Baron Asset Fund (BARIX)
Review and Outlook
The Review and Outlook for period ending September 30, 2016 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.
Baron Asset Fund increased 5.15% in the third quarter and outperformed the Russell Midcap Growth Index by 56 basis points due to relative sector weights.
Consumer Discretionary, Financials, and Real Estate investments, lack of exposure to the lagging Consumer Staples sector, and larger exposure to outperforming life sciences tools & services stocks within Health Care contributed the most to relative results. Within Consumer Discretionary, lack of exposure to poor performing general merchandise store stocks and outperformance of Vail Resorts, Inc. and The Priceline Group, Inc. added the most value. Shares of ski resort operator Vail increased on news that the company had entered into an agreement to acquire Whistler Blackcomb, while shares of leading online travel agency Priceline rose on the strength of solid Q2 results and a robust outlook for Q3. Within Financials, outperformance of The Charles Schwab Corp., the third largest contributor on an absolute basis, and Arch Capital Group Ltd., a specialty insurance and reinsurance company, contributed to relative results. Arch’s shares performed well after reporting solid quarterly results, with profitable underwriting, modest catastrophe losses, and favorable reserve development. The market also reacted favorably to Arch’s agreement to acquire mortgage insurance company United Guaranty from AIG. Larger exposure to this outperforming sector, which rose 7.6% in the index, also aided relative results. Strength in Real Estate was mostly attributable to the outperformance of commercial real estate services company CBRE Group, Inc., whose stock price appreciated after reporting impressive Q2 financial results.
Underperformance of investments in Information Technology (IT) detracted the most from relative performance. Weakness in the sector was partly due to the underperformance of Gartner, Inc., the largest detractor from absolute results, and internet software & services and application software holdings, led by Verisign, Inc. and Guidewire Software, Inc., respectively. Shares of internet infrastructure services provider Verisign declined on concerns that the company would face difficulties extending its .com contract with the National Telecommunications and Information Administration. Shares of P&C insurance software vendor Guidewire fell after earnings guidance was slightly below Street expectations due to an accounting-related deferral that we expect will reverse next year. Lack of exposure to semiconductor stocks, which rose nearly 30% as a group within the index, also hurt relative performance.
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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.