Review and Outlook

as of 03/31/20

What a difference three months make.

In early January we were reviewing last year’s performance, and we pointed out how it was almost impossible to lose money in 2019. Well, it proved to be equally difficult to make money in the first quarter of 2020. Government bonds and gold were up a bit, but every stock market index in the world that we looked at lost money, and most of the ones that matter and that we traffic in lost a lot. As Nassim Taleb explained in his wonderful book, The Black Swan: The Impact of the Highly Improbable, the hindsight bias will convince some people that what we are experiencing now was not only possible but was in fact very likely. The 2020 recession was “in fact” unavoidable, a talking head proclaimed recently on CNBC. We have now heard a few people state that this current pandemic was entirely predictable although at least one of them could not coherently explain the difference between a pandemic and an epidemic. These are classic signs of a Black Swan event and we certainly believe we are in a midst of one.

The good news is that we believe we have been here before. Well, not exactly here, but there are enough similarities that we feel like we have a bit of an advantage over many market participants today. We remain balanced and patient, and we have the benefit of many of the lessons learned. Remember, there is no compression algorithm for experience. We will stick to our process because we have a lot of confidence (and data and track record) that it works.

There are two paragraphs with which we end most of our quarterly letters, and we believe that the COVID-19 pandemic makes them even more relevant now than ever:

Every day we live and invest in a world full of uncertainty. Well known conditions and widely anticipated events, such as Federal Reserve rate changes (up and down), ongoing trade disputes, government shutdowns, and the unpredictable behavior of important politicians the world over, are shrugged off by the financial markets one day and seem to drive them up or down the next. We often find it difficult to know why the market participants do what they do over the short term. 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.

Our goal remains to maximize long-term returns without taking significant risks of a permanent loss of capital. We are optimistic about the long-term prospects of the companies in which we are invested and continue to search for new ideas and investment opportunities while remaining patient and investing only when we believe the target companies are trading significantly below their intrinsic values.

Top Contributors/Detractors to Performance

as of 03/31/20


  • Acceleron Pharma Inc. is a biopharmaceutical company developing drugs that regulate the transforming growth factor beta superfamily of proteins, which play fundamental roles in the growth and repair of cells and tissues. Shares appreciated sharply on positive reports for Acceleron’s pulmonary arterial hypertension treatment Sotatercept across all studied markers. This represents Acceleron’s second potential commercial drug and a new clinical vertical. 
  • Schrodinger, Inc. was a successful IPO in the quarter whose stock increased on investor interest in a diversified way to invest in the biotechnology space. Schrodinger has a recurring software revenue business married to its drug development efforts and benefits from the widely held belief that it is bringing next generation computers into the biotechnology space. 
  • RingCentral, Inc. provides global cloud communications and collaboration solutions across multiple channels (voice, video, and messaging). Shares appreciated in the quarter as the COVID-19 pandemic led a large number of employers to initiate work-from-home policies, crystalizing the need for a communications platform that is agile, scalable, and global. With the company’s two million users, it remains in the first inning of premises-based communications solutions migrating to the cloud.


  • HDFC Bank Limited is India's largest private-sector bank serving retail and commercial clients. Shares declined in concert with a drop in the index of Indian financials during the quarter. We expect the sector to experience earnings headwinds due to fallout from the COVID-19 pandemic as banks will face rising loan defaults, lower demand for credit, and potentially higher funding costs. Although HDFC has the balance sheet strength to endure this crisis, we believe it will take time for earnings growth to recover and have decided to exit our position.
  • PagSeguro Digital Ltd. is a payment processor and merchant acquirer in Brazil targeting small- and micro-sized merchants with no formal banking relationship. Shares declined in the quarter as investors expect a decrease in merchant sales due to the COVID-19 pandemic. The main risk to PagSeguro is a decline in revenues and, to a lesser extent, a rise in delinquencies in its lending business. We believe earnings will be impacted less than investors anticipate due to a high proportion of variable costs, and we expect these impacts to be temporary. 

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.