Baron International Growth Fund

Contributors

• Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited contributed in the first quarter due to investor expectations for a continued strong cyclical recovery in semiconductors and significant incremental demand for artificial intelligence chips. We retain conviction that Taiwan Semiconductor’s technological leadership, pricing power, and exposure to secular growth markets, including high-performance computing, automotive, 5G, and IoT, will allow the company to sustain strong double-digit earnings growth over the next several years.
• Semiconductor production equipment manufacturer Tokyo Electron Limited contributed in the first quarter, driven by investor expectations of a continued strong cyclical recovery in semiconductors. We expect semiconductor production equipment spend will grow robustly for years to come, as chipmakers expand capacity to meet rising demand, with AI as a key long-term catalyst. We believe the company will remain a critical enabler of major chipmakers’ technological advancements.
• Specialty insurer Arch Capital Group Ltd. contributed to performance after reporting strong financial results that exceeded Street expectations. In the most recent reported quarter, operating ROE was 24% and book value per share rose 44% as underwriting profitability remained excellent. Pricing trends in the P&C insurance market are favorable, and elevated interest rates are driving higher investment income. Insurance stocks broadly rebounded from weakness in the prior quarter as rates stabilized. We continue to own the stock due to Arch’s strong management team and our expectation of significant growth in earnings and book value.

Detractors

• Meyer Burger Technology AG is a Switzerland-based supplier of solar modules. Shares were down after the company announced a large rights issue to close the funding gap to finance the completion of its U.S. solar module and cell manufacturing plant. This announcement followed unsuccessful negotiations with the German government to provide regulatory support given challenging market conditions in Europe, which prompted Meyer Burger to close its German factory. We sold our shares. Even though Meyer Burger's next generation heterojunction solar modules are more efficient and command premium prices, we are concerned about the oversupply of solar modules and cells in the industry and the company's U.S. project execution risks.
• Waga Energy SA offers innovative technological solutions to reduce methane emissions by converting landfill gas into cost-competitive and grid-compliant renewable natural gas (RNG), a substitute for fossil natural gas. The stock declined after the company reported plans to accelerate the development of its renewable gas projects in the U.S., which require additional capital expenditure. The announcement of an equity offering to finance project development further contributed to share price weakness. We remain shareholders. Waga's patented proprietary technology WAGABOX®, which can capture RNG from almost any landfill, is a major competitive advantage, in our view. Industry experts forecast a 36% average annual increase in the consumption of RNG in the EU by 2030 based on stated government policies. The company has 20 WAGABOXes installed and secured contracts for 17 more, for combined fixed price sales of 100 million EUR annually. In addition, it has a pipeline of projects for 159 more sites.
• Watches of Switzerland Group PLC, a retailer of luxury watches in the U.S. and the U.K., detracted in the first quarter after the company revised its earnings guidance for fiscal year 2024 following slow sales in December and January. We remain shareholders, as we believe Watches of Switzerland has an attractive opportunity to consolidate the U.S. luxury watch market over the next five to 10 years, driven in part by its long-standing, strategic relationship with Rolex, which represents roughly half of the company’s total revenue.