Review and Outlook

as of 12/31/20

The fourth quarter capped off an unpredictable and unforgettable year. Early on in 2020, we witnessed the epoch of economic and market uncertainty while the year ended in a pinnacle of confidence and optimism. In November, news of multiple COVID-19 vaccines and the U.S. election results triggered a rally in global financial markets. Despite an alarming spike in cases, investors remained focused on the potential for a vaccine-driven return to economic and social normalcy. Fiscal support to bridge the gap to normalcy also boosted the markets, as well as the Brexit trade pact late in the quarter. For the quarter, international equities notably outperformed their U.S. counterparts, with the exception of U.S. small-cap stocks.

Looking forward, we believe the COVID-19 crisis has pushed global policymakers through the portal of “Modern Monetary Theory,” and that this, concurrent with the transfer of policy/stimulus leadership to elected officials, suggests a sustainable period of dollar weakness and relative outperformance for international equities. Likely debt mutualization and the easing of fiscal constraints in Europe, in addition to the recent Brexit resolution, should further support the relative return potential of international equities.

To us, the immediate question, post the historic fourth quarter rally, is how much of this good news has already been priced into markets? In our view, while the strong performing areas in 2020 are likely to sustain gains given solid fundamentals and a reluctance of policymakers to tighten liquidity, several underperforming areas are now likely to deliver significant earnings surprises, potentially sparking a mean reversion in leadership in the more economically cyclical sectors for a temporary period, much as in 2016. Irrespective of sector leadership, we are quite enthusiastic regarding international equities, as we expect a material improvement in relative earnings and capital flows and a likely recovery in relative valuation. In our view, investors remain too skeptical regarding the potential for much-improved relative growth. We expect multi-year catalysts from major reforms in Europe and in emerging market countries such as India, China, and Brazil and further believe the year-end Brexit resolution and trade pact for the U.K. can substantially brighten opportunities for many businesses there. We also think China’s pivot to consumption and value-added economic development will benefit its international trading partners, in addition to driving higher returns domestically. We suspect this pivot may simultaneously have an adverse effect on the relative earnings growth of many U.S. multinational corporations that have benefited for years from access to and the growth of demand in China. With relative valuations near historic lows, and risk-premium on non-dollar assets elevated after years of U.S. foreign policy aggression, we currently believe we have entered the early innings of a typical International relative bull market.

Top Contributors/Detractors to Performance

as of 12/31/20


  • Zai Lab Limited is a leading biotechnology company in the growing Chinese health care market. Although the fourth quarter was relatively quiet, shares have continued their strong run alongside the Chinese health care indices. We think Zai Lab is well-positioned to become a leader in the delivery of drugs to the Chinese market.
  • Shares of France-based universal bank BNP Paribas S.A. appreciated as investors gained clarity on the impacts of the pandemic on its business. In its third quarter review, management's view on potential losses and additional provisioning needs were less than Street expectations. A more benign outlook also fueled optimism that the European Central Bank would reverse a ban on dividend payments, driving a sector-wide rally. BNP outperformed the broader index of EU banks due to its solid capital position and its credible plan to improve profitability over the mid-term period.
  • Cae Inc is the leading provider of simulators and pilot training, with 70% share of global flight simulator production and the largest global network of simulators for pilot training. Shares rallied after news of COVID-19 vaccines improved visibility for airline travel recovery. We believe there will be increasing demand for pilot training due to post-pandemic fleet reactivation and the return of the 737 MAX to service in the near term and from pilot retirements over the long term. 


  • 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 were down on the news that Chinese regulators had launched an investigation into Alibaba for suspected monopolistic behavior. We continue to believe Alibaba's core business remains highly profitable, complemented by rapid growth in the cloud business and inflection in the Cainiao logistics and New Retail segments.
  • Reliance Industries Ltd. is India’s leading conglomerate, with business interests in telecom, digital services, retail, oil refining, and petrochemical. Shares were negatively impacted due to a retracement of earlier gains when the company raised over $20 billion from strategic (Facebook, Google) and financial investors in its Jio Platforms and Reliance Retail business verticals. We retain conviction in Reliance, as it is a key beneficiary of the “Digital India” theme with immense potential to emerge as the “Amazon/Facebook/Netflix” of India, in our view.
  • AstraZeneca PLC is a multinational pharmaceutical company developing drugs across multiple therapeutic areas such as oncology and respiratory diseases. Shares were impacted by news of AstraZeneca's joint development with Oxford University of a viral-based COVID-19 vaccine. Given a mixed data set due to an unforeseen error in dosing that occurred in the Brazilian market, the vaccine timelines slipped, hurting share performance. Our investment thesis on AstraZeneca is not dependent on COVID-19 but rather its best-in-class large-cap growth profile, and we retain conviction.

Quarterly Attribution Analysis (Institutional Shares)

as of 12/31/20

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 12/31/20

Baron International Growth Fund (Institutional Shares) was up 18.56% in the fourth quarter, outperforming the MSCI ACWI ex USA Index by 155 basis points due to stock selection.

On a country level, developed market investments contributed the most to relative results, driven by positive stock selection in Canada, Japan, France, Switzerland, Sweden, and Norway. Investments in emerging markets also added value due to the outperformance of holdings in China and India.

On a sector level, outperformance of investments in Industrials, Health Care, Consumer Discretionary, and Financials and lower exposure to the lagging Consumer Staples sector added the most value. Strength in Industrials came from Canadian flight training solutions provider Cae Inc. and German waste recycling services company Befesa S.A. Cae was the third largest contributor as news of COVID-19 vaccines improved visibility for airline travel recovery, while Befesa’s shares performed well after being added to the Fund early in the quarter. Performance in Health Care was bolstered by Chinese biotechnology company Zai Lab Limited, which is bringing a portfolio of in-licensed therapies from Western biopharmaceutical companies to the newly opened and fast-growing health care market in China. Zai was the top contributor as investors believe the company is well positioned to become a leader in the delivery of drugs to the Chinese health care market. Within Consumer Discretionary, outperformance of British luxury fashion e-commerce marketplace Farfetch Limited lifted relative results. Farfetch’s shares more than doubled for the period held as investors were enthusiastic about the company’s recently announced partnership with Alibaba and Richemont in China. The company remains focused on expanding its reach in China, which is one of the world's most important luxury marketplaces. Lower exposure to Chinese retailer and e-commerce company Alibaba Group Holding Limited also added value. Alibaba’s shares sold off on news that Chinese regulators are investigating the company for suspected monopolistic behavior. Favorable stock selection in Financials, owing largely to the outperformance of French bank BNP Paribas S.A. and Indian non-bank financial company Bajaj Finance Limited, was partly offset by lower exposure to strong performing banks. BNP was the second largest contributor as investors better understood how the pandemic was impacting the business. Bajaj’s stock price increased on above consensus operating profits and improved guidance. Bajaj is fast transforming into India’s largest fintech player by leveraging its proprietary technology platform to provide a “supermarket of financial products.”

Cash exposure in a market rally and underperformance of Indian conglomerate Reliance Industries Limited in the Energy sector weighed the most on relative results. Reliance was the second largest detractor after relinquishing some gains following meaningful outperformance earlier in the year.

as of 12/31/20

Yearly Attribution Analysis (for year ended 12/31/2020)

Baron International Growth Fund (Institutional Shares) increased 30.83% for the year and significantly outperformed the MSCI ACWI ex USA Index by 20.18% due to stock selection and, to a lesser extent, relative sector weights. Style biases also added value, driven by overexposure to the better performing momentum, growth, and residual volatility factors and underexposure to the weak performing dividend yield factor.

On a country level, favorable stock selection in developed markets accounted for nearly all of the outperformance in the period, led by investments in the U.K., Japan, Germany, the Netherlands, Israel, Sweden, and France. Emerging market investments also contributed to relative results due to positive stock selection in China and Mexico. Offsetting a portion of these gains was the poor performance of frontier market airline Copa Holdings, S.A.

On a sector basis, investments in Information Technology (IT), Health Care, and Communication Services and lower exposure to lagging banks within Financials contributed the most to relative results. Stock selection in IT added over 480 basis points to relative performance, driven by application software companies RIB Software SE of Germany and Kingdee International Software Group Co. Ltd. of China. Higher exposure to strong performing internet services & infrastructure stocks through sizeable positions in Ltd. of Israel, NEXTDC Limited of Australia, and GDS Holdings Limited of China also added value. Strength in Health Care came from biotechnology companies Zai Lab Limited of China and argenx SE of the Netherlands. Zai was the top contributor due to the company’s in-licensing deal with Regeneron and commercial launch of ovarian cancer treatment Zejula in China. Argenx was the second largest contributor following the company’s successful Phase 3 trial in Myasthenia Gravis, where the data quality all but ensures regulatory approval and commercial launch over the next 12 months. Higher exposure to life sciences tools & services stocks, which more than doubled in the index, and outperformance of French bioanalytical testing services leader Eurofins Scientific SE also added value. Communication Services holdings outperformed after increasing more than 68% as a group, led by global marketing services business S4 Capital plc and digital music service provider Spotify Technology S.A. S4 was the third largest contributor due to a recovery in global advertising spend and continued M&A in the data and analytics practice. Spotify’s shares more than doubled after delivering robust user growth across all regions and recovering engagement in areas impacted by the pandemic.

Consumer Staples investments detracted the most from relative results, owning largely to share price declines from Australian winemaker Treasury Wine Estates Limited and Japanese personal care company KOSE Corporation. We sold these investments in favor of higher conviction ideas during the year.

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.