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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 Fifth Avenue Growth Fund declined in the quarter in concert with overall market weakness. No sector contributed. Among sub-industries, systems software, financial exchanges & data, and automobile manufacturers contributed to performance. Systems software advanced on the strength of top contributor Red Hat, Inc. The financial exchanges & data sub-industry added to performance due to a share price gain in second largest contributor CME Group, Inc. Third largest contributor Tesla, Inc. drove gains of the automobile manufacturers sub-industry. Investments in Consumer Discretionary, Information Technology (IT), and Communication Services detracted the most from performance. Top detractor Amazon.com, Inc. led declines within Consumer Discretionary. All but one of the holdings within IT pulled back, led by third largest detractor Apple, Inc. Second largest detractor Activision Blizzard, Inc. led weak performance within Communication Services.Every day we live and invest in a world full of uncertainty. The constant challenges we face are real and serious, with clearly uncertain outcomes. History would suggest that most will prove passing or manageable. The business of capital allocation (or investing) is the business of taking risk, managing the uncertainty, and taking advantage of the long-term opportunities that those risks and uncertainties create. We are confident that our process is the right one, and we believe that it will enable us to make good investment decisions over time.
as of 12/31/18
as of 12/31/18