Baron Real Estate Fund (BREFX)
Fund Manager since
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Baron Real Estate Fund invests in securities of real estate and real estate related companies of all sizes.
Review and Outlook
The first quarter of 2016 was among the most challenging periods in recent memory. In the first six weeks of the year, the S&P 500 Index fell 10.5%. In the second half of the quarter, the market stabilized and recovered all of its losses from the beginning of the year. We took advantage of the largely indiscriminate market sell-off in the first half of the quarter to continue to execute on strategic initiatives regarding portfolio positioning and structure of Baron Real Estate Fund:
- We purchased a number of “best in class” companies that have been “on sale.”
- We lowered overall leverage of the Fund’s holdings by trimming or exiting our positions in companies with more highly leveraged balance sheets.
- We decreased our exposure to smaller and less liquid companies.
- We continue to de-emphasize complex companies that may have a narrower investor audience and are less likely to receive full credit for the company’s intrinsic value.
- We trimmed exposure to geographic markets that may face headwinds due to low oil prices (e.g., Houston), elevated real estate construction activity (e.g., New York City hotels), or unfavorable international exposure (e.g., Brazil).
- We increased exposure to REITs to 34.2%. We did so because we believe the near-term prospects for REITs appear relatively attractive.
We recognize that the broad stock market, including many real estate stocks, has been on a steady upward climb since the global financial crisis. We therefore anticipate that there may be periods of market weakness in the years ahead. Nevertheless, we maintain a favorable outlook for real estate. The factors that have fueled the resurgence in real estate largely remain in place. Demand persists, and continues to outstrip supply in most markets. Balance sheets of real estate-related companies are generally in solid shape. Credit remains available at low interest rates. Finally, the overall performance of our real estate companies, and our discussions with various top management teams, does not, in our view, portend an imminent recession.
We believe that the Fund, with its differentiated approach to investing in real estate, is well suited for the twists and turns of the market that may lie ahead. The Fund’s expansive, balanced, and more diversified approach to investing in broader real estate categories – not a REIT-only approach – provides the flexibility and dimension to perform well in several different market environments. As such, we maintain that the overall prospects for real estate and the Fund remain promising.
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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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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.