Review and Outlook

as of 12/31/19

Markets concluded an outstanding year on a high note, with the Russell 2000 Growth Index gaining 11.39% in the fourth quarter. Performance was buoyed by increased clarity regarding domestic monetary policy, a Phase 1 trade deal between the U.S. and China, and a roadmap for Brexit stemming from the U.K. election. These were a subset of the key debates that had flummoxed prognosticators for much of the year. It took just one trading day in 2020 for a new geopolitical variable to present itself in the form of rising tensions between the U.S. and Iran. We are confident that many new and unforeseen macroeconomic and geopolitical uncertainties will arise before this year is out. We are equally confident that pundits will try, and fail, to consistently forecast the timing, magnitude, resolution, and ultimate impact on stock process.

Baron Discovery Fund increased in the quarter. Investments in Health Care, Information Technology (IT), and Industrials contributed the most. Real Estate and Financials holdings were modest detractors. Health Care had a strong quarter as investor fears about Medicare for All subsided and Congress unexpectedly passed legislation eliminating certain health care-related taxes. The sector included all three top contributors: Progyny, Inc., Esperion Therapeutics, Inc., and Sientra, Inc. With 19 of 22 holdings advancing, IT also had a good quarter. Performance was led by Ichor Holdings, Ltd., a supplier to semiconductor equipment manufacturers. Shares of Ichor increased as investors regained confidence that the semiconductor down-cycle is nearing its end and after the company guided to a significant acceleration into the next quarter. Wholesale landscape supplier SiteOne Landscape Supply, Inc. led appreciation within Industrials after share rose on a strong sales and earnings report that included a positive outlook for ongoing initiatives to improve productivity and margins. SiteOne also noted a strong pipeline of acquisition targets, including several potential larger deals. Real Estate detracted somewhat on share price declines in two out of three holdings. Financials also pulled back slightly on modest share price drops in the portfolio’s two investments within the sector.

After a volatile 2019, we expect more of the same in 2020. However, we have a portfolio that by our reckoning is more solid than ever before. While macro factors remain impossible to predict (including trade deals, the results of the 2020 elections, interest rate parity among world economies, and the continued strength of the U.S. economy), we focus more on the micro-economic level, and particularly on the ability of our businesses to grow revenues (and ultimately cash flow). By our standards, we see a lot to like in 2020. A major positive is that due to a number of capital raises in 2019, we believe most of our earlier stage companies are now funded through or close to positive free cash flow breakeven. There were also a number of other secondary offerings during the year. While these offerings hurt last year’s performance, they should benefit 2020 results and beyond in a significant way.

Top Contributors/Detractors to Performance

as of 12/31/19


  • Shares of Progyny, Inc., a leading benefits management company specializing in fertility and family benefits solutions in the U.S., more than doubled after the company's November IPO. We are bullish on the growth prospects for this already profitable young company which offers better coverage and benefit design options than traditional insurance carriers. We believe growth will be supported by increasing infertility trends, an underpenetrated market, demonstrably better in-network outcomes, and the current war for talent which drives the need for attractive employee benefits.
  • Esperion Therapeutics, Inc. is a lipid management pharmaceutical developing bempedoic acid for the treatment of high cholesterol. The stock rose on news of Novartis' $9.7 billion acquisition of The Medicines Company that helped validate the cardiometabolic space as ripe for investment. We expect continued strong performance as Esperion launches its drug commercially in 2020 and progresses toward a large clinical trial aimed at demonstrating the medication's efficacy in reducing morbidity/mortality.
  • Shares of Sientra, Inc., an aesthetics medical device company, appreciated on an earnings report that beat Street expectations, an announcement to acquire a manufacturing plant in its supply chain, and plans for meaningful cost savings over the next two years. We continue to believe that the company is substantially undervalued and look forward to accelerating growth in 2020.


  • TherapeuticsMD, Inc. is a developer of hormone-based drugs for women's health, with three FDA-approved drugs in limited launch. Shares declined in the quarter as the company raised $65 million in a secondary offering. With this event behind it, we believe TherapeuticsMD is poised for hyper-growth in 2020. 
  • ForeScout Technologies, Inc. discovers devices agent-free in real time as they connect to a network and continuously monitors and assesses their security posture. Its solution supports heterogeneous campus and cloud infrastructures and provides security customers with visibility to 30% more devices on the network after installation. Shares fell after the company missed guidance due to the failure to close some large contracts. We retain conviction as overall penetration is low relative to the market opportunity and technology is best in class. 

Quarterly Attribution Analysis

as of 12/31/19

Yearly Attribution Analysis (for year ended 12/31/2019)

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.