Review and Outlook
Baron Global Advantage Fund got hit hard during the January sell-off and did not come back as much when the market rallied. We suffered from some profit taking as JUST EAT plc, Amazon.com, Inc., and Worldpay Group plc gave up some of last year’s gains. Our earlier stage, smaller market cap Health Care investments not only went down more during the selloff, but also failed to participate in the ensuing recovery. In many ways, this first quarter of the year was the reversal of the last quarter, with the exception of China, where our investments continued to outperform. We only had three double-digit gainers (Mellanox Technologies Ltd. up 28%, Cetip SA – Mercados Organizados up 18%, and ASML Holdings N.V. up 13%) against 16 double-digit decliners.
What we used to describe as unusually volatile market conditions is starting to feel like the norm. The MSCI All Country World Index fell more than 10% last August and again early this year, only to regain most of its value in a matter of weeks both times. Investors seem to be scared of everything. Fed policy and rising interest rates, corporate earnings, China’s economy, energy prices, terrorism, politics and elections, Britain leaving the EU, and inflation are just a few of the many issues contributing to the heightened anxieties. The stark disparity in short-term price performance between the leaders and the laggards continues to make for a difficult investing environment.
Yet, we have always lived and invested in an uncertain world, and that’s unlikely to change. Economic growth in China has been slowing down for almost a decade and a hard or soft landing or what the government will do with the exchange rate are difficult to predict. Similarly, we think it is hard to know whether oil should be trading at $40/barrel or $60/barrel and where it will be some years from now. What we can do is continue to focus on our process and on the companies in which we invest. Finding and investing in what we believe are competitively advantaged businesses will continue to be our primary goal.
While we expect the markets to remain volatile, we remain positive on the overall environment. Over the last 50 years, despite the doubling of the population, average global income per capita has tripled, life expectancy has risen by a third, and child mortality is down 70%. Literacy rates are up meaningfully and average IQs are considerably higher even after adjusting for inflation and better nutrition. People are healthier, smarter, and more prosperous than they have ever been. All predictions of doom have repeatedly proved wrong. Despite disasters and reverses, quality of life and material wealth and prosperity have continued to increase everywhere in the world, and we think that’s also unlikely to change.
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Quarterly Attribution Analysis
The Quarterly Attribution Analysis for period ending March 31, 2016 is not yet available
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