Review and Outlook
The Review and Outlook for period ending March 31, 2015 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 Emerging Markets Fund (Institutional Shares) declined 0.34% in the first quarter and trailed the MSCI EM IMI Growth Index by 444 basis points, primarily due to stock selection.
On a country basis, underperformance of the Fund’s investments in Brazil, Korea, and China detracted the most from relative results. The Fund’s lower exposure to outperforming Chinese and Korean equities also hurt relative performance.
On a sector basis, the Fund's Consumer Staples investments were the largest contributors to relative results, increasing double digits as a group in the quarter. Strength in the sector was mostly attributable to the outperformance of the Fund’s packaged foods & meats holdings, led by China Mengniu Dairy Co. Ltd. of China and Universal Robina Corp. of the Philippines. Shares of China Mengniu, the leading dairy conglomerate in China with over 20% market share, benefited from strong earnings growth driven by a product mix shift and ongoing rationalization of operating costs. Shares of Universal Robina, a leading manufacturer of branded food products in the Philippines, rose as the company continued to bolster its brand and product portfolio through its recent acquisition of Griffins and joint ventures with Danone and Calbee.
The Fund’s investments within the Information Technology (IT), Consumer Discretionary, and Industrials sectors and its average cash exposure of 11.6% in favorable conditions for emerging market equities were the largest detractors from relative results. Within IT, underperformance of the Fund’s Internet software & services holdings and its significantly lower exposure to outperforming Samsung Electronics Co., Ltd., which has a 6% weight in the index, detracted the most from relative results. The Fund’s Internet software & services investments fell 10.4% as a group, with Opera Software ASA of Norway and Alibaba Group Holding Ltd. of China driving the decline. The Fund eliminated its position in Opera after management disclosed that the company’s foreign currency exposure to the Russian Ruble was greater than previously indicated. Additionally, the Fund’s lower exposure to outperforming Tencent Holdings Ltd., which also has a meaningful weight in the Internet software & services sub-industry in the index, hurt relative performance. Within Consumer Discretionary, the Fund’s larger exposure to declining education services companies detracted approximately 172 basis points from relative performance. These stocks plummeted more than 42% in the index. In particular, fiscal problems in Brazil caused the government to change the rules for FIES, a student financing program. Positive stock selection in education services added 55 basis points of relative performance. Weakness in Industrials was mainly due to the underperformance of Brazilian airline GOL Linhas Aéreas Inteligentes SA, which was also the Fund’s largest detractor on an absolute basis.
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