Baron Fifth Avenue Growth Fund (BFTIX)
Review and Outlook
The Review and Outlook for period ending June 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 Fifth Avenue Growth Fund finished roughly unchanged in the second quarter and trailed the Russell 1000 Growth Index by 50 basis points. During the quarter, stock selection added value, but was overshadowed by the negative effect of the Fund’s relative sector weights.
Outperformance of Consumer Discretionary and Materials investments and larger exposure to the strong performing Financials sector contributed the most to relative performance. Strength in Consumer Discretionary was mainly due to the outperformance of the Fund’s largest holding, Amazon.com, Inc., and Naspers Limited, a South Africa-based Internet and media platform operator. Amazon was the largest contributor on an absolute basis while Naspers shares rose due to its large ownership position in Tencent Holdings Limited, whose share price increased sharply in the quarter. Within Materials, outperformance of the Fund’s only holding in the sector, Monsanto Co., added value. Shares of Monsanto, which produces agricultural products for farmers that include genetically modified seeds and crop protection chemicals, rose sharply after Bayer AG made a $62 billion bid for the company.
Underperformance of the Fund’s Health Care holdings, its lower exposure to the outperforming Consumer Staples sector, and its significantly larger exposure to lagging Internet software & services stocks within the Information Technology (IT) sector detracted the most from relative results. Weakness in Health Care was partly attributable to the underperformance of Illumina, Inc., the second largest detractor from absolute results, and Allergan plc, the manufacturer of wrinkle reducer Botox. Allergan’s shares fell after the U.S. Treasury disallowed the Pfizer-Allergan inversion. The company responded with a strong message for growth and a planned $10 billion share buyback, which helped stabilize shares off their lows. Biotechnology holdings also underperformed after falling 10.1% as a group, with Alexion Pharmaceuticals, Inc. driving the decline. Aside from being hurt by the sell-off in high-multiple biotechnology stocks, shares of Alexion, which serves the orphan disease markets, declined due to slowing Soliris (lead product) growth and a light launch for new drug Kanuma. We retain conviction. Recent test results from the closest potential Soliris competitor pointed to its use only as a backup rather than an alternative to Soliris, and we expect four to five years of potentially monopolistic sales for the drug.
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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 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. Investing in the stock market is always risky. Current and future portfolio holdings in the Fund are subject to risk.
Source: FactSet PA.