Review and Outlook
The Review and Outlook for period ending March 31, 2014 is not yet available
Top Contributors/Detractors to Performance
Quarterly Attribution Analysis
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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