Review and Outlook

as of 09/30/19

The Review and Outlook for period ending September 30, 2019, is not yet available.

Top Contributors/Detractors to Performance

as of 09/30/19

Contributors

  • TherapeuticsMD, Inc. develops hormone-based drugs for women's health. It has three FDA-approved drugs, two of which are already in limited launch. We believe that as payer reimbursement is solidified by early 2020, sales of all three drugs will accelerate dramatically. After a slide in the prior quarter, shares started to recover in Q3. The company surprised positively, beating earnings and slightly increasing full year guidance. We believe shares are significantly undervalued and that 2020 will be a watershed year in establishing the company's maturity and growth.
  • Floor & Decor Holdings Inc., a hard-surface flooring retailer, outperformed during the quarter following better than expected earnings. Investor sentiment around housing and tariffs continued to improve. The merchandising team has done a commendable job moving production out of China quickly to mitigate the tariff impact. We believe that Floor & Decor is a differentiated retail concept with a large long-term opportunity for store growth (106 stores today vs. 400 target). Over the next few years, we expect the company to grow square footage, sales, and EPS by more than 20%.
  • Trex Company, Inc. is the dominant manufacturer and industry pioneer of wood-alternative ("composite") residential decking in the U.S. The company had a strong quarter, driven by second quarter financial results and third quarter sales guidance, both of which were well above analyst expectations. Trex continues to enjoy robust demand for its products, driven by a secular shift towards composite from wood. Trex’s recently launched, more affordable "Enhance" product is expanding its addressable market and further accelerating demand.

Detractors

  • ViewRay Incorporated manufactures medical capital equipment that uses MRI imagery to guide cancer radiation treatment in real time. We believe ViewRay's technology, including software to automatically stop radiation when the tumor is out of field, is game changing and that the company can capture meaningful share in what could be a $2.5 billion market. This was a tough quarter as ViewRay lowered full year guidance by five units, causing a $30 million shortfall that could meaningfully affect funding needs a year out.
  • Shares of Silk Road Medical, Inc., a newly public medical device company offering a novel approach to the treatment of carotid artery disease, detracted from performance. The stock declined from record high levels due to high near-term valuation and a market sell-off in high-growth companies. We continue to believe Silk Road has a long runway for growth. The company has strong competitive advantages including strong clinical data, a unique FDA label, reimbursement, and patents, and we believe its approach will become the preferred treatment for carotid artery disease.
  • Bloom Energy Corporation designs, manufactures, and sells solid-oxide fuel cell systems. Bloom Energy has developed a proprietary, distributed, on-site electric power solution delivering highly reliable, uninterrupted power. The shares fell after the company guided to unit sales in 2020 that were much lower than analyst forecasts. Even though the technology continues to improve over time and costs are coming down, the near-term demand appeared much weaker than we expected. We sold our shares in the company.

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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

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