Baron International Growth Fund (BIGFX)
Fund Manager since
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Baron International Growth Fund invests primarily in non-U.S. growth companies.
Review and Outlook
The third quarter of 2016, "post-Brexit" rally suggests there are few signs of political change or contagion strong enough to disrupt the market equilibrium that has remained in place for many years. Indeed, sovereign bond markets initially moved aggressively to discount likely global policy support, a stimulative catalyst, particularly for the emerging markets. While we may question the fundamental underpinnings, such a significant decline in cost of capital is likely to spark an earnings recovery, particularly in the developing world where previous pressures suggest pent up demand. As such, we remain confident that developing world-biased equities can maintain a leadership position for the time being.
A key question for global investors over the past year has been whether imbalances and strong credit growth in China will ultimately lead to a credit contraction and/or a marked RMB devaluation. As an important contributor to global demand, we believe stability in China is a key variable in the outlook for global growth and corporate earnings, and are encouraged by recent progress. As of this writing, financial and economic conditions appear to be stable and improving, with economic growth, consumption, and commodity prices holding up well in the face of moderating stimulus measures and increased scrutiny over non-traditional bank lending. We view this as a sign that structural reforms, improved policy coordination and communication, and progress on capital market liberalization, financial reform, and bank non-performing loan recognition, seem to be achieving desired goals.
We remain optimistic, though we are monitoring several key variables. Japan, while struggling with inadequate growth and inflation, seems poised to enter a fiscal expansion largely financed by money printing, which could spark a rise in equities even if partially offset by currency depreciation. While Europe remains challenged by political and financial complexities, credit and earnings growth appear reasonably healthy. The U.K. economy has held up well in spite of Brexit uncertainties. Further, we believe developing world economies, commodities, and equities have reached a favorable inflection point. In the emerging markets, the cyclical earnings recovery seems to be coalescing with longer-term structural reforms and favorable political evolution in countries such as Brazil and Argentina. More recently, our enthusiasm is balanced by early signs that we may be passing through an important secular bottom in sovereign bond yields. Evolving political realities, likely fiscal expansion, signs of rising wage and rent inflation, and comments by the U.S. Federal Reserve and Bank of Japan suggest the central bankers appear to be encouraging inflation expectations to rise. This important shift is occurring after an historic decline in global yields that leaves investor sentiment and positioning vulnerable to “inflation sightings.” We suspect bond market volatility is likely to rise, although it remains a question whether this would be favorable or unfavorable for equities, and we suspect we will have more to report on this at year end.
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Quarterly Attribution Analysis
The Quarterly Attribution Analysis for period ending September 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 chage 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 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 PA2.0 Performance Analytics Software.
Source: FactSet PA