Review and Outlook
The Review and Outlook for period ending September 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 Global Advantage Fund rose 11.08% in the third quarter and outperformed the MSCI ACWI Growth Index by 580 basis points, due to a combination of stock selection and relative sector weights.
On a country basis, stock selection in developed markets contributed the most to relative results, mainly due to outperformance of investments in the U.S., the U.K., and Canada. Significantly larger exposure to outperforming emerging market equities, particularly those in China, also added value.
On a sector basis, Consumer Discretionary and Health Care investments, lack of exposure to the lagging Consumer Staples sector, and meaningfully larger exposure to outperforming internet software & services stocks within Information Technology (IT) added the most value. All five of the Fund’s Consumer Discretionary investments lifted relative results, led by internet & direct marketing retail holdings Amazon.com, Inc., Ctrip.com International Ltd., and The Priceline Group, Inc. Amazon was the largest contributor on an absolute basis, while both Ctrip and Priceline benefited from solid quarterly earnings results. Naspers Limited, a South Africa-based internet and media platform operator, and TAL Education Group, a leading Chinese K-12 tutoring company, were the other contributors in the sector. Within Health Care, outperformance of Illumina, Inc. and Aerie Pharmaceuticals, Inc. and lower exposure to this poor performing sector aided relative results. Illumina was the third largest contributor to absolute performance, while shares of Aerie, which is developing a novel set of eye drops to treat glaucoma called Rhopressa/Roclatan, outperformed due to success in recent clinical trials. Health care equipment holding Glaukos Corporation, which is developing products to drain intraocular (eye) fluid to relieve the symptoms of glaucoma and delay/prevent blindness, also added value after the company’s shares rose nearly 30% in the quarter.
Telecommunication Services and Financials investments were the primary detractors from relative performance. Within Telecommunication Services, underperformance of the Fund’s two holdings in the sector, Indonesia tower operators PT Sarana Menara Nusantara Tbk. and PT Tower Bersama Infrastructure, Tbk., weighed on relative results. These stocks declined in the quarter as telcos continued to defer network equipment upgrades. Weakness in Financials was largely due to the underperformance of Cetip S.A. – Mercados Organizados, which administers over-the-counter markets in Brazil for trading and registration of securities, bonds, and derivatives. Cetip’s shares relinquished some recent gains as the company awaits regulatory approval of its merger with BM&FBOVESPA SA.
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