Baron Asset Fund (BARAX)

Portfolio Management

AndrewPeck
Andrew Peck

Fund Manager since 2003

View All Commentary by Andrew

Fund Description

Baron Asset Fund invests primarily in mid-sized growth companies.

    

Portfolio Commentary

Retail Performance

Review and Outlook (for quarter ended 3/31/2014)

The Review and Outlook for period ending March 31, 2014 is not yet available

Top Contributors/Detractors to Performance

Contributors (for quarter ended 3/31/2014)
  • Shares of Illumina, Inc., the leading provider of next generation DNA sequencing instruments and consumables, rose in Q1, driven by better than expected Q4 financial results, strong 2014 financial guidance, and the announcement of multiple new product introductions, including an ultra-high throughput sequencing platform that will be the first to sequence a full human genome for less than $1,000. We believe Illumina has further distanced itself from its competitors and holds an effective monopoly on DNA sequencing at a time when demand is accelerating.

  • Shares of IDEXX Laboratories, Inc., a leader in veterinary diagnostics, rose in Q1 due to improving organic growth and excitement around the launch of CatalystOne, a new diagnostic platform. Organic revenue growth improved to 11%, helped by strong instrument placements and accelerating consumable volumes. We believe that recent innovations in diagnostic products, data management, and go-to-market strategy have positioned IDEXX to increase share gains and significantly accelerate revenue growth.

  • Shares of Wynn Resorts Ltd., a casino company with properties in Macau and Las Vegas, gained in Q1 as the company’s Macau property continued to generate strong results and investor enthusiasm grew around its new resort on Cotai, expected to open in early 2016. Discussion in Japan over legalizing gaming by this summer added momentum to the stock as well, as the company remains a frontrunner for a license to operate in Japan, which is expected to be decided over the next 18 to 24 months.

Detractors (for quarter ended 3/31/2014)
  • Shares of Verisk Analytics, Inc., a provider of data and analytics to insurance, healthcare and financial end markets, declined in Q1 on reports of subdued Q4 results. Health care trends improved modestly in the period, although this was partially offset by slightly slower growth in the insurance business. The company is investing aggressively in its business to broaden and deepen its set of data and analytics. While this is weighing on margins in the near term, we are confident that this strategy will lead to sustained organic growth.

  • Shares of ANSYS, Inc., the leading global provider of simulation software, fell in Q1 due to rekindled macroeconomic concerns, particularly in emerging markets. We believe ANSYS can sustainably grow revenue at low double digit rates in the current macro environment and can accelerate to mid-teens growth if macro conditions improve. Management is increasingly willing to deploy cash for share repurchases, which we view as a favorable indicator of long term demand.

  • Shares of Discovery Communications, Inc., a leading global cable network programming operator, fell in Q1 due to weaker Q4 results and lower TV ratings. Since then, the company’s ratings have improved and 2014 guidance appears achievable. With the addition of Eurosport and SBS in Europe, the company remains well positioned going forward. We remain positive on Discovery, as we believe it will benefit from the continued growth in international markets for the next several years.

Quarterly Attribution Analysis (for quarter ended 3/31/2014)

When reviewing performance attribution on our portfolio, please be aware that we construct the portfolio from the bottom up, one stock at a time. Each stock is included in the portfolio if it meets our rigorous investment criteria. To help manage risk, we are aware of our sector and security weights, but we do not include a holding to achieve a target sector allocation or to approximate an index. Our exposure to any given sector is purely a result of our stock selection process.

The Baron Asset Fund (Retail Shares) increased 0.60% in the first quarter, yet underperformed the Russell Midcap Growth Index by 144 basis points, due to stock selection and relative sector weights.

The Fund’s investments within the Energy and Health Care sectors outperformed, contributing the most to relative performance. Strength in the Energy sector was mainly due to the outperformance of Helmerich & Payne, Inc., a leading U.S. contract drilling company. Shares of Helmerich & Payne rose after the company reported another solid quarter, highlighted by the announcement of nine additional FlexRig newbuild contracts and management commentary noting signs of improvement in the U.S. market. Another contributor to relative performance was Phillips 66 Partners LP, a growth-oriented MLP. During the quarter, Phillips 66 Partners announced a $700 million dropdown from its parent, which doubled the company’s cash flows. Within Health Care, the outperformance of the Fund’s two largest holdings in the sector, Illumina, Inc. and IDEXX Laboratories, Inc., added the most value. These two stocks were also the Fund’s two largest contributors to absolute performance.

The Fund’s investments within the Information Technology (IT), Industrials, and Consumer Discretionary sector were the largest detractors from relative performance. Within IT, ANSYS, Inc., the leading global provider of simulation software, was the Fund’s second largest detractor from relative and absolute performance. Gartner, Inc., the leading independent provider of research and analysis on the IT industry, also detracted from relative results. Shares of Gartner, which gained 54.4% in 2013, declined after investors took profits following the company’s weaker than expected fourth quarter earnings results. Despite this near-term setback, we expect Gartner to show improving sales momentum in the coming year as the company adds capacity to its sales force, raises prices, improves productivity, and expands its research and coverage to serve Chief Marketing Officers. Weakness in Industrials was mainly attributable to the underperformance of Verisk Analytics, Inc., a provider of information about risk to companies in the insurance, health care, and mortgage industries, and MRC Global, Inc., the largest distributor of pipes, valves, and fittings to the energy market. Verisk was also the Fund’s largest detractor from relative and absolute performance for the quarter. Shares of MRC Global moved lower after the company reported disappointing results owing to weather disruptions and lower margin sales. The Fund’s Consumer Discretionary holdings fell 1.3% as a group during the quarter, led by high single-digit declines from several companies such as Ralph Lauren Corp. and Vail Resorts, Inc. Shares of Ralph Lauren, a leading global lifestyle brand, declined over concerns around the company’s large investment initiatives in 2014 and potential slowing of domestic wholesale sales growth given the company’s already wide distribution.

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The prospective performance of the companies discussed herein is based on our internal analysis and reflect our opinions only. We cannot promise future returns and our opinions are a reflection of our best judgment at the time of publication. Our views are not intended as recommendations or investment advice to any person and are subject to change at any time based on market and other conditions and Baron has no obligation to update them. Investing in the stock market is always risky. Current and future portfolio holdings in the Baron Funds are subject to risk.