Baron Emerging Markets Fund (BEXIX)

Portfolio Management

Michael Kass

Fund Manager since 2010

View All Commentary by Michael

Fund Description

Baron Emerging Markets Fund invests primarily in growth companies in developing countries.


Portfolio Commentary

Institutional Performance

Review and Outlook (for quarter ended 3/31/2016)

The Review and Outlook for period ending March 31, 2016 is not yet available

Top Contributors/Detractors to Performance

Contributors (for quarter ended 3/31/2016)
  • BM&FBOVESPA SA operates financial exchanges in Brazil. The stock increased during Q1 along with the broader Brazilian equity market and currency due to increased optimism that political changes will lead to structural improvements in the Brazilian economy. Shares also benefited from a proposed merger with Cetip that would create a unified financial clearinghouse for the Brazilian capital markets. We continue to own the stock because we expect the acquisition of Cetip will create significant shareholder value.

  • Shares of Steinhoff International Holdings N.V., the second largest European furniture retailer (behind Ikea), rose in Q1, driven by strong financial performance. Steinhoff also announced its intent to acquire London-based Darty PLC to expand its product offering into electronic and white goods. The acquisition is a good strategic fit for Steinhoff and was well received by investors. We retain conviction in Steinhoff as we believe it is well managed by an excellent executive team and remains a beneficiary of accelerated industry consolidation in Europe.

  • Taiwan Semiconductor Manufacturing Company Ltd. is the world’s leading semiconductor foundry, supplying many of the world’s leading fabless semiconductor design companies in the computing, communication, automotive and other end markets. The shares advanced during Q1 on perceived strength in order visibility and market share, as concerns over a slowdown in mobile communications chips receded. We maintain a core holding in this highly profitable and competitively advantaged business.

Detractors (for quarter ended 3/31/2016)
  • Shares of Kingdee International Software Group Co. Ltd. declined during Q1 after it reported unexpectedly weak 4Q earnings results. Kingdee is a software vendor to small and medium-sized businesses in China. Its legacy software business, which funds the development costs for the fast-growing Cloud business, was weak due to delays in IT spending by Chinese enterprise clients. We believe Kingdee is well funded and can make the necessary Cloud investment despite the current slowdown in China.

  • Shares of TerraForm Global, Inc., an owner of renewable energy power plants in emerging markets, fell during Q1 due to uncertainty related to the implications of a potential bankruptcy of parent company SunEdison. In addition, TerraForm Global was unable to execute on transactions to create its formation portfolio. These factors make the company difficult to value, and the stock sold off as a result. We continue to hold the stock as we believe the company is solvent and has enough liquidity to continue.

  • Shares of Ginko International Co., Ltd., a leading Taiwan-based contact lens manufacturer principally serving the mainland China market, retreated during Q1, reversing the prior quarter’s solid advance. We are not concerned over the short-term revenue deceleration in January and February, and maintain our position and optimism of Ginko’s long-term prospects.

Quarterly Attribution Analysis (for quarter ended 3/31/2016)

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 Emerging Markets Fund rose 0.85% in the first quarter, yet underperformed the MSCI EM IMI Growth Index by 212 basis points, mostly due to a combination of sector stock selection and relative country weights.

On a country basis, outperformance of investments in China, Korea, South Africa, and Panama and lower exposure to lagging Korean equities added the most value. These positive relative results were overshadowed by underperformance of investments in Taiwan, India, and the U.S. Larger exposure to lagging Indian equities, which fell 5.3% in the quarter, lack of exposure to outperforming Turkish and Malaysian equities, and lower exposure to strong performing Taiwanese equities also hurt relative results.

On a sector basis, outperformance of Financials and Industrials investments contributed the most to relative results. Strength in Financials was mainly due to the outperformance of Brazilian financial exchange operators BM&FBOVESPA SA and Cetip SA - Mercados Organizados. BM&FBOVESPA’s bid to acquire Cetip, which would create a unified financial clearinghouse for the Brazilian capital markets, drove shares of both companies sharply higher. Metro Pacific Investments Corp. of the Philippines and Bangkok Bank Public Co. Ltd. of Thailand also aided relative performance. Within Industrials, outperformance of Latin American airline Copa Holdings, S.A. and South African holding company Bidvest Group Ltd. added the most value. Declining airline capacity in Latin America, lower fuel prices, and more stable ticket pricing helped drive up shares of Copa, while shares of Bidvest increased on solid earnings results and announced plans to spin off its international foods business.

Health Care, Consumer Discretionary, and Utilities investments were the largest detractors from relative performance. Within Health Care, underperformance of Ginko International Co., Ltd. of Taiwan and Divi's Laboratories Ltd. of India detracted the most from relative results. Ginko was the third largest detractor on an absolute basis, while Divi's shares fell due to below-consensus earnings performance. Pharmaceutical holdings also weighed on relative performance, falling 10.7%, with Sihuan Pharmaceutical Holdings Group Ltd. of China and Lupin Ltd. of India leading the decline. Weakness in Consumer Discretionary was partly attributable to the underperformance of Indian cable & satellite and broadcasting holdings, whose share prices were pressured by delays in the implementation of Phase III cable TV digitization in India. Underperformance of apparel, accessories & luxury goods holdings Makalot Industrial Co., Ltd. of Taiwan and Shenzhou International Group Holdings Ltd. of China and larger exposure to this lagging sub-industry also hampered relative results. Within Utilities, underperformance of TerraForm Global, Inc., a U.S.-based renewable energy company focused on emerging markets, detracted the most from relative performance. TerraForm Global was the second largest detractor from absolute performance.

Back to Top

Invest In Baron Funds Today
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 judgement 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 Fund are subject to risk.

Source: FactSet PA.