Baron Energy and Resources Fund (BENFX)

Portfolio Management

James H. Stone

Fund Manager since 2011

View All Commentary by James

Fund Description

Baron Energy and Resources Fund invests in securities of energy and resources companies and related companies of all sizes.


Portfolio Commentary

Retail Performance

Review and Outlook (for quarter ended 6/30/2016)

The Review and Outlook for period ending June 30, 2016 is not yet available

Top Contributors/Detractors to Performance

Contributors (for quarter ended 6/30/2016)
  • Energy Transfer Equity, L.P. owns equity and general partner interests in several master limited partnerships. During Q2 Energy Transfer recovered all recent losses due to the increased probability that the proposed merger with Williams Companies would fall apart. The deal had begun to look increasingly unattractive to Energy Transfer investors due to the continued fall in oil prices. Its collapse was viewed as a positive as it will reduce Energy Transfer’s leverage and add to its financial flexibility.

  • Flotek Industries, Inc. supplies chemical additives to the global oil & gas industry. The company has a proprietary product (CnF) that helps improve oil & gas shale well productivity. Shares rallied sharply in Q2 following results for CnF sales that exceeded Street expectations and an announcement by a major customer for plans to significantly increase drilling activity. We expect Flotek to benefit from expected ramp-up in well completion activity, higher customer penetration, and increased average CnF loadings per well.

  • Rice Energy Inc. is an independent oil and gas exploration and production (E&P) company focused on the Marcellus and Utica shales in Pennsylvania and Ohio. Shares rose on a rally in natural gas prices, strong production and lower well costs. In our opinion, Rice is one of the most attractively valued E&Ps and offers exposure to some of the best acreage and industry-leading production growth. We also think that the market underappreciates the value of Rice’s midstream holdings.

Detractors (for quarter ended 6/30/2016)
  • Valero Energy Corporation is the largest independent refining & marketing energy company in the U.S. Shares suffered in Q2 due to refining margins that missed Street forecasts. Stronger-than-expected production and inventory of gasoline overwhelmed strong demand, resulting in lower-than-anticipated margins. Valero continues to produce strong free cash flow and return cash to shareholders through rising dividends and share repurchases and we think this will result in a higher share price over the next several years.

  • Bonanza Creek Energy, Inc. is an independent oil exploration and production company operating in Northeast Colorado. The shares underperformed during the period held as balance sheet concerns were magnified by lack of visibility on non-core asset sales, which we had anticipated would close and enhance the balance sheet. Instead, Bonanza saw a reduction in the size of its bank credit facility that was larger than we expected, adding further risk to the company’s outlook. We chose to exit our position.

  • Shares of SolarEdge Technologies, Inc., a provider of solar panel optimizers and inverters, fell due to fears of slowed growth in the residential market. While we agree the U.S. solar market is transitioning, as long as regulatory support is intact and prices for adoption continue to fall, we think SolarEdge will grow its share in a growing market. SolarEdge is focused on long-term growth by diversifying its customer base, increasing automation, rolling out new inverters, and seeking market share in the commercial and energy storage markets.

Quarterly Attribution Analysis (for quarter ended 6/30/2016)

The Quarterly Attribution Analysis for period ending June 30, 2016 is not yet available

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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 judgement at the time of publication. Our views are not intended as recommendations or investment advise 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.