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Past performance is not a guarantee of future performance. Investment results and principal value will fluctuate so shares, when redeemed, may be worth more or less than their original cost. Investors should be aware of the additional risks associated with investments in non-diversification, undervalued or overlooked companies and investments in specific industries. Additional risks may include those associated with investing in foreign securities, emerging markets, and companies with relatively small market capitalizations.
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as of 12/31/18
It was a rough fourth quarter for U.S. equity investors. The decline was broad-based, causing indexes to turn negative for the year and in the process, wiping out most of our gains. The market was slowly but persistently grinding lower until December 6, when the S&P 500 Index’s 50-day moving average crossed its 200-day moving average on the way down (apparently known as “the death cross”) sending the universal sell signal to every technical algorithm-trading machine, and the market went into a significant sell-off phase.
In the meantime, the federal government shut down is in its second month and domestic political uncertainty remains high. Trade tensions, Brexit, and rising interest rates continue to pose risks to investors. We continue to believe it is the latter that will have the largest impact on the short-to-intermediate direction of stocks. There is way too much uncertainty right now about economic growth for the Federal Reserve to remain on "auto-pilot." We think Chairman Powell’s remarks walking back that comment and stressing that the Fed is not on a pre-determined path and will be vigilant and patient if needed is the primary reason the markets are off to a good start in early 2019.
Baron Durable Advantage Fund declined in the quarter in concert with overall market weakness. No sector contributed. Investments in Information Technology (IT), Communication Services, and Financials detracted the most from performance. Top detractor Apple, Inc. led declines in IT. Second largest detractor Activision Blizzard, Inc. and third largest detractor Electronic Arts Inc. led weak performance within Communication Services. Financials lost ground on stock price drops in three out of four of the portfolio’s holdings within the sector.
Our goal is to invest in large-cap companies with, in our view, strong and durable competitive advantages, proven track records of successful capital allocation, high returns on invested capital, and high free cash flow generation, a significant portion of which is regularly returned to shareholders in the form of dividends or share repurchases. We hope to maximize long-term returns without taking significant risks of permanent loss of capital. We are optimistic about the prospects of the companies in which we have invested and have a full pipeline of new ideas we are actively working on to add to the portfolio during the coming quarters.
as of 12/31/18
as of 12/31/18