Review and Outlook

as of 06/30/23

International equities gained modestly in the second quarter, lagging their U.S. counterparts. European equities performed largely in-line with the index. We consider this encouraging given challenging near-term growth conditions and view the lack of contagion from the U.S. regional bank and Credit Suisse collapses as structurally reassuring. Japan has recently emerged as a potential market leader; we believe select domestic and consumption-oriented opportunities are materializing after years of downward pressure on prices and wages, while improving corporate governance and investor activism are sparking improved returns on capital. China’s post-reopening recovery remained subdued. We expect the consumer recovery to accelerate into the back half of 2023 as conditions normalize and President Xi pushes for an economic rebound. Indian equities returned to leadership, as the country's economic and earnings expansion continued, and valuations have fully mean-reverted after two quarters of weakness. Brazil also reversed prior weakness with significant gains, and we view the recent strength in India and Brazil as a sign of rising market confidence that several central banks are on the cusp of a rate cutting cycle – regardless of future Federal Reserve action. This is unusual and we believe can be attributed to the scale of U.S. COVID-related stimulus and resulting inflation compared to a more constrained response elsewhere.

We remain of the view that international equities are poised for a relative outperformance cycle, principally driven by the following:

1. The consensus view agrees that a U.S. dollar bear market has begun. We believe longer-term dollar fundamentals have been eroding for years, we are well past “peak dollar demand,” and the supply of U.S. Treasuries/dollars has made an important vector change higher as politicians have seized the levers of stimulus from central bankers. Once this view takes hold, the “tax” on holding non-U.S. assets should shift to a tailwind, sparking a reversal of capital/investment flows which we believe will be stimulative to consumption, investment, and earnings growth in ex-U.S. jurisdictions.

2. De-globalization, security of energy/commodity/agriculture, and national security/defense is a catalyst for international markets, which is more geared toward the capital investment required. This reversal from the past 20-plus years of globalization, which benefited wealthy developed consumers, should favor the ex-U.S. owners of real assets and industrial pricing power.

3. India is the fastest growing major economy in the coming decade and beyond. Economic reforms, digitization, formalization, and rising credit penetration favor the most sophisticated, best-managed, public corporations.

4. China’s principal lever to productivity gains as a major pivot toward self-sufficiency in the value-added industries that have been dominated by western multinationals. The rise of domestic champions in automotive/EV, automation/robotics, advanced manufacturing, biopharma, software/AI/semiconductors, and consumer goods should move the dial on perceived relative earnings growth potential for China.

Top Contributors/Detractors to Performance

as of 06/30/23


  • HD Korea Shipbuilding & Offshore Engineering Co., Ltd. is a holding company for the largest shipbuilder in the world based on order book size and global leader in high-end vessels including liquified natural gas (LNG) powered ships. Shares increased as a result of solid performance in new orders at its subsidiary Hyundai Samho, already exceeding fiscal year guidance. In addition, margins should improve given the recent decline in steel prices combined with increases in new build prices. We remain shareholders. Korean shipbuilders have an oligopoly in LNG carrier shipbuilding, LNG dual-fueled and alternative zero-carbon fueled containerships, and tankers. The tightening regulation on carbon emission, which will be fully adopted by the International Maritime Organization (IMO) by 2030, should drive higher demand for LNG dual-fueled ships as well as carbon-free ammonia-fueled ships. We expect a structural shortage of compliant ships to emerge as the IMO deadline nears, which should benefit Korea Shipbuilding given its leading position.
  • Renesas Electronics Corporation, a Japanese semiconductor company, contributed during the quarter, as revenue growth and margins remained resilient despite an industry-wide cyclical slowdown. As a global leader in microcontrollers, analog, and power devices, we believe Renesas will be a major beneficiary of the secular growth of semiconductor content in automotive, industrial, data center, and IoT applications.
  • AMG Critical Materials N.V. is a European specialty metals and minerals company. AMG applies metallurgical-based technologies to provide solutions for energy and resource conservation in the energy, transportation, infrastructure, specialty metals, and chemicals industries. Shares increased after first quarter results beat consensus as a result of higher lithium spodumene prices. We remain shareholders. AMG has a captive customer base with long-term contracts. 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 currently building 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.


  • Alibaba Group Holding Limited is the largest retailer and e-commerce company in China. Alibaba operates shopping platforms Taobao and Tmall and owns 33% of Ant Group, which operates Alipay, China's largest third-party online payment provider. Shares of Alibaba were down this quarter, given uncertainty and limited information around the company's announced plan to split into six units. We believe the restructuring plan has potential to unlock value, particularly in cloud, and the core e-commerce business' market share will stabilize. We retain conviction that Alibaba is well positioned to benefit from China's reopening and the growth in online commerce and cloud in China.
  • Shares of Glodon Company Limited, a leading Chinese construction software provider, decreased during the quarter due to macroeconomic headwinds and relatively slow project starts for property and infrastructure. We retain conviction in Glodon, as we believe the company is uniquely positioned to benefit from increasing software penetration in the construction industry, which is the least digitized industry in China.
  • ​SMS Co., Ltd., Japan’s largest recruitment agency specializing in the nursing and elderly care sectors, detracted due to concerns over a slowdown in hiring activity. We retain conviction that Japan’s aging society and labor shortage will sustain health care institutions' long-term demand for recruiting agencies. SMS’s SaaS platform, which provides billing, sales, and recruitment support, provides further growth opportunities as elderly care facilities turn to digital solutions to increase productivity.

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.