularly in Europe's fragmented hotel landscape) and generative AI improvements, which the team has been working on for years. Given the strong customer acquisition, impressive pipeline of new products, and plans for the attractive hotel market, we retain conviction in the long-term opportunity.
  • ODDITY Tech Ltd. seeks to transform the beauty and wellness market by using proprietary technologies to sell exclusively online. ODDITY sits at a unique intersection among the beauty/wellness, technology, and health care technology spaces. The company is comprised of two brands: IL MAKIAGE, a prestige cosmetics brand; and SpoiledChild, a prestige wellness brand selling skincare, hair care, and supplements. Shares increased after the company announced quarterly results ahead of pre-reported guidance and increased FY 2023 guidance as a result of repeat purchase behavior that was stronger than the company had forecast. Investors were further encouraged by credit card data indicating continued robust performance in the fourth quarter. ODDITY is well positioned to deliver strong, profitable growth as a result of its use of AI and machine learning to drive customer conversion and repeat purchase behavior and capitalize on the consumer shift toward e-commerce in categories that have historically relied on the wholesale model and high-touch retail environments.
  • Constellation Software Inc., a holding company that owns and operates a large number of vertical-market software businesses, contributed to performance. The company reported good quarterly earnings results and continued to execute well on M&A. We retain conviction that Constellation can continue to compound free cash flow per share at a solid rate, and, while the company is not immune to macro conditions, it benefits from a healthy balance sheet, strong profitability and free cash flow generation, and a diversified end-market mix.


  • Meyer Burger Technology AG is a Switzerland-based supplier of solar modules. Shares were down due to challenging market conditions in Europe and delays in regulatory support, which prompted the company to halt the expansion of its German solar cell factory and move production equipment to the U.S. instead. In addition, the German government announced plans to cut solar energy spending in response to a federal court ruling on budget limits. We retain conviction in Meyer Burger as a long-term beneficiary of greater localization of energy supply chains and reduced global reliance on China. Meyer Burger’s next-generation heterojunction solar modules are more efficient, resulting in premium prices and much higher margins. The company is also seeing strong order momentum as it ramps up capacity at its U.S facilities, supported by long-term off-take agreements with key customers. The Inflation Reduction Act, which provides incentives to manufacture solar modules and cells in the U.S., should also help drive growth over the long term.
  • Argenx SE is a biotechnology company focused on autoimmune disorders. Shares fell in the quarter on the back of failed clinical trials in immune thrombocytopenic purpura and pemphigus vulgaris that called into question the applicability of the FcRn treatment landscape. While the exact nature of these data sets is nuanced and not entirely thesis-breaking, in our view, there are now real questions for the FcRn space that have not existed in the narrative for years. On the positive side, the strong launch of Vyvgart, with early sales tripling consensus expectations and global approvals coming earlier than guided, should continue to grow revenue and justifies a defensible valuation based on cash flow analysis. We expect 2024 to be another year of solid performance, with many catalysts including readouts in myositis, Sjogren's syndrome, multifocal motor neuropathy, and argenx's subcutaneous formulation launch.
  • AMG Critical Materials N.V. is a European specialty metals and minerals company. Shares fell due to a miss in third quarter earnings and lowered full year guidance driven by the decline in lithium and vanadium prices principally as a result of weaker demand in China. We retain conviction. The company has a captive customer base with long-term contracts in the energy, transportation, infrastructure, specialty metals, and chemicals industries. Demand for its services is driven by environmental regulations to reduce hazardous waste. In addition, we like the company’s growth opportunity in lithium, an essential metal used in electric vehicle (EV) batteries and energy storage. AMG is commissioning its own lithium hydroxide refining plant in Europe to produce higher-value chemicals for the EV battery supply chain, which we think should lead to a better margin profile for this business. 

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.