Baron Opportunity Fund (BIOIX)
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 Opportunity Fund increased 6.47% in the third quarter and outperformed the Russell 3000 Growth Index by 155 basis points due to relative sector weights. Larger exposure to outperforming small cap stocks, which rose more than 10% within the index, also added value.
Consumer Discretionary, Financials, and Health Care investments and lack of exposure to the lagging Consumer Staples sector, which fell 4.8% in the index, contributed the most to relative results. Within Consumer Discretionary, outperformance of internet & direct marketing retail holdings Amazon.com, Inc. and The Priceline Group, Inc. and larger exposure to this better performing sub-industry, which rose 15.5% in the index, added the most value. Amazon was the largest contributor to absolute results, while shares of online travel agency Priceline rose on solid Q2 results and a robust outlook for Q3. Strength in Financials was mainly due to the outperformance of brokerage firm The Charles Schwab Corp. and electronic trading platform company MarketAxess Holdings Inc. Schwab’s shares appreciated on strong asset growth, while shares of MarketAxess rose on robust trading activity as average daily volume grew 34% in Q3 compared to the year-ago period. MarketAxess also reported excellent Q2 results with 28% revenue growth and 36% EPS growth, both exceeding Street estimates. Within Health Care, outperformance of Illumina, Inc. and Sage Therapeutics, Inc. and lower exposure to poor performing pharmaceutical stocks, which fell 7.4% within the index, lifted relative results. Shares of DNA sequencing company Illumina increased after the company reported financial results that beat Street expectations and reiterated guidance for the year. Shares of Sage, which is developing treatments for central nervous system disorders, rose sharply after the company announced positive top-line results from its Phase II trial with SAGE-547 for the treatment of severe postpartum depression.
Underperformance of Information Technology (IT) investments detracted from relative results, but this negative effect was somewhat offset by significantly larger exposure to this strong performing sector, which increased double-digits in the index. Weakness in IT was mostly attributable to the underperformance of Gartner, Inc. and application software investments, led by Guidewire Software, Inc. and salesforce.com, inc. Gartner and salesforce were two of the largest detractors on an absolute basis, while shares of P&C insurance software vendor Guidewire fell on earnings guidance slightly below Street expectations due to an accounting-related deferral that we expect will reverse next year. Semiconductor holding Mellanox Technologies Ltd. also weighed on relative performance after the company reported disappointing Q2 results, including a slowdown in its InfiniBand business and heightened competitive concerns around a new product from Intel Corp.
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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. Current and future portfolio holdings in the Fund are subject to risk.
Source: FactSet PA