Review and Outlook

as of 03/31/23

The first quarter began much as 2022 ended: ebbing inflation expectations, downward pressure on bond yields and the U.S. dollar, and a recovery in global equities, led by international equities. Then, in early February, a series of stubborn U.S. inflation readings caused an increase in rate hike expectations, with the dollar rising and equities retreating, and international equities reversed relative gains. On March 9, everything changed again with the sudden collapse of SVB Financial Group and resulting fallout, including Switzerland’s forced takeover of troubled bank Credit Suisse by UBS. Toward the end of the quarter, investors appeared to embrace the administration of emergency liquidity measures as a bullish signal for equities, while the abrupt cooling of bond yields, a symptom of anticipated bank credit tightening, also supported equity valuations, and international equities ended on a high note. 

We are encouraged by the strength of European equities in general during a period of financial stress and uncertainty, and we believe this supports our view that, after more than a decade of austerity, rebuilding of capital buffers, and strides toward deeper mutualization, the Eurozone has emerged stronger and more stable than appreciated. China-related equities began the year quite strong on enthusiasm over reopening and policy support, only to peak in late January and retrace most of the gains, though we remain encouraged on the margin and anticipate that recovering demand combined with expense and capital discipline will drive positive earnings surprises and solid equity returns as we move through this year. India stood out during the quarter as one of the only jurisdictions to register negative returns, which we regard as largely attributable to mean reversion after a long period of strong relative performance; we remain quite optimistic long-term on India and our investments there.

Finally, we reiterate that over the longer term, we anticipate a marked improvement in relative earnings expectations for ex-US jurisdictions, which will trigger sustained and unexpected outperformance. We believe the fundamental drivers of enhanced earnings momentum are already falling into place, including a global capital investment cycle related to deglobalization, supply-chain diversification, sustainability, and energy, commodity, and agricultural security; Europe’s deepening mutualization; India's productivity initiatives and virtuous investment cycle; and China's pivot to value-added economic activity. We believe the banking crisis confirms our premise that we are passing peak hawkishness, and the reversal of the extended U.S. dollar bull market will prove stimulative to consumption, investment, and corporate earnings in foreign jurisdictions.

Top Contributors/Detractors to Performance

as of 03/31/23


  • 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.
  • eDreams ODIGEO SA is an online travel agency based in Spain that offers a subscription-based travel savings program for flights and hotels. Despite continued macro uncertainty, particularly in Europe, shares of eDreams increased on improved fundamental positioning as it added new subscribers to stay on track with 2025 targets. Given the strong customer acquisition numbers, impressive pipeline of new products, and plans for the attractive hotel market, we retain conviction in the long-term opportunity.
  • Shares of Keyence Corporation rose during the quarter. As a global leader in machine vision and factory automation solutions, the company is well positioned to benefit from rising adoption of industrial automation equipment to enhance productivity. Strong performance was primarily driven by an improving business outlook and a broad rally in international growth equities after a challenging 2022 amid rising global interest rates, Russia's invasion of Ukraine, and earnings disruption owing to the spread of Covid-19 in China. We retain conviction in Keyence due to its dominant market position and believe it can sustain mid-teens earnings growth over the next three to five years.


  • WANdisco plc is an infrastructure software company that develops and sells distributed software solutions for data replication across disparate computing environments. Shares were impacted by an unexpected update on March 9 in which WANdisco disclosed “potentially fraudulent irregularities” in purchase orders, related revenue, and bookings related to a rogue senior sales employee and asked for shares to be suspended from trading. Pending further information and given that the company has temporarily suspended confidence in its recently reported revenues and 2023 guidance, we marked down shares by approximately 85%.
  • Tenaris S.A. manufactures seamless steel pipe products with large operations in the U.S., Latin America, and the Middle East. Most of its products are oil country tubular goods (OCTG) for the energy industry. Shares fell due to the decline in oil prices and investor expectations of weaker oil demand. We retain conviction. The conflict in Ukraine highlighted the need to reorient supply chains away from politically risky jurisdictions such as Russia. Near term, this focus on energy security will likely result in increased reliance on the domestic supply of hydrocarbons, particularly U.S. shale gas. As one of the lowest-cost OCTG producers, Tenaris should be a major beneficiary of the increase in capital expenditures on U.S. drilling operations. We also expect Tenaris will continue to generate better pricing and higher margins for its OCTG products due to limited supply.
  • Afya Limited is a Brazilian for-profit education company specializing in medicine, including undergraduate and graduate coursework, residency preparatory and specialization programs, and digital solutions for physicians. Shares declined during the first quarter due to investor concerns over potential regulatory changes in the Brazilian education system. We remain shareholders. Afya reported robust fourth quarter results, with revenue growth of 18% and adjusted EBITDA margins of 41%, and a 2023 outlook above investor expectations, with projected revenue growth of 20% and stable EBITDA margins. We anticipate continued long-term appreciation driven by Afya’s pricing power, maturation of its undergraduate program, and expansive digital offerings. We also believe the stock has over-discounted the potential risks of regulatory changes.

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 International Growth Fund (Institutional Shares) was up 3.75% in the first quarter, yet trailed the MSCI ACWI ex USA Index by 312 basis points principally due to stock selection.

On a country level, adverse stock selection in developed markets was responsible for about 60% of the underperformance, as weakness in the U.K., Netherlands, France, Germany, Denmark, and Italy overshadowed relative gains in Spain, Japan, Switzerland, Canada, and Norway. Investments in emerging markets also contributed to the relative shortfall, with the primary culprit being weak stock selection in India coupled with higher exposure to this lagging country. Indian equities continued to retrace prior period gains due to profit taking as valuations became a bit overextended following strong relative performance over the last few years. The pullback was exacerbated by widespread selling of Adani-linked securities following the release of a critical short report targeting the Adani Group and other related businesses in late January. Stock selection was also poor in Brazil and Korea, but these negative impacts were dampened somewhat by favorable stock selection in China.

From a sector or theme perspective, investments in Information Technology (IT), Industrials, Health Care, and Energy weighed heavily on performance, with most of the relative losses coming from the Fund’s sustainability/ESG, digitization, global security, Japan staffing, and biotechnology/diagnostics themes. Within IT, U.K.-based digitization leader WANdisco plc accounted for about 40% of the Fund’s overall underperformance in the period. WANdisco’s shares were impacted by an unexpected update on March 9 in which the company disclosed “potentially fraudulent irregularities” in purchase orders, related revenue, and bookings connected to a rogue senior sales employee and asked for shares to be suspended from trading. Pending further information and given that the company has temporarily suspended confidence in its recently reported revenues and 2023 guidance, we subsequently marked down shares by approximately 85%. Weakness in Industrials was attributable to share price declines from the Fund’s investments in the sustainability/ESG (Hyundai Heavy Industries Co., Ltd., Befesa S.A., and Techtronic Industries Co. Ltd.), Japan staffing (SMS Co., Ltd. and Recruit Holdings Co., Ltd.), and digitization (MonotaRO Co., Ltd. and Full Truck Alliance Co. Ltd.) themes. Several of the Fund’s biotechnology/diagnostics holdings weighed on performance in Health Care, led by Genmab A/S, argenx SE, and Eurofins Scientific SE. Within Energy, innovative biomethane producer Waga Energy SA (sustainability/ESG), oil country tubular goods manufacturer Tenaris S.A. (global security), and Indian conglomerate Reliance Industries Limited (digitization) were a material drag on performance.

These negative impacts were partly offset by limited exposure to the lagging Utilities and Real Estate sectors along with favorable stock selection in Consumer Discretionary. Strength in Consumer Discretionary was largely due to the outperformance of Spanish online travel agency eDreams ODIGEO SA and fast-fashion apparel leader Industria de Diseno Textil, S.A. (Inditex). EDreams improved its fundamental positioning during the quarter, with the company adding new subscribers to stay on track with 2025 targets. Given the strong customer acquisition numbers, impressive pipeline of new products, and plans for the attractive hotel market, we retain conviction in eDreams’ long-term opportunity. Inditex reported a solid January quarter and disclosed double-digit organic growth in February and the first few weeks of March. Those trends, which surpassed consensus estimates, suggest Inditex continues to outperform and decouple from its apparel peers. We remain shareholders given our belief that Inditex's differentiated supply chain will continue to be a source of market share growth and high returns on invested capital.


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.