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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
We are living at a time in human history where innovation is accelerating at an exponential pace. Within the space of about three decades, communications have morphed from rotary-style phones to voice activated hand-held computers that can practically read your mind. Medical imaging has gone from fuzzy images to high resolution, real-time maps that can electronically guide surgery. And in this time, innovators in medicine appear to have reached the threshold of unlocking the human genome to understand the genetic codes that cause disease, so we may find them and treat them.
The pace of innovation is relentless and will not be deterred by a volatile stock market. The pioneers who take innovation and commercialize it for consumption tend to be rewarded in time (and we, as investors, strive to share in those rewards by investing in the best of these entrepreneurs). Of course, the timing of reward capture is highly uncertain. That is why we believe in long-term investing, where we seek to achieve excess market returns by investing strategically rather than by trading tactically.
Baron Discovery Fund declined in concert with the overall market in an exceptionally volatile quarter. No sector contributed. Health care services was the only contributing sub-industry, driven by positive performance of Guardant Health, Inc., a provider of biopsy tests for cancer patients that went public in early October. Holdings in the Health Care, Information Technology (IT), and Industrials sectors detracted the most from performance. Health Care had a challenging quarter, with the six largest detractors all within the sector. Application software led the decline within the IT sector, with seven out of eight holdings in that sub-industry experiencing double-digit drops in share price as stocks with high multiples sold off. Industrials sank on overall sector weakness driven largely by concerns around slowing growth in China.
We are mindful of the pain that can be caused in down markets. That is why we continue to rely on our time-tested, repeatable investment process. It seems to us that there is a higher probability of a positive return through investing in a company with favorable prospects at a reasonable price than through attempting to time the mercurial moods of the market. We will continue our carefully reasoned process in both good and bad markets, as we strive to earn our targeted returns on capital.
as of 12/31/18
as of 12/31/18