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Baron
Asset
December
31,Fund
2010
Baron Growth Fund
Baron Small Cap Fund
Baron Opportunity Fund
Baron Partners Fund
Baron Fifth Avenue Growth Fund
Baron Focused Growth Fund
Baron International Growth Fund
Baron Real Estate Fund
Baron Emerging Markets Fund
Baron Energy and Resources Fund
Baron Global Advantage Fund
Baron Discovery Fund
Baron Funds
March 31, 2015
Quarterly Report
Letter from Ron
®
think Vail’s share price can double again in the
next five or six years. Of course, there is
obviously no guarantee this will be the case.
“Nothing is written.” Peter O’Toole. Lawrence
of Arabia. 1962.
Mike Nichols, the brilliant, highly acclaimed
film and theatrical director, passed away during
November 2014. Soon afterwards, he was
memorialized by his friend, Peggy Noonan, in
an Op-Ed article in The Wall Street Journal.
Ms. Noonan recounted in her tribute, “The
Pleasure of His Company,” how Nichols, in 1939,
at age 7, traveled to America by boat with only his
younger brother. The two boys were fleeing from
the Nazis in Germany. Their father had come to
America shortly before they arrived. When their
dad picked up his two sons on the S.S. Bremen in
New York Harbor, Nichols was first startled and
then fearful when he glimpsed a delicatessen with
neon lit Hebrew letters in its storefront. He asked
his father, “Is that allowed? It wouldn’t be in
Germany.” “It is here,” answered his dad.
Long after Nichols achieved extraordinary
success and married Diane Sawyer, he kept a
large, faded, yellow pillow, a souvenir from the
1962 Oscar award winning movie “Lawrence of
Arabia,” on their living room couch. “Nothing is
written” was printed on that pillow. Nichols
believed that phrase meant “no outcome is
dictated; no impediment is insuperable; and,
that you can wrest life from its false limits.”
Mike Nichols also believed that to become
successful “you need to know things.” Just like
Warren Buffett who attributes his remarkable
success in part to reading 600 pages per day and
Bill Gates who, in his quest to solve the world’s
problems, likewise reads a book every day. We
agree that reading to learn is a prerequisite to
exceptional achievement, whether in the arts,
business, science, humanities or politics. This is
since accomplishment in all fields is built upon a
foundation of what has already taken place.
Mike Nichols was one of the best in his chosen
field to achieve all that America allows in part
I visit Vail two or three times a year and ski for
two or three days during each trip. Terry
Armistead is my favorite Vail ski instructor. I
think all Vail ski instructors are great, but I like
Terry the best because she gets me around the
mountain safely and sings Beatles songs to me
on the ski lifts. She also always makes me laugh
with stories about her family and what it was like
growing up in Vermont. Terry recently told me an
apocryphal story about a tourist who stopped at
a Vermont country store for directions to
another small town in that state. When the
traveler asked an old farmer sitting on the store’s
front porch how to get to Fayetteville, the
response was, “You can’t get there from here.”
The old farmer’s outlook was certainly a lot
different than Mike Nichols’, Warren Buffett’s
and Bill Gates’. The mission statement of our
RONALD BARON
CEO AND CHIEF INVESTMENT OFFICER
because of his great curiosity and “the sheer
pleasure he received from learning.”
“You can’t get there from here.”
My family and I have been skiing in Vail,
Colorado since 1997. That was the year Baron
Funds began to invest in Vail Resorts. In 2004,
when my friend Leon Black’s Apollo Global
Management distributed shares of Vail Resorts it
owned for a partnership that was being
liquidated, Baron became the largest shareholder
in Vail Resorts. Vail’s share price at the time was
$19 per share. Vail Resorts’ current share price is
$100 per share. Based on Vail’s growing cash
flow and durable competitive advantages, we
TABLE OF CONTENTS
Letter from Ron
Letter from Linda
Baron Funds Performance
Baron Asset Fund
Baron Growth Fund
Baron Partners Fund
Portfolio Holdings
1
4
9
14
18
22
26
31
35
39
42
46
52
56
61
65
69
Introduction
business is “we invest in people.” We have often
written about the character of individuals in
whom we invest. In general, these trustworthy,
talented, driven, inspirational leaders who love
what they do nearly always figure out how to
“get there from here.” Vail’s Rob Katz did. We
have invested in a long list of exceptional
individuals who also have figured that out. Two,
in recent years, come quickly to mind…Under
Armour’s Kevin Plank and Tesla’s Elon Musk.
“It’s not what you buy. It’s how much you pay
for it.” Carl Icahn. 1985.
Chuck Mathewson was the Chairman of
International Game Technologies in 1982 when
the two of us became friendly. IGT’s market
capitalization was then about $100 million. It
increased to more than $10 billion under his
leadership! We missed most of that increase,
one of the most painful missteps of my career.
After reviewing our investment in IGT, I found it
difficult to understand why we sold after only
doubling or tripling our money. Especially since I
admired the company’s chief executive and
thought the company’s long-term prospects
were quite favorable. Soon afterwards, I stopped
“trading stocks” and became a long-term
investor who “invests in people.” I have come to
view my IGT “mistake” as tuition for a very
valuable lesson. But, on with my story.
In 1987, when we founded Baron Funds, Chuck
became a Trustee of Baron Funds, a role in which
he served for 26 years. He was also the Board’s
independent Chairman for six of those years. In
2002, on one of his regular visits to me, Chuck
mentioned that he frequently played bridge in
the evenings by computer with Warren Buffett.
He also told me Warren enjoyed reading Baron
Funds shareholder letters!
When I asked Chuck if he could arrange for me
to speak with Warren, he told me that would be
easy. Warren called within a half hour…on our
toll free 1-800-99BARON phone line. Warren
began the conversation by congratulating me
on our good luck for investing in Woodward &
Lothrop, a Washington, D.C. department store
chain with valuable real estate holdings, in
1982. That business was acquired three years
later by mall owner Alfred Taubman. I thanked
Warren and responded that a similar investment
didn’t work out as well. Warren observed that
one of Berkshire’s first acquisitions “didn’t work
out either.” He thought he was “buying a second
rate department store chain in Baltimore” that
owned valuable real estate. “Unfortunately, it
was a third rate chain!”
2
Warren explained that, early in his career, he
tried to buy businesses for $.80 that were worth
$1.00. That was until “Charlie persuaded me it
would be a better idea to buy a great business
at an attractive price than a mediocre one at
great price.”
Warren’s and Charlie’s strategy was a lot
different than my friend Carl Icahn’s as he
described it to me in 1985. “It’s not what you
buy. It’s what you pay for it,” Carl believed
then…and, still does. I concluded that unless you
are really tough like Carl, and want to torture
companies into repurchasing their stocks,
cutting expenses, increasing their dividends or
selling themselves to the highest bidder,
Buffett’s strategy was more appealing.
“Movements of the general stock market during
abbreviated periods will likely be far more important
to determining results than a change in the intrinsic
value of…shares.” Warren Buffett. Berkshire
Hathaway 2014 Annual Report. March 2015
I began my career as an analyst in 1970. At that
time, with legislation to care for the elderly born in
Lyndon Johnson’s Great Society, nursing home
stocks became top performers. In the early 1970s,
“one decision,” large cap, growth stocks referred to
as “The Nifty Fifty” became popular. In the late
1970s, gaming was legalized in Atlantic City and
boardwalk casinos became trendy. Then steak
houses captured investors’ imaginations. Then river
boat casinos. Then cable television companies.
Then cellular telephone businesses. Then Internet
stocks. Now it is biotech stocks, whose share prices
had remained virtually unchanged for ten years,
which have increased in price fourfold since 2012!
Gilda Radner’s Saturday Night Live character
Roseanne Roseannadanna had it right when she
told her viewers, “It’s always something.”
Our firm continues to invest in people. Both in
people who manage competitively advantaged
businesses and in people who work at Baron
researching those businesses. We are presently
investing in health care and biotech research. We
believe it likely there will be opportunities to
invest in such businesses at attractive prices,
although we do not think now is that time. We
are preparing for those opportunities if they
occur, however. This is analogous to our efforts in
the late 1990s when Internet stocks rose to
prices we believed were unsustainably high.
Although we thought many Internet businesses
had promising prospects, we chose to invest
instead in Internet analysts and managers for our
firm. When Information Technology and Internet
related stocks subsequently fell, we invested
billions and have since made billions.
In the short-term performance oriented world in
which we live, we believe it is unusual for
managers like us to penalize their current profits
in order to develop expertise that may permit
them to substantially outperform over the long
term. Especially if that means forgoing what seem
to be “easy” profits in stocks that are rising almost
every day. The research expenses you undertake
are certain. The profits you hope for are not. We
think efforts like this provide a privately owned,
investment management company like ours with
competitive advantages. We think our willingness
to
accept
average
performance
or
underperformance on occasion by not investing in
certain stocks which are most popular is an
important reason most Baron Funds have
outperformed over the long term (see charts on
page 9-13). Perspective that comes from long
experience, a strong balance sheet and the
support of clients who have experienced favorable
absolute and relative returns over the long term is
the reason why, of course.
Thank you for investing in Baron Funds.
Thank you for joining us as fellow shareholders in
Baron Funds. We believe the growth prospects for
the well-managed, competitively advantaged and
appropriately financed businesses in which Baron
Funds has invested are favorable. Volatile markets
in recent months and years have created
uncertainty among investors that causes many to
be fearful. These developments have made stocks,
in our judgment, attractively priced, which should
offer investment opportunity and limit
investment risk.
We are continuing to work hard to justify your
confidence and trust in our stewardship of your
family’s hard-earned savings. Thank you again for
your long-term support. We are especially thankful
for the confidence you have expressed in us.
Respectfully,
Ronald Baron
CEO and Chief Investment Officer
April 30, 2015
P.S. If you are a shareholder and would like a
“Built to Last,” Baron Funds 2014, Under Armour
T-shirt “autographed” by Paul McCartney and
Carrie Underwood, our surprise performers last
year, please let us know, including your size, and
we will send you one with no charge.
March 31, 2015
Introduction
Investors should consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectus and summary
prospectuses contain this and other information about the Funds. You may obtain them from the Funds’ distributor, Baron Capital, Inc., by calling
1-800-99BARON or visiting www.BaronFunds.com. Please read them carefully before investing.
Investing in the stock market is always risky.
Portfolio holdings may change over time.
Portfolio Holdings
As a Percentage of Net Assets
As of March 31, 2015
Tesla Motors Inc.
Under Armour, Inc.
Vail Resorts, Inc.
Baron
Asset Fund
Baron
Growth Fund
3.6
3.8
2.6
Baron
Opportunity
Fund
2.3
1.0
Baron
Partners Fund
6.7*
0.1*
4.1*
Baron
Focused
Growth Fund
7.7
7.0
* % of Long Positions
Baron Funds
Net Realized and Unrealized Gain ($ in millions)
As of March 31, 2015
Vail Resorts, Inc.
Baron
Asset Fund
$38.2
Baron
Growth Fund
$153.7
Baron
Partners Fund
$69.9
Baron
Focused
Growth Fund
$5.6
Baron
Real Estate
Fund
$–**
** Less than $50,000
At March 31, 2015, Baron Small Cap Fund, Baron Fifth Avenue Growth Fund, Baron International Growth Fund, Baron Emerging Markets Fund, Baron Energy and Resources Fund,
Baron Global Advantage Fund and Baron Discovery Fund did not own any of the securities listed above.
Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate; an investor’s shares, when redeemed, may be worth
more or less than their original cost. The Adviser has reimbursed certain Fund expenses for Baron Opportunity, Fifth Avenue, Focused Growth, International Growth, Real Estate,
Emerging Markets, Energy and Resources, and Discovery Funds (by contract as long as BAMCO, Inc. is the adviser to the Fund) and all the Funds’ transfer agency expenses may be
reduced by expense offsets from an unaffiliated transfer agent, without which performance would have been lower. Current performance may be lower or higher than the
performance data quoted. For performance information current to the most recent month end, visit www.BaronFunds.com or call 1-800-99BARON.
Baron Asset Fund’s annualized returns as of March 31, 2015: 1-year, 12.57%; 5-years, 14.98%; 10-years, 9.06%. Annual expense ratio for the Retail Shares as of September 30,
2014 was 1.31%. Baron Growth Fund’s annualized returns as of March 31, 2015: 1-year, 9.07%; 5-years, 15.69%; 10-years, 8.76%. Annual expense ratio for the Retail Shares
as of September 30, 2014 was 1.29%. Baron Small Cap Fund’s annualized returns as of March 31, 2015: 1-year, 8.49%; 5- years, 15.02%; 10-years, 8.73%. Annual expense ratio
for the Retail Shares as of September 30, 2014 was 1.30%. Baron Opportunity Fund’s annualized returns as of March 31, 2015: 1-year, 3.21%; 5-years, 12.46%; 10-years,
10.35%. Annual expense ratio for the Retail Shares as of September 30, 2014 was 1.35%. Baron Partners Fund’s annualized returns as of March 31, 2015: 1-year, 7.32%; 5-years,
16.98%; 10-years, 9.89%. Annual expense ratio for the Retail Shares as of December 31, 2014 was 1.51% (comprised of operating expenses of 1.32% and interest expense of
0.19%). Baron Fifth Avenue Growth Fund’s annualized returns as of March 31, 2015: 1-year, 13.14%; 5-years, 13.89%; 10-years, 7.82%. As of September 30, 2014, annual
operating expense ratio for the Retail Shares was 1.37%, but the net annual expense ratio was 1.30% (net of the Adviser’s fee waivers). Baron Focused Growth Fund’s
annualized returns as of March 31, 2015: 1-year, 6.27%; 5-years, 12.52%; 10-years, 9.30%.* As of December 31, 2014, annual operating expense ratio for the Retail Shares was
1.39%, but the net annual expense ratio was 1.35% (net of the Adviser’s fee waivers). Baron International Growth Fund’s annualized returns as of March 31, 2015: 1-year,
(1.07)%; 5-years, 7.41%; Since Inception (12/31/08), 13.14%. As of December 31, 2014, annual operating expense ratio for the Retail Shares was 1.63%, but the net annual
expense ratio was 1.50% (net of the Adviser’s fee waivers). Baron Real Estate Fund’s annualized returns as of March 31, 2015: 1-year, 16.19%; 5-years, 21.34%; Since Inception
(12/31/09), 21.79%. Annual expense ratio for the Retail Shares as of December 31, 2014 was 1.32%. Baron Emerging Markets Fund’s annualized returns as of March 31, 2015:
1-year, 1.28%; Since Inception (12/31/10), 4.46%. As of December 31, 2014, annual operating expense ratio for the Retail Shares was 1.52%, but the net annual expense ratio
was 1.50% (net of the Adviser’s fee waivers). Baron Energy and Resources Fund’s annualized returns as of March 31, 2015: 1-year, (16.67)%; Since Inception (12/30/11), 1.55%.
As of December 31, 2014, annual operating expense ratio for the Retail Shares was 1.79%, but the net annual expense ratio was 1.35% (net of the Adviser’s fee waivers). Baron
Global Advantage Fund’s annualized returns as of March 31, 2015: 1-year, 6.67%; Since Inception (4/30/12), 13.75%. As of December 31, 2014, annual operating expense ratio
for the Retail Shares was 3.61%, but the net annual expense ratio was 1.50% (net of the Adviser’s fee waivers). Baron Discovery Fund’s total return as of March 31, 2015: 1year, 11.17%; Since Inception (9/30/13), 25.92%. As of September 30, 2014, annual operating expense ratio for the Retail Shares was 2.16%, but the net annual expense ratio
was 1.35% (net of the Adviser’s fee waivers).
*Reflects the actual fees and expenses that were charged when the Fund was a partnership. The predecessor partnership charged a 15% performance fee through 2003 after
reaching a certain performance benchmark. If the annual returns for the Fund did not reflect the performance fees for the years the predecessor partnership charged a
performance fee, the returns would be higher. The Fund’s shareholders will not be charged a performance fee. The predecessor partnership’s performance is only for periods
before the Fund’s registration statement was effective, which was June 30, 2008. During those periods, the predecessor partnership was not registered under the Investment
Company Act of 1940 and was not subject to its requirements or the requirements of the Internal Revenue Code relating to registered investment companies, which, if it were,
might have adversely affected its performance.
The discussion of market trends and companies throughout this report are not intended as advice to any person regarding the advisability of investing in any particular security. Some
of our comments are based on current management expectations and are considered “forward-looking statements.” Actual future results, however, may prove to be different from
our expectations. Our views are a reflection of our best judgment at the time of the publication of this report and are subject to change any time based on market and other
conditions, and we have no obligation to update them.
3
Letter from Linda
The first quarter of 2015 is in the books, the snow finally melted, and baseball
season has begun. Happily, and to no one’s surprise, spring has arrived.
But less predictable and more surprising things have occurred too. The New
York Knicks, the most valuable NBA sports franchise, finished its season
with a .207 win percentage, the second worst record in the NBA. Tim Tebow
will get a chance to wear an NFL uniform again. Seventh seed Michigan
State made it to the NCAA final four. Kentucky did not make it to the final
round of the NCAA championship.
Also surprising to many, on March 9, the bull market celebrated its sixth
anniversary. During this period, the stock market more than tripled,
delivering outstanding annualized returns of 23.2%, more than double its
long-term historical average.
As the stock market has grown, so have the market capitalizations of many
of the companies that comprise the market. Six years ago, Apple’s market
capitalization was about $94 billion. At its current market cap of about
$725 billion, Apple’s market cap is higher than the gross domestic product
of all but 19 of the world’s countries, coming in just behind Saudi Arabia
(GDP of $745 billion) and ahead of Switzerland ($650 billion), according to
data compiled by the World Bank.
Market capitalization is typically used as a measure of a company’s size.
While neither perfect nor exhaustive, it is widely used by index providers,
data providers, investors and asset managers who make asset allocation
decisions. (Other ways include revenues, number of employees, book value,
for example.) Small cap companies tend to be, on average, a more volatile
investment than established large businesses. The market capitalization of a
company is a quick, short-hand way of defining the size of a company and
its risk profile. Small companies are typically in the earlier stages of their
growth, mid-cap companies have matured beyond the start-up phase, and
larger companies are more established.
LINDA MARTINSON
CHAIRMAN, PRESIDENT AND COO
The definitions of small, mid, and large cap companies have naturally
evolved over time. For example, in 1950, a company that had a market cap
of $1 billion was considered to be a large cap company. Today a $1 billion
company is practically a micro-cap.
Virtually all of the major index providers update their market cap
definitions periodically to reflect this evolution. For example, since the
1980s, the average largest market cap in the Russell 2000 Growth Index at
reconstitution has typically more than doubled every 10 years.
U.S. Stock Market Indices - Performance Since The Bottom Of The Financial Crisis
Cumulative Total Returns for the Period 3/9/2009 - 3/31/2015
327%
259%
264%
Russell
3000
Russell
3000
Growth
All Cap
Source: FactSet.
4
248%
256%
260%
S&P
500
Russell
1000
Russell
1000
Growth
Large Cap
Russell
Mid
Cap
313%
Russell
Mid
Cap
Growth
Mid Cap
319%
296%
Russell
2000
Russell
2000
Growth
Small Cap
March 31, 2015
Letter from Linda
Market Capitalization Thresholds Have More Than Doubled
Largest Market Capitalization
in the Russell 2000
Growth Index
(Bn, at index reconstitution)
Largest Market Capitalization
in the Russell Mid Cap
Growth Index
(Bn, at index reconstitution)
$4.51
$29.87
$13.25
$1.92
$0.26
$0.76
$2.63
1984 1994 2004 2014
$4.85
1986 1994 2004 2014
Source: The Bank of New York Mellon Corporation
Like index providers, asset managers adjust their market cap definitions to
maintain style consistency.
In February, Baron Funds established new market cap limits for some of our
mutual funds. In the past, we have adjusted our market cap limits when our
market cap definitions became materially mis-aligned with those of the
markets, which we believed unfairly handicapped our portfolio managers. It’s
like asking Alex Rodriguez to hit with a 12” bat instead of a regulation size
bat. The change made this February was made for the same reason.
Historically, our market cap-based Funds have used fixed dollar amount
limits to determine the stocks in which they could invest. Under the new
methodology, Baron is floating the market cap limits using the Russell
indexes at reconstitution to define the investment universe for these Funds.
We think this change will benefit Baron Growth Fund, Baron Small Cap
Fund, Baron Discovery Fund, Baron Focused Growth Fund, Baron Asset Fund,
and Baron Fifth Avenue Growth Fund.
In addition, Baron Opportunity Fund, which previously invested in
companies with market caps between $1.5 and $15 billion, is now
permitted to invest in high growth businesses of any size.
The table below provides a summary of the changes.
Baron Funds Changes - Batting at Full Strength
Summary Of The Changes Of The Market Cap Limits For Certain Baron Funds
Fund Name
Fund Ticker
(Institutional)
Old Market Cap Limit Rule
BDFIX
Up to $1.5 Bn at purchase
Baron Growth Fund
BGRIX
Up to $2.5 Bn at purchase
BSFIX
80% of net assets
up to $2.5 Bn at purchase
SMid Cap
Baron Focused
Growth Fund
BFGIX
Up to $10 Bn at purchase
Mid Cap
Baron Asset Fund
BARIX
Between $1.5 Bn and $12 Bn
at purchase
Large Cap
Baron Fifth Avenue
Growth Fund
BFTIX
Above $10 Bn at purchase
All Cap
BIOIX
65% of net assets between
All capitalizations
$1 Bn and $15 Bn at purchase
Small Cap
New Market Cap Limit Rule
Up to the weighted median market
cap of the Russell 2000 Growth
Index at reconstitution or up to
$1.5 Bn whichever is larger
Up to the capitalization of the
largest stock in the Russell 2000
Growth Index at reconstitution or
up to $2.5 Bn, whichever is larger
80% of net assets up to the
capitalization of the largest stock in
the Russell 2000 Growth Index at
reconstitution or up to $2.5 Bn,
whichever is larger
Up to the capitalization of the largest
stock in the Russell Midcap Growth
Index at reconstitution
Above $2.5 Bn or the capitalization of
the smallest stock in the Russell Midcap
Growth Index at reconstitution,
whichever is larger, AND up to the
capitalization of the largest stock in
the Russell Midcap Growth Index
at reconstitution
Above the capitalization of the smallest
stock in the top 85% of the Russell
1000 Growth Index at reconstitution
or above $10 Bn, whichever is smaller
Effective Limit
as of 3/31/2015
up to $1.77 Bn
up to $4.51 Bn
up to $4.51 Bn
up to $29.87 Bn
between
$2.5 Bn and
$29.87 Bn
above $10 Bn
N/A
5
Letter from Linda
20,000
15,000
11,420
10,000
5,000
Market Cap. - Largest Stock
Market Cap. - Largest Stock at Reconstitution
6
Mar-15
Mar-13
Mar-11
Mar-09
Mar-07
Mar-05
Mar-03
Mar-01
Mar-99
Mar-97
Mar-95
Mar-93
Mar-91
Mar-89
Mar-87
Mar-85
Mar-83
4,510
3,380
Mar-81
Market Capitalization ($ millions)
25,000
Source: Russell Indices and The Bank of New York Mellon Corporation
60,000
50,000
40,000
39,062
30,000
29,872
25,490
20,000
Mar-15
Mar-13
Mar-11
Mar-09
Mar-07
Mar-05
Mar-03
Mar-01
Mar-99
Mar-97
Mar-95
0
Mar-93
10,000
Market Cap. - Largest Stock
Market Cap. - Largest Stock at Reconstitution
Russell 3000 Index Mid Cap Breakpoint
Baron Asset Fund’s last market cap limit revision, from $10.0 billion to
$12.0 billion, was in January of 2010. At the time, the largest market cap in
the Russell Midcap Growth Index at reconstitution was $13.0 billion. Since
then, the largest market cap in the Russell Midcap Growth Index has more
than doubled to $29.87 billion as of the latest reconstitution in June 2014.
Russell 2000 Growth Index Historical Market Cap Ranges
Russell 3000 Index Small Cap Breakpoint
70,000
Source: Russell Indices and The Bank of New York Mellon Corporation
Small Cap Thresholds Are Constantly Changing
0
Russell Midcap Growth Index Historical Market Cap Ranges
Mar-91
In May of 2013, the Russell 3000 Index’s small cap breakpoint, the lowest
of the small cap metrics used in the industry, surpassed, for the first time,
the $2.5 billion level that we used as our small cap limit. The chart below
shows the evolution of the definition of small cap over the past three
decades and the significant variation in the size of small companies over
time. Today, the Russell small cap breakpoint stands at $3.4 billion, and the
largest market cap in the index at its last reconstitution in June of 2014 was
$4.51 billion. As of March 31, 2015, it was $11.42 billion. Other small cap
metrics, such as the small cap Morningstar and Lipper breakpoints, were
$3.8 billion and $6.0 billion, respectively, as of March 31, 2015.
Mid Cap Thresholds Are Also Not Static
Mar-89
Baron's new market cap limits and guidelines are based on Russell
Investment thresholds. Russell Investments is the most widely used market
cap based index provider in the U.S. Russell’s total market cap indices are
constructed based on the descending market caps of each of the eligible
stocks in the U.S. equity market, which approximate 4,000 securities. These
indices are reconstituted once a year in June, establishing new thresholds
for determining market capitalization size segmentation. While the
constituents in the market cap based indices change only once a year,
Russell recalculates and publishes monthly the different market cap
breakpoints (small, smid, midcap, large, etc.), applying the reconstitution
methodology on the Russell 3000 Index.
The case for our mid cap portfolios is not much different. The chart below
shows meaningful variations in the mid cap market cap metrics.
Mar-87
By moving to benchmark-determined limits, Baron’s treatment of market cap
limits will be more closely aligned with those of its peers and will allow us to
compete on a level playing field. Our research shows that this methodology has
gained popularity across mutual fund managers in recent years, and the
majority of our peers currently use it. Not changing the limits would be akin to
using fully inflated footballs in cold weather against the New England Patriots.
Raising the market cap limit to the largest market cap in the Russell 2000
Growth Index at the last reconstitution would give our small cap portfolio
managers access to the full small cap investable universe, adding 417
potential investment ideas as of March 31, 2015. While we have increased
the investable universe considerably, we have at the same time imposed
internal guidelines based on the monthly Russell 3000 small cap breakpoint
to prevent style drift.
Market Capitalization ($ millions)
The key objective of these changes is to allow our market cap-based Funds
to be able to take advantage of their respective full investment universes in
their ever-changing market segments. This can now be accomplished
without the necessity of prospectus amendments.
For Baron Opportunity Fund, the change gives the Fund more flexibility to
execute its investment strategy of investing in high-growth businesses
benefiting from innovation through pioneering, transformative or
technologically advanced products and services. Baron believes clients and
shareholders will benefit by investing in innovative companies across the
market capitalization spectrum.
These changes are not an attempt to make our portfolios look closer to
their respective peers or benchmarks. Our consistently high active share
confirms that we are significantly different from the relevant market
indices, and we don’t expect this to change.
March 31, 2015
Letter from Linda
Baron Funds Have High Active Share
Small Cap
Fund Name
Primary Benchmark
Russell 2000 Growth Index
Active Share
as of 3/31/2015
96.95%
Baron Growth Fund
93.75%
91.25%
SMid Cap
98.25%
Mid Cap
Baron Asset Fund
Russell Mid Cap Growth Index
89.06%
Large Cap
81.60%
93.14%
Baron Partners Fund*
Russell Mid Cap Growth Index
96.23%
MSCI ACWI Growth Index
95.37%
All Cap
International
Specialty
MSCI ACWI ex USA IMI Growth Index
94.91%
Baron Emerging Markets Funds
MSCI EM IMI Growth Index
88.59%
S&P North American Natural Resources Index
87.33%
MSCI USA IMI Extended Real Estate Index
74.14%
Source: FactSet
* excluding leverage
Baron will continue to differentiate itself from the pack with its long-term
investment approach, focused on companies that we believe have
open-ended growth opportunities, significant competitive advantages,
exceptional management, and attractive valuations. Baron remains
committed to our seasoned, long-term investment process. We are focused
on building portfolios of what we believe are the most exciting growth
businesses in the appropriate investable universe.
Sincerely,
Linda S. Martinson
Chairman, President and COO
April 30, 2015
7
Letter from Linda
prospectuses contain this and other information about the Funds. You may obtain them from the Funds’ distributor, Baron Capital, Inc., by calling
1-800-99BARON or visiting www.BaronFunds.com. Please read them carefully before investing.
Portfolio holdings as a percentage of net assets as of March 31, 2015 for securities mentioned are as follows: Apple, Inc. – Baron Fifth Avenue Growth Fund
(5.0%).
The index performance shown is not fund performance; one cannot invest directly into an index.
Definitions (provided by BAMCO, Inc.): The S&P 500 Index measures the performance of 500 widely held large-cap U.S. companies. The Russell 1000®
Index measures the performance of large-sized U.S. companies. The Russell 1000® Growth Index measures the performance of large-sized U.S. companies
that are classified as growth. The Russell 3000® Index measures the performance of the broad segment of the U.S. equity universe comprised of the largest
3000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000® Growth Index measures the performance
of the broad growth segment of the U.S. equity universe comprised of the largest 3000 U.S. companies representing approximately 98% of the investable
U.S. equity market. The Russell Midcap® Index measures the performance of medium-sized U.S. companies. The Russell Midcap® Growth Index measures
the performance of medium-sized U.S. companies that are classified as growth. The Russell 2000® Index measures the performance of small-sized U.S.
companies. The indexes are with dividends, which positively impact the performance results. Active Share is a term used to describe the share of a portfolio’s
holdings that differ from that portfolio’s benchmark index. It is calculated by comparing the weight of each holding in the Fund to that holding’s weight in
the benchmark. Positions with either a positive or negative weighting versus the benchmark have Active Share. An Active Share of 100% implies zero overlap
with the benchmark. Active Share was introduced in 2006 in a study by Yale academics, M. Cremers and A. Petajisto, as a measure of active portfolio
management.
8
Baron Asset Fund
Comparison of the change in value of $10,000 investment in Baron Asset Fund (Retail Shares)
in relation to the Russell Midcap Growth Index and the S&P 500 Index
$220,000
$210,000
$200,000
$190,000
$180,000
$170,000
$160,000
$150,000
$140,000
$130,000
$120,000
$110,000
$100,000
$90,000
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
6/87 9/88
$211,323
$149,570
$128,334
9/90
9/92
9/94
9/98
9/96
9/00
9/02
9/04
9/06
9/08
9/10
9/12
9/14 3/15
Baron Asset Fund1,4
Information Presented by Fiscal Year as of September 30
and for the six months ended March 31, 2015
1
Russell Midcap Growth Index
S&P 500 Index
1
Baron Asset Fund’s annualized returns as of March 31, 2015: 1-year, 12.57%; 3-year, 16.63%; 5-year, 14.98%; 10-year, 9.06%; and Since Inception, 11.60%.
Baron Growth Fund
Comparison of the change in value of $10,000 investment in Baron Growth Fund (Retail Shares)
in relation to the Russell 2000 Growth Index and the S&P 500 Index
$140,000
$130,000
$120,000
$110,000
$100,000
$90,000
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
12/94
$136,591
$66,098
$48,136
9/96
9/98
9/00
9/02
9/04
9/06
9/08
9/10
9/12
9/14 3/15
Baron Growth Fund2,4
Russell 2000 Growth Index 2
S&P 500 Index
2
Baron Growth Fund’s annualized returns as of March 31, 2015: 1-year, 9.07%; 3-year, 17.31%; 5-year, 15.69%; 10-year, 8.76%; and Since Inception, 13.78%.
Comparison of the change in value of $10,000 investment in Baron Small Cap Fund (Retail Shares)
$60,000
$55,514
$50,000
$40,000
$30,139
$26,835
$30,000
$20,000
$10,000
$0
9/97
9/99
9/01
9/03
9/05
9/07
9/09
9/11
9/13
3/15
3,4
3
S&P 500 Index3
Baron Small Cap Fund’s annualized returns as of March 31, 2015: 1-year, 8.49%; 3-year, 15.48%; 5-year, 15.02%; 10-year, 8.73%; and Since Inception, 10.29%.
1
2
3
4
The indexes are unmanaged. The Russell Midcap® Growth Index measures the performance of medium-sized U.S. companies that are classified as growth and the S&P 500 Index of
500 widely held large cap U.S. companies. The indexes and Baron Asset Fund are with dividends, which positively impact the performance results.
The indexes are unmanaged. The Russell 2000® Growth Index measures the performance of small-sized U.S. companies that are classified as growth and the S&P 500 Index of
500 widely held large cap U.S. companies. The indexes and Baron Growth Fund are with dividends, which positively impact the performance results.
The indexes are unmanaged. The Russell 2000® Growth Index measures the performance of small-sized U.S. companies that are classified as growth and the S&P 500 Index of 500
widely held large cap U.S. companies. The indexes and Baron Small Cap Fund are with dividends, which positively impact the performance results.
Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or
redemptions of Fund shares.
9
Comparison of the change in value of $10,000 investment in Baron Opportunity Fund (Retail Shares) in relation
to the Russell 3000 Growth Index, the Russell Midcap Growth Index and the S&P 500 Index
$24,000
$22,000
$20,000
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
2/00 9/00
9/02
9/04
$21,775
$20,203
$18,073
$14,556
9/06
9/08
9/12
9/14 3/15
Baron Opportunity Fund1,4
9/10
1
Russell Midcap Growth Index
S&P 500 Index
1
1
Baron Opportunity Fund’s annualized returns as of March 31, 2015: 1-year, 3.21%; 3-year, 11.03%; 5-year, 12.46%; 10-year, 10.35%; and Since Inception, 5.29%.
Baron Partners Fund
Comparison of the change in value of $10,000 investment in Baron Partners Fund (Retail Shares)
in relation to the Russell Midcap Growth Index and the S&P 500 Index
$180,000
$170,000
$160,000
$150,000
$140,000
$130,000
$120,000
$110,000
$100,000
$90,000
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
1/92
$176,144
$88,161
$80,844
12/93
12/95
12/97
12/99
12/01
12/03
12/05
12/07
12/09
12/11
12/13
Baron Partners Fund
Information Presented by Fiscal Year as of December 31
and for the three months ended March 31, 2015
3/15
2,4,5
Russell Midcap Growth Index2
S&P 500 Index
2
Baron Partners Fund’s annualized returns as of March 31, 2015: 1-year, 7.32%; 3-year, 19.50%; 5-year, 16.98%; 10-year, 9.89%; and Since Inception, 13.18%.
Comparison of the change in value of $10,000 investment in Baron Fifth Avenue Growth Fund (Retail Shares)
$30,000
$25,036
$23,424
$22,185
$25,000
$20,000
$15,000
$10,000
$5,000
$0
4/04 9/04
9/05
9/06
9/07
9/08
9/09
9/10
9/11
9/12
9/13
9/14
3/15
Baron Fifth Avenue Growth Fund3,4
Russell 1000 Growth Index3
S&P 500 Index3
Baron Fifth Avenue Growth Fund’s annualized returns as of March 31, 2015: 1-year, 13.14%; 3-year, 14.81%; 5-year, 13.89%; 10-year, 7.82% and Since Inception, 7.57%.
1
2
3
4
5
10
The indexes are unmanaged. The Russell 3000® Growth Index measures the performance of those companies classified as growth among the largest 3,000 U.S. companies, the Russell Midcap®
Growth Index measures the performance of medium-sized U.S. companies that are classified as growth, and the S&P 500 Index of 500 widely held large cap U.S. companies. The Baron Opportunity
Fund no longer considers the Russell Midcap® Growth Index an appropriate benchmark index. The Russell Midcap® Growth Index is included in the table above for comparison purposes for the
period before the Fund converted to an all-cap fund. Prior to February 20, 2015, the Fund invested in companies with market capitalizations between $1 billion and $15 billion at the time of
purchase. Since then, the Fund may invest in companies of all market capitalizations. The Adviser believes that the Russell 3000 Growth Index is more representative of the Fund’s current investable
universe. The indexes and the Fund are with dividends, which positively impact the performance results.
The indexes are unmanaged. The Russell Midcap® Growth Index measures the performance of medium-sized U.S. companies that are classified as growth and the S&P 500 Index of 500 widely
held large cap U.S. companies. The indexes and Baron Partners Fund are with dividends, which positively impact the performance results.
The indexes are unmanaged. The Russell 1000® Growth Index measures the performance of large-sized U.S. companies that are classified as growth and the S&P 500 Index of 500 widely held
large cap U.S. companies. On January 1, 2015, the Fund changed its primary benchmark from the S&P 500 Index to the Russell 1000 Growth Index. The indexes and Baron Fifth Avenue Growth
Fund are with dividends, which positively impact the performance results.
Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
Reflects the actual fees and expenses that were charged when the Fund was a partnership. The predecessor partnership charged a 20% performance fee after reaching a certain performance
benchmark. If the annual returns for the Fund did not reflect the performance fees for the years the predecessor partnership charged a performance fee, returns would be higher. The Fund’s
shareholders will not be charged a performance fee. The predecessor partnership’s performance is only for periods before the Fund’s registration statement was effective, which was April 30, 2003.
During those periods, the predecessor partnership was not registered under the Investment Company Act of 1940 and was not subject to its requirements or the requirements of the Internal
Revenue Code relating to registered investment companies, which, if it were, might have adversely affected its performance.
Comparison of the change in value of $10,000 investment in Baron Focused Growth Fund (Retail Shares)
$80,000
$78,213
$70,000
$60,000
$50,000
$43,805
$41,824
$40,000
$30,000
$20,000
$10,000
$0
5/96
12/97
12/99
12/01
12/03
12/05
12/07
12/09
12/11
12/13
3/15
1,4,5
Russell 2500 Growth Index1
S&P 500 Index1
Baron Focused Growth Fund’s annualized returns as of March 31, 2015: 1-year, 6.27%; 3-year, 12.17%; 5-year, 12.52%; 10-year, 9.30%; and Since Inception, 11.54%.
Comparison of the change in value of $10,000 investment in Baron International Growth Fund (Retail Shares)
in relation to the MSCI ACWI ex USA IMI Growth Index and the MSCI ACWI ex USA Index
$25,000
$21,635
$20,000
$19,189
$18,180
$15,000
$10,000
$5,000
$0
12/08
12/09
12/10
12/13
12/12
12/11
12/14 3/15
2,5
2
MSCI ACWI ex USA IMI Growth Index
MSCI ACWI ex USA Index2
Baron International Growth Fund’s annualized returns as of March 31, 2015: 1-year, (1.07)%; 3-year, 7.48%; 5-year, 7.41%; and Since Inception, 13.14%.
Comparison of the change in value of $10,000 investment in Baron Real Estate Fund (Retail Shares)
in relation to the MSCI USA IMI Extended Real Estate Index and the S&P 500 Index
$30,000
$28,147
$25,000
$22,561
$20,709
$20,000
$15,000
$10,000
$5,000
$0
12/09
6/10
12/10
6/11
12/11
6/12
12/12
6/13
12/13
6/14
12/14 3/15
Baron Real Estate Fund3,5
MSCI USA IMI Extended Real Estate Index3
S&P 500 Index3
Baron Real Estate Fund’s annualized returns as of March 31, 2015: 1-year, 16.19%; 3-year, 24.10%; 5-year, 21.34%; and Since Inception, 21.79%.
1
2
3
4
5
The indexes are unmanaged. The Russell 2500™ Growth Index measures the performance of small to medium-sized U.S. companies that are classified as growth and the S&P 500 Index of 500 widely held
large cap U.S. companies. The indexes and Baron Focused Growth Fund are with dividends, which positively impact the performance results.
The MSCI ACWI ex USA indexes cited are unmanaged, free float-adjusted market capitalization weighted indexes reflected in US dollars. The MSCI ACWI ex USA IMI Growth Index Net USD
measures the performance of large, mid and small cap growth securities across developed and emerging markets, excluding the United States. The MSCI ACWI ex USA Index Net USD measures
the equity market performance of large and mid cap securities across developed and emerging markets, excluding the United States. The indexes and Baron International Growth Fund include
reinvestment of dividends, net of foreign withholding taxes, which positively impact the performance results.
The MSCI USA IMI Extended Real Estate Index is a custom index calculated by MSCI for, and as requested by, BAMCO, Inc. The index includes real estate and real estate-related GICS classification
securities. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further
redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed or produced by MSCI. The S&P 500 Index measures the performance
of 500 widely held large cap U.S. companies. The indexes and Baron Real Estate Fund are with dividends, which positively impact performance results.
Reflects the actual fees and expenses that were charged when the Fund was a partnership. The predecessor partnership charged a 15% performance fee through 2003 after reaching a certain
performance benchmark. If the annual returns for the Fund did not reflect the performance fees for the years the predecessor partnership charged a performance fee, the returns would be higher.
The Fund’s shareholders will not be charged a performance fee. The predecessor partnership’s performance is only for the periods before the Fund’s registration statement was effective, which was
June 30, 2008. During those periods, the predecessor partnership was not registered under the Investment Company Act of 1940 and was not subject to its requirements or the requirements of
the Internal Revenue Code relating to registered investment companies, which, if it were, might have adversely affected its performance.
11
Comparison of the change in value of $10,000 investment in Baron Emerging Markets Fund (Retail Shares)
in relation to the MSCI EM IMI Growth Index and the MSCI EM IMI Index
$15,000
$12,035
$10,043
$9,400
$10,000
$5,000
$0
12/10
6/11
12/11
6/12
12/12
6/13
12/13
6/14
12/14 3/15
Baron Emerging Markets Fund1,3
MSCI EM IMI Growth Index1
MSCI EM IMI Index1
Baron Emerging Markets Fund’s annualized returns as of March 31, 2015: 1-year, 1.28%; 3-year, 8.02%; and Since Inception, 4.46%.
Comparison of the change in value of $10,000 investment in Baron Energy and Resources Fund (Retail Shares)
in relation to the S&P North American Natural Resources Sector Index and the S&P 500 Index
$20,000
$17,626
$15,000
$10,581
$10,513
$10,000
$5,000
$0
12/11
3/12
6/12
9/12
12/12
3/13
6/13
9/13
12/13
3/14
6/14
9/14
12/14
3/15
2,3
S&P North American Natural Resources
2
Sector Index
2
S&P 500 Index
Baron Energy and Resources Fund’s annualized returns as of March 31, 2015: 1-year, (16.67)%; 3-year, 1.55%; and Since Inception, 1.55%.
1
2
3
12
The MSCI EM (Emerging Markets) indexes cited are unmanaged, free float-adjusted market capitalization weighted indexes reflected in US dollars. The MSCI EM (Emerging Markets) IMI Growth
Index Net USD and the MSCI EM (Emerging Markets) IMI Index Net USD are designed to measure equity market performance of large, mid and small cap securities in the emerging markets. The
MSCI EM (Emerging Markets) IMI Growth Index Net USD screens for growth-style securities. The indexes and Baron Emerging Markets Fund include reinvestment of dividends, net of foreign
withholding taxes, which positively impact the performance results.
The S&P indexes cited are unmanaged. The S&P 500 North American Natural Resources Sector Index measures the performance of U.S.-traded natural resources-related stocks, including mining,
energy, paper and forest products, and plantation owning companies. The S&P 500 Index measures the performance of 500 widely held large cap U.S. companies. The indexes and Baron Energy
and Resources Fund are with dividends, which positively impact the performance results.
Comparison of the change in value of $10,000 investment in Baron Global Advantage Fund (Retail Shares)
in relation to the MSCI ACWI Growth Index and the MSCI ACWI Index
$20,000
$15,000
$14,561
$14,029
$13,741
$10,000
$5,000
$0
4/12
6/12
9/12
12/12
3/13
6/13
9/13
12/13
3/14
6/14
9/14
12/14
3/15
1,3
MSCI ACWI Growth Index1
MSCI ACWI Index1
Baron Global Advantage Fund’s annualized returns as of March 31, 2015: 1-year, 6.67%; and Since Inception, 13.75%.
Comparison of the change in value of $10,000 investment in Baron Discovery Fund (Retail Shares)
$20,000
$15,000
$14,130
$12,683
$12,181
$10,000
$5,000
$0
9/13
12/13
3/14
6/14
9/14
12/14
3/15
2,3
2
S&P 500 Index2
Baron Discovery Fund’s annualized returns as of March 31, 2015: 1-year, 11.17%; and Since Inception, 25.92%.
1
2
3
The MSCI ACWI indexes cited are unmanaged, free float-adjusted market capitalization weighted indexes reflected in US dollars. The MSCI ACWI Growth Index Net USD measures the equity
market performance of large and mid cap growth securities across developed and emerging markets. The MSCI ACWI Index Net USD measures the equity market performance of large and mid
cap securities across developed and emerging markets. The indexes and the Baron Global Advantage Fund include reinvestment of dividends, net of foreign withholding taxes, which positively
impact the performance results.
The indexes are unmanaged. The Russell 2000® Growth Index measures the performance of small-sized U.S. companies that are classified as growth and the S&P 500 Index of 500 widely held
large cap U.S. companies. The indexes and Baron Discovery Fund are with dividends, which positively impact the performance results.
13
Baron Asset Fund
Dear Baron Asset Fund Shareholder:
Performance
During the three-month period ended March 31, 2015, Baron Asset Fund
gained 3.44%, the Russell Midcap Growth Index (the “Index”) gained 5.38%,
and the S&P 500 Index gained 0.95%. As discussed below, the Fund’s return
was driven more by stock-specific earnings results than by broader industry
trends. The best-performing stocks generally included companies with
predominantly domestic businesses and modest exposure to weaker foreign
economies and the strengthening U.S. dollar. Several of the Fund’s
investments in companies that sell proprietary data and analytics, such as
Verisk Analytics, Inc. and FactSet Research Systems, Inc., performed
particularly well. Travel-related companies with a largely domestic focus,
Vail Resorts, Inc. and Choice Hotels International, Inc., benefitted from
improved travel spending. Towers Watson & Co. demonstrated its longterm opportunity to build a large business helping corporations create
private health care exchanges for their employees and retirees.
Although energy prices stabilized at their recent, much lower levels during
the quarter, several companies that sell products to energy end-markets fell
after reporting disappointing results. These included pump manufacturer
Colfax Corp. and industrial distributors MRC Global, Inc. and Fastenal Co.
Luxury retailers Ralph Lauren Corp. and Tiffany & Co. both suffered from
the impact of the rising U.S. dollar, which led to reduced spending by foreign
tourists in their U.S. stores, as well as the negative impact that foreign
exchange had on their earnings results.
ANDREW PECK
PORTFOLIO MANAGER
Table II.
Top contributors to performance for the quarter ended March 31, 2015
Year
Acquired
Vail Resorts, Inc.
Verisk Analytics, Inc.
FactSet Research Systems, Inc.
CBRE Group, Inc.
Towers Watson & Co.
Table I.
Performance (Retail Shares)
Annualized for periods ended March 31, 2015
Baron
Asset
Fund1,2
Three Months4
One Year
Three Years
Five Years
Ten Years
Since Inception (June 12, 1987)
3.44%
12.57%
16.63%
14.98%
9.06%
11.60%
Russell
Midcap
Growth
Index1
5.38%
15.56%
17.41%
16.43%
10.19%
10.24%3
S&P 500
Index1
0.95%
12.73%
16.11%
14.47%
8.01%
9.61%
Retail Shares: BARAX
Institutional Shares: BARIX
1997
2009
2006
2005
2014
Percent
Impact
0.45%
0.36
0.36
0.31
0.28
Shares of Vail Resorts, Inc., the largest operator of U.S. ski resorts, increased
after reporting strong earnings results this past ski season. These results
were particularly impressive, given the very poor snow accumulation at the
Lake Tahoe properties that comprise 20% of its skier visitation. Vail also
benefitted from its recent acquisition of the Park City, Utah ski resort, which
it plans to interconnect with the Canyons resort that it also owns. The deal
further diversifies the company’s revenue streams into the attractive Utah
ski market, while also leveraging its overhead costs. We believe this deal will
generate meaningful accretion for the company over time. Lastly, the
company increased its dividend by 50% during the quarter.
Shares of Verisk Analytics, Inc. rose after the data and analytics company
reported stellar quarterly financial results. Overall organic revenue growth
Performance listed in the above table is net of annual operating expenses. Annual expense ratio for the Retail Shares as of September 30, 2014 was 1.31%.
The performance data quoted represents past performance. Past performance is no guarantee of future results. The investment return and principal value of an
investment will fluctuate; an investor’s shares, when redeemed, may be worth more or less than their original cost. The Fund’s transfer agency expenses may be
reduced by expense offsets from an unaffiliated transfer agent, without which performance would have been lower. Current performance may be lower or higher
than the performance data quoted. For performance information current to the most recent month end, visit www.BaronFunds.com or call 1-800-99BARON.
1
The indexes are unmanaged. The Russell Midcap® Growth Index measures the performance of medium-sized U.S. companies that are classified as growth and the S&P 500
Index of 500 widely held large cap U.S. companies. The indexes and the Fund are with dividends, which positively impact the performance results. Russell Investment Group
is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark of Russell Investment Group.
2
The performance data in the table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
For the period June 30,1987 to March 31, 2015.
Not annualized.
3
4
14
March 31, 2015
Baron Asset Fund
improved, with its core Insurance businesses growing around 12% and its
newer Financial Services and Health Care business units growing 25% and
22%, respectively. Stock performance was also driven by the company’s
accelerating share repurchase program. Finally, Verisk announced the
$2.8 billion acquisition of Wood Mackenzie, a leading provider of data and
analytics to the energy industry, which we expect to be accretive to
earnings.
Shares of financial market data vendor FactSet Research Systems, Inc.
gained after announcing accelerating organic revenue growth, an enhanced
number of new subscription sales, and meaningful earnings growth. We
believe that FactSet is continuing to gain share across all its markets, as it
offers a compelling value relative to Bloomberg and other incumbent
market data providers. In addition, we anticipate continued purchasing
strength among the company’s buy side customer base and improving
conditions on Wall Street’s “sell side,” which should provide an added
tailwind to growth.
The shares of CBRE Group, Inc., a leading commercial real estate services
company, increased during the quarter. Amidst a healthy global backdrop
for real estate, the company reported good results across nearly all its
geographies and business lines, including leasing, investment sales, property
management outsourcing, and real estate investment management. CBRE
also announced the $1.5 billion acquisition of Johnson Control’s Global
Workplace Solutions unit, which provides commercial real estate
management to major owners and occupiers globally. We expect this deal
to be meaningfully accretive to CBRE’s earnings, while also increasing the
company’s exposure to this unit’s highly-recurring, non-cyclical revenue
stream.
Professional services company Towers Watson & Co. reported robust
results, including 10% growth in its core Benefits segment and 40% growth
in its segment focused on administering private health care exchanges.
During the next several years, we believe that the opportunity in private
corporate exchanges has the potential to double the company’s business,
while also meaningfully enhancing its margins. Towers has a dominant
market share in health care exchanges for corporate retirees, and it is also
a leader in exchanges for active employees, as highlighted by its recent
high-profile business wins from Starwood Hotels & Resorts and Time, Inc.
Table III.
Top detractors from performance for the quarter ended March 31, 2015
Ralph Lauren Corp.
Tiffany & Co.
Fastenal Co.
Wynn Resorts Ltd.
MRC Global, Inc.
Year
Acquired
Percent
Impact
1997
2005
2006
2001
2012
–0.45%
–0.25
–0.25
–0.21
–0.16
Shares of Ralph Lauren Corp. came under pressure after the company
reported disappointing holiday results and offered a muted outlook for
2015. Ralph Lauren’s soft earnings were the result of several challenges
impacting their business and global consumer brands more broadly that we
believe are likely to prove transitory. These challenges include a more
heightened promotional retail environment and significant foreign currency
impacts. Positively, the company is experiencing significant growth in its
global e-commerce division, southeast Asia region and accessories platform,
and management is investing heavily in these initiatives with an eye toward
long-term future growth. In addition, we believe Ralph Lauren’s inventory is
being well-managed, as balances grow at a comparable rate to sales despite
the addition of several new stores; gross margins are positioned to benefit
in the near term from lower input costs; and the company is in a strong
financial position with $1 billion of net cash on its balance sheet.
Results at venerable jeweler Tiffany & Co. were disappointing, owing to
difficult year-over-year comparisons, a spending slowdown in certain
regions, and a high degree of foreign exchange volatility that weighed on
tourist spending in the company’s most important Americas market. Robust
business momentum over the last two years has taken a pause in 2015 as
a result of these macro headwinds and, specifically, the effect of the strong
U.S. dollar on overseas earnings. We continue to look favorably on the
company’s long-term growth prospects and margin expansion opportunity,
as emerging market stores, particularly in China, begin to ramp, new
merchandising hires start to have impact, and low precious metal costs
continue to benefit gross margins.
Shares of industrial supplies distributor Fastenal Co. declined after
reporting moderating sales growth. A significant reason was the rapid
slowing in demand in oil and gas regions, as well as the impact of a stronger
U.S. dollar on multi-national manufacturing customers with large export
divisions. While still generating industry leading sales growth of
approximately 10%, the current growth rates represent a deceleration from
last year’s 15-20% run rate. This slowdown is also impacting Fastenal’s
ability to leverage earnings at a faster rate than sales growth. Though the
company is off to a slightly slower start in 2015, we believe the
fundamental outlook and strategy remain on track and see a path to double
digit top and bottom line growth over the next several years to go along
with an attractive valuation and debt-free balance sheet.
Wynn Resorts Ltd., a destination casino operator with properties in Macau
and Las Vegas, declined on the continued slowdown in the Macau market,
driven by the Chinese government’s anti-corruption campaign that has
discouraged visitation and resulted in lower spend at the region’s casinos.
We are watching this situation carefully to try to better understand the
prospect for growth in this market going forward. Despite these challenges,
the company generates strong cash flow and generates an approximate 5%
dividend yield.
Shares of MRC Global, Inc., a leading pipe, valve and fittings distributor,
declined during the quarter as a result of the significant and rapid decline
in energy prices that weighed on investor sentiment in that sector. As an oil
field services provider and distributor of essential products to energy
customers, the company’s growth is linked to exploration and production
companies, pipeline operators and refineries, whose revenue and capital
expenditure budgets are falling commensurate with the significant drop in
crude that began last summer.
15
Baron Asset Fund
Portfolio Structure
At March 31, 2015, Baron Asset Fund held 64 positions. The Fund’s 10
largest holdings represented 34.6% of assets, and the 20 largest
represented 54.8% of assets. The Fund’s largest weighting was the
Information Technology sector at 21.5% of assets. This sector includes
software companies, IT consulting firms, and credit card processors. The
Fund held 20.9% of its assets in the Health Care sector, which includes
investments in life sciences companies, health care equipment and supplies
companies, and health care technology companies. The Fund held 19.2% of
its assets in the Industrials sector, which includes investments in
manufacturers, distributors, and information services firms. The Fund also
had significant weightings in Consumer Discretionary at 16.0% of assets
and Financials at 11.5% of assets.
Table IV.
Top 10 holdings as of March 31, 2015
Market Quarter
Cap
End
When
Market
Percent
Year
Acquired
Cap
Amount of Net
Acquired (billions) (billions) (millions) Assets
Gartner, Inc.
IDEXX Laboratories, Inc.
Vail Resorts, Inc.
Illumina, Inc.
FleetCor Technologies, Inc.
Mettler-Toledo
International, Inc.
SBA Communications Corp.
FactSet Research
Systems, Inc.
Arch Capital Group Ltd.
2007
2006
1997
2012
2009
2012
$2.9
2.5
0.2
5.3
4.0
2.9
$ 7.3
7.2
3.8
26.7
11.3
13.8
$134.2
125.9
103.4
100.2
96.4
90.6
4.7%
4.4
3.6
3.5
3.4
3.2
2008
2007
2.4
3.8
9.2
15.2
90.4
86.1
3.2
3.0
2006
2003
2.5
0.9
6.6
7.7
81.2
80.1
2.8
2.8
Recent Activity
During the past quarter, the Fund established four new positions and added
to six others. The Fund also sold three positions and reduced its holdings of
18 others.
Table V.
help insurers identify gaps in care, quality, data integrity and financial
performance. Clients can act on these analytical insights by leveraging
Inovalon’s intervention platforms, which help drive improvement in clinical
and quality outcomes, utilization, and financial performance across the
health care landscape. Inovalon’s platforms are also used for regulatory,
compliance, and internal reporting.
Inovalon’s growth is being driven by powerful secular drivers. Most notable
are the urgent national need to reduce inexorable health care cost inflation,
and the evolution of our health care system to value-based delivery from
consumption-based delivery. We believe that Inovalon already plays an
important role in helping payors reduce costs, improve utilization, and
transition to a value based environment, and we expect that the company’s
data and analytic platforms will ultimately play a broader role across the
health care ecosystem over time. Additionally, we believe that enhanced
health care reporting requirements, growth in the number and complexity
of diseases, diagnostics, and treatments, and growth in digital health care
data will require the broader health care ecosystem to depend more heavily
on Inovalon’s data analytics and workflow tools.
Inovalon serves a vast addressable market. According to a McKinsey study,
using data analytics could drive improvements in health care cost,
efficiency, and fraud reduction worth $300-$450 billion annually. In general,
we believe that analytics vendors can capture around 1/8-1/10 of value
delivered, which implies a total market opportunity of $33-$50 billion
annually. Management estimates that its core payor market represents a
$14 billion annual revenue opportunity, implying that the company is less
than 3% penetrated. Over time, we expect the company to expand its focus
to serve providers, global pharma and life science companies, and
consumers, which have the potential to increase the opportunity by 3-4
times.
The company has an enviable financial model. Inovalon boasts 98%
retention rates and enjoys high levels of recurring revenue, most of which
is generated via multi-year contracts. The company generates EBITDA
margins that are approaching 40%, and embedded operating leverage
coupled with a positive mix shift towards analytics from manual processes
should drive margins higher over time. Finally, the company offers robust
conversion of its earnings to free cash flow. When coupled with a strong
balance sheet, we see ample liquidity for the company to re-invest heavily
in its own organic growth profile while making strategic acquisitions to help
expand its range of services.
Top net purchases for the quarter ended March 31, 2015
Quarter End Amount
Market Cap Purchased
(billions)
(millions)
Inovalon Holdings, Inc.
WABCO Holdings Inc.
Towers Watson & Co.
Receptos, Inc.
SS&C Technologies, Inc.
$4.5
7.2
9.2
5.2
5.3
$33.6
13.4
12.0
10.4
10.0
The Fund initiated a position in Inovalon Holdings, Inc., a health care data
and analytics company that came public during the quarter. The foundation
of the company is its proprietary data set called Medical Outcomes
Research for Effectiveness and Economics (MORE2), which contains records
of 9.2 billion medical events collected from 120 million unique patients.
This data is used to power Inovalon’s suite of advanced analytics, which
16
Table VI.
Top net sales for the quarter ended March 31, 2015
Amount Sold
(millions)
Discovery Communications, Inc.
Wynn Resorts Ltd.
Dick’s Sporting Goods, Inc.
DeVry Education Group, Inc.
Helmerich & Payne, Inc.
$24.0
15.3
13.6
12.9
12.4
We sold our remaining stake in Discovery Communications, Inc., which
provides programming to cable television operators, over concerns that
content providers will find it increasingly difficult to recognize annual
pricing increases from operators in a world of fragmenting media
consumption technologies. We reduced Wynn Resorts Ltd. amidst
March 31, 2015
uncertainty about the scope of restrictions the Chinese government will
continue to impose on the Macau gaming market. We reduced our position
in Dick’s Sporting Goods, Inc. when shares rose on takeover speculation
that we didn’t believe was warranted. We sold our remaining stake in DeVry
Education Group, Inc. over concerns about the long-term challenges facing
even the best-managed for-profit education companies. We reduced our
stake in land driller Helmerich & Payne, Inc. on concerns about its ability
to prosper in an environment with oil prices near $50 per barrel.
Baron Asset Fund
Thank you for investing in Baron Asset Fund.
Our entire Firm and our research department, in particular, are committed
to justifying your ongoing confidence and support. I remain a significant
investor in the Fund alongside you.
Sincerely,
Outlook
We believe that mid-sized growth stocks continue to represent an
attractive investment opportunity. The U.S. economy remains among the
world’s healthiest, its equity market multiples remain within the range of
their long-term historic averages, and interest rates continue to be quite
low by historic standards. The recent drop in energy prices should generate
ongoing corollary benefits for many domestic companies. We believe that
our portfolio of well-managed, competitively advantaged, fast growing
companies will continue to perform well in this environment.
Andrew Peck
Portfolio Manager
April 30, 2015
For more information about this Fund
please scan this QR code with any bar
code reader on your mobile device.
prospectus contains this and other information about the Funds. You may obtain them from its distributor, Baron Capital, Inc., by calling 1-800-99BARON or
visiting www.BaronFunds.com. Please read them carefully before investing.
The Adviser believes that there is more potential for capital appreciation in mid-sized companies, but there also may be more risk. Specific risks associated
with investing in mid-sized companies include that the securities may be thinly traded and they may be more difficult to sell during market downturns. Prior
to February 15, 2007, the Fund’s strategy was to invest primarily in small and mid-sized growth companies. Since then, the Fund’s investment strategy has
shifted to mid-sized companies. The Fund may not achieve its objectives. Portfolio holdings are subject to change. Current and future portfolio holdings are
subject to risk.
The discussions of the companies herein are not intended as advice to any person regarding the advisability of investing in any particular security. The views expressed in this report reflect those of the
respective portfolio managers only through the end of the period stated in this report. The portfolio manager’s views are not intended as recommendations or investment advice to any person reading
this report and are subject to change at any time based on market and other conditions and Baron has no obligation to update them.
This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Asset Fund by anyone in any jurisdiction where it would be unlawful under the laws of that
jurisdiction to make such offer or solicitation.
17
Baron Growth Fund
Dear Baron Growth Fund Shareholder:
Performance
Baron Growth Fund gained 4.68% during the first calendar quarter of
2015. The Russell 2000 Growth Index, the small cap benchmark against
which we measure our results, advanced 6.63%. The Fund
underperformed principally because we owned less health care, more
specifically biotech. Biotech was one of the best performing industries
not only during this period but since 2012. The Fund’s performance
compared favorably to the S&P 500 Index that measures the
performance of larger companies. The S&P 500 increased less than 1%
during the quarter. The outperformance by small and mid-cap growth
companies compared to large cap stocks in the first quarter is a notable
reversal of last year’s trend.
Table I.
Three Months3
One Year
Three Years
Five Years
Ten Years
Fifteen Years
Since Inception (December 31, 1994)
Baron
Growth
Fund1,2
Russell
2000
Growth
Index1
S&P 500
Index1
4.68%
9.07%
17.31%
15.69%
8.76%
9.00%
13.78%
6.63%
12.06%
17.74%
16.58%
10.02%
4.17%
8.07%
0.95%
12.73%
16.11%
14.47%
8.01%
4.15%
9.77%
Much like the fourth quarter of 2014, U.S. stock markets experienced broad
swings during the first quarter of 2015. Underpinning this volatility were
further declines in oil prices, fears of interest rate hikes, and the negative
impact of a rapidly strengthening dollar on U.S. trade.
Regardless, U.S. companies’ domestic profits reached a record high during
the period. We believe that is an important reason fast growing small and
mid-cap companies, which are less dependent on exports, outperformed.
The Fund’s investments are focused on such companies.
The Fund does not change its investment approach because certain types of
stocks are in or out of favor in the short term. We take a long-term view,
investing in companies with significant growth opportunities, durable
competitive advantages, exceptional managements, and strong balance
sheets, at prices we believe are attractive. We continue to believe the growth
businesses in which we have invested could double in size within five years.
These investments consist primarily of companies with higher operating
profit margins, more favorable returns on capital, and significantly lower
RONALD BARON
CEO AND PORTFOLIO MANAGER
Retail Shares: BGRFX
Institutional Shares: BGRIX
earnings volatility than the average results of securities in passive benchmarks.
We believe these characteristics should offer the Fund’s shareholders
significant excess returns over the long term. We obviously cannot guarantee
that will continue to be the case.
Although the Fund’s “absolute” performance was below its benchmark’s
during the past year, the Fund’s “risk adjusted” return, otherwise known as
“alpha,” was substantially better than its benchmark for three years, five years
and from inception. (It was modestly better for the past ten years.) We think
this is because the Fund invests in less “risky” stocks as measured by volatility,
otherwise known as “beta.” We believe one reason our investments are less
volatile is that the Fund’s portfolio holdings have about half the standard
deviation of their earnings (their earnings are more consistent and less
cyclical) than its benchmark. Please see Table II. “Tastes great…less filling.”
Although we believe the Fund will outperform its benchmark over the long
term, the Fund does not attempt to outperform its benchmark every year. The
Fund has outperformed the Russell 2000 Growth Index 63% of the time in 12month rolling returns; 71% of the time in 5-year rolling returns; and 94% of
the time in 10-year rolling returns. The Fund has provided 5.71% of annualized
excess returns from its inception compared to its index. The Fund has also
provided 7.71% annual “alpha” since its inception. However, since in our
opinion, the characteristics of the businesses in which the Fund invests are
superior, on average, to those of “passive benchmarks” and their valuations are
reduced by expense offsets from an unaffiliated transfer agent, without which performance would have been lower. Current performance
may be lower or higher than the performance data quoted. For performance information current to the most recent month end, visit
www.BaronFunds.com or call 1-800-99BARON.
1
2
3
The indexes are unmanaged. The Russell 2000® Growth Index measures the performance of small-sized U.S. companies that are classified as growth and the S&P 500 Index
of 500 widely held large cap U.S. companies. The indexes and the Fund are with dividends, which positively impact the performance results. Russell Investment Group is the
source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark of Russell Investment Group.
Not annualized.
18
Baron Growth Fund
March 31, 2015
similar, we expect the Fund to outperform over the long term. In the past,
when the Fund has underperformed, it has significantly outperformed in
following periods and for the long term. See Table III. “Any Time at All.” We can
obviously not assure you this will again be the case.
Table II.
“Tastes great…less filling.” Miller Lite. 1974. “Better alpha (better return adjusted
for “risk”)…less beta (less risk defined as “volatility”).” Baron Growth Fund. 2015.
Performance Based
Characteristics as of
March 31, 2015
Baron Growth Fund
Time Interval
3 Years
5 Years
10 Years
Since
Inception
Alpha (%)
Beta
Upside Capture (%)
Downside Capture (%)
4.77
0.69
79.65
59.00
2.81
0.76
80.11
68.88
0.55
0.80
79.62
77.14
7.71
0.68
82.47
60.55
Standard Deviation
of YoY Earnings Growth
Quality Characteristics
Baron Growth Fund
Russell 2000 Growth
Index
Difference
Shares of MAXIMUS Inc., a provider of outsourced government health and
human services in the U.S., U.K. and Australia, rose in the first quarter.
MAXIMUS was awarded about $1.3 billion in contracts in Q1, including the
new U.K. Health Assessment. Signed contracts year to date are already $1.8
billion vs. $2 billion in 2014. Its pipeline, which represents RFPs to be
released in the next six months, is $3.6 billion, which we think will support
15% top line growth through 2016. It also announced the accretive
acquisition of government tech contractor Acentia. (Susan Robbins)
Shares of regional gaming company Pinnacle Entertainment, Inc.
increased sharply in the quarter on strong industry fundamentals and
improved spend at its properties, leading to higher revenue and margins
across its portfolio. An offer by Gaming and Leisure Properties, Inc. to
purchase Pinnacle’s real estate assets also boosted its shares. We believe the
deal will eventually be consummated, albeit likely at a higher price than the
current offer. (David Baron)
95.6
172.5
–76.9
Table III.
Table V.
“Any Time at All.”
“The Long and
Winding Road”
Bush Years
“Here Comes
“Yesterday”
2000-2008
the Sun”
Clinton Years
9/11; Iraq;
Obama Years
1992-2000
Afghanistan;
2008-2015
Internet Bubble Housing Bubble; Recovery
“Any Time
12/31/99 P/E 33x Financial Panic
P/E 16.8x
at All”
Annualized Returns
Inception
Inception
12/31/94 to
12/31/99 to 12/31/08 to 12/31/94 to
12/31/99
12/31/08
3/31/15
3/31/15
Baron Growth
Fund
Russell 2000
Growth Index
S&P 500 Index
Shares of athletic apparel company Under Armour, Inc. increased in the
quarter, on the strength of yet another quarter of record results. Sales grew
over 30% and easily surpassed estimates. Its core apparel product continues
to sell well, and, importantly, the company appears to be gaining traction in
footwear. That business is continuing its momentum and broadening its
distribution points. Additionally, Under Armour has expanded its online
presence through acquisitions, which we think will augment purchase
frequency and price points. (Michael Baron)
29.90%
2.46%
19.00%
13.78%
18.99%
28.56%
–4.71%
–3.60%
19.94%
16.65%
8.07%
9.77%
Table IV.
Year
Acquired
Under Armour, Inc.
MAXIMUS, Inc.
Pinnacle
Entertainment, Inc.
MSCI, Inc.
Dick’s Sporting
Goods, Inc.
Market
Cap
Quarter
When
End Market
Acquired
Cap
Total
(billions) (billions) Return
2005
2011
$1.0
1.2
$17.4
4.4
2013
2007
0.9
1.8
2004
1.4
Percent
Impact
18.92%
21.83
0.62%
0.45
2.2
6.9
62.20
29.64
0.43
0.39
6.8
15.06
0.39
Quarter
Market End Market
Cap
Cap or
When Market Cap
Year
Acquired When Sold Total
Acquired (billions) (billions) Return
Lumber Liquidators
Holdings, Inc.
AO World plc
ITC Holdings Corp.
DeVry Education
Group, Inc.
Targa Resources Corp.
2010
2014
2005
$0.6
2.0
0.8
$1.0
1.1
5.8
1995
2010
0.4
0.9
2.4
5.4
Percent
Impact
–44.97% –0.48%
–37.52 –0.44
–7.04 –0.22
–25.25
–9.12
–0.20
–0.18
Shares of hardwood flooring retailer Lumber Liquidators Holdings, Inc. fell
sharply during the quarter after a 60 Minutes segment aired allegations that
one of its products is not compliant with California regulations due to
higher than permitted levels of formaldehyde. The company steadfastly
rejects the claims. Management believes they have implemented significant
quality control checks within the supply chain. Regardless, the company is
likely to face elevated legal expenses in the short term as well as possible
lost sales. We sold our shares. (Matt Weiss)
AO World plc is the leading online seller of major domestic appliances in the
U.K., with a 12% market share. AO’s optimization of proprietary software and
logistics and focus on customer service sets it apart from competitors. Shares
in the last quarter were pressured by a slower growth forecast, following sharply
higher sales in the wake of AO’s IPO last May. The company has said that it
expects growth to reaccelerate in the second half of 2015, driven by improving
sales in the U.K. and a continued ramp up in Germany. (Ashim Mehra)
19
Baron Growth Fund
The stock of ITC Holdings Corp., the nation’s largest independent
transmission company, fell in the first quarter. An expected increase in
interest rates contributed to overall sector weakness as investors exited
utilities and other yield-oriented investments. The primary drivers for
transmission investment – reliability and connection of new generation
(including renewables) – remain intact, and we believe ITC has robust
prospects for growth and will execute on its growth strategy and concurrent
five-year capital plan. (Rebecca Ellin)
Recent Purchases
During the quarter, we took advantage of market volatility and added
opportunistically to several new and existing investments. Since the
beginning of the year, the Fund has invested nearly $150 million in 12
companies with average market capitalizations of $1.6 billion.
The Fund invests only in small cap businesses with significant competitive
advantages that possess large addressable market opportunities. We
monitor their progress closely. We sell them after they’ve become larger,
successful companies and reinvest the proceeds in small cap growth
businesses. We sell sooner if we believe we’ve made a mistake in judgement
or fundamentals of a business become less favorable.
robust growth driven by its focus on specialty pharmacy, high touch model,
strong clinical capabilities, scalable infrastructure, lack of channel conflicts
and national footprint. Diplomat is also benefiting from the industry trend
towards limited distribution - 40% of its revenue now comes from its
portfolio of 80+ limited distribution drugs. (Susan Robbins)
Foundation Medicine, Inc. offers proprietary genomic tests for patients
with cancer. These tests use next generation DNA sequencing to analyze
over 300 cancer genes for genomic alterations, enabling physicians to
match the alterations with targeted therapies and clinical trials. Foundation
has also developed a web-based portal that links pharmaceutical companies
to oncologists, and provides all constituents with broad-based information
about discovered alterations and the effectiveness of drugs used to treat
them. In January, Roche Holdings announced a broad strategic relationship
with Foundation, which included a $1 billion investment in Foundation
shares, plans to co-market Foundation’s tests overseas, development of
additional genomic tests, and use of Roche’s US sales force to educate
physicians about the advantages of Foundation’s technology. We believe
the company is well positioned to take share in the emerging multi-billion
dollar complex cancer diagnostics market. (Neal Kaufman)
Portfolio Structure And Strategy
Table VI.
AO World plc
Diplomat Pharmacy, Inc.
Foundation Medicine, Inc.
Oaktree Capital Group, LLC
The Container Store
Group, Inc.
Year
Acquired
Market
Cap
When
Acquired
(billions)
Quarter
End
Market
Cap
(billions)
Amount
Purchased
(millions)
2014
2015
2015
2012
$2.0
2.0
1.3
1.5
$1.1
2.0
1.4
2.5
$37.8
27.5
25.5
10.5
2015
0.9
0.9
9.4
In the quarter, we increased our position in AO World plc. AO World is the
UK’s leading online retailer of major domestic appliances. The company has
more than 12% of the overall UK major domestic appliance (MDA) market and
sets itself apart from its competitors through its proprietary software, optimized
supply chain, and stellar customer service. AO is positioned to benefit by a
secular move to online buying, fueled by competitive pricing, better selection
and outstanding customer service. The company will also benefit as they grow
their share of the UK (MDA) market, expand into the larger German market, and
enter new Western European markets. (Ashim Mehra)
Diplomat Pharmacy, Inc. is the largest independent specialty pharmacy in
the U.S. and the fourth overall with revenues of $2.2 billion. Diplomat
distributes high cost drugs targeted at small patient populations with
complex and chronic diseases like cancer, MS, and HIV. Such drugs typically
require special handling and administration. Diplomat participates in the
fastest growing segment of the pharmaceutical market without assuming
individual product risk. This segment is driven by the proliferation of new
biotech and orphan drugs. The $78 billion specialty drug industry grew 25%
in 2014, with 50% growth projected by 2018. Diplomat grew its revenue
almost 50% in 2014. Since 2005 it has achieved 65% organic revenue
CAGR vs the industry’s 15%. We believe the company can continue its
20
The Fund owns 88 stocks. The top 10 holdings comprise 29.1% of the Fund.
We believe this diversified Fund offers investors potentially better than
market returns with less “risk.” “Risk” is defined as volatility and is called
“beta.” The Fund’s “beta” since inception is 0.68. This means our portfolio has
been 68% as volatile as its benchmark while significantly outperforming its
benchmark. Our strategy to accomplish this is to invest for the long term in
a diversified portfolio of appropriately capitalized, well-managed, growing,
small cap businesses at attractive prices. The Fund’s average portfolio
turnover rate for the past three years is 9.13%. This means the Fund has an
average holding period for its investments of over 10 years. This contrasts
sharply with the average small cap mutual fund which typically “turns over”
its portfolio every 15 months. We invest in small cap companies at time of
purchase that we believe have the potential to double in size within four to
five years. We believe that a portfolio of investments diversified among
several industries all of which are dependent upon different, non-correlated
fundamentals will likely reduce portfolio volatility. In addition, many of the
companies in which the Fund invests have significant recurring revenue,
which makes their earnings less volatile than the Russell 2000 Growth Index.
We find all these businesses through our dedicated research effort. Our
holdings’ significant barriers to competitive threats provide pricing power.
Most of our companies reinvest in their businesses to increase their revenues
and margins over the long term. We believe the Fund has an opportunity to
meet its objectives, although there is no guarantee that it will do so.
While we do not try to predict short-term “macro” developments or current
events, we believe conditions remain favorable for the economy and stocks.
U.S. economic growth is accelerating and we believe stocks remain
attractively valued, trading around 16.9 times earnings, roughly in-line with
the market’s long-term average vaulation.
U.S. GDP ended last year with the strongest growth since the financial crisis.
Job growth is strong and disposable income and net worth are increasing.
During the quarter, the unemployment rate fell to 5.5%, a post-recession
low. Consumer confidence now stands at a multi-year high. Auto and
housing sales are up and home prices continue to increase. The decline in
Baron Growth Fund
March 31, 2015
oil prices, while challenging for the energy sector, is a positive for the U.S.
economy and non-energy-related stocks. Money saved on energy-related
costs can be spent elsewhere.
Table VII.
Market Quarter
Cap
End
When
Market
Percent
Year
Acquired
Cap
Amount of Net
Under Armour, Inc.
The Middleby Corp.
FactSet Research
Systems, Inc.
ITC Holdings Corp.
Arch Capital Group Ltd.
Gartner, Inc.
Dick’s Sporting
Goods, Inc.
Vail Resorts, Inc.
MAXIMUS, Inc.
CoStar Group, Inc.
2005
2011
$1.0
1.6
$17.4
5.9
$310.9
261.8
3.8%
3.2
2006
2005
2002
2007
2.5
0.8
0.4
2.3
6.6
5.8
7.7
7.3
254.7
246.1
243.3
236.9
3.1
3.0
2.9
2.9
2004
1997
2011
2004
1.4
0.2
1.2
0.7
6.8
3.8
4.4
6.4
228.0
213.5
200.3
197.8
2.8
2.6
2.4
2.4
Thank you for investing in Baron Growth Fund.
Thank you for joining us as fellow shareholders in Baron Growth Fund. We
believe the growth prospects for the businesses in which Baron Growth
Fund has invested continue to be favorable.
We continue to work hard to justify your confidence and trust in our
stewardship of your family’s hard-earned savings. We will also continue to
provide you with information that I would like to have if our roles were
reversed. This is so you will be able to make an informed judgment about
whether Baron Growth Fund remains an appropriate and attractive
investment for your family.
Respectfully,
Ronald Baron
CEO and Portfolio Manager
April 30, 2015
The Adviser believes that there is more potential for capital appreciation in smaller companies, but there also may be more risk. Specific risks associated with
investing in smaller companies include that the securities may be thinly traded and they may be more difficult to sell during market downturns. The Fund
may not achieve its objectives. Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.
This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Growth Fund by anyone in any jurisdiction where it would be unlawful under the laws of that
Beta: measures a fund’s sensitivity to market movements. The beta of the market (Russell 2000 Growth Index) is 1.00 by definition.
P/E: the price earnings ratio is a valuation ratio of a company’s current stock price to its actual earnings per share.
Upside Capture: explains how well a fund performs in time periods where the benchmark’s returns are greater than zero.
Downside Capture: explains how well a fund performs in time periods where the benchmark’s returns are less than zero.
Standard Deviation of YOY EPS Growth: is calculated by taking the 5-year standard deviation of year-over-year (“YOY”) LTM EPS growth. The standard deviation is used to measure the spread around
the average or mean. In other words, it indicates whether the values being considered differ greatly from each other. The smaller the standard deviation, the smaller the spread. Standard deviation is
determined by first finding the average of the data set. Each data item is then subtracted from the average, and the difference is squared. The sum of the squared values is divided by the number of
data items minus one. The function returns the square root of that value.
21
Dear Baron Small Cap Fund Shareholder:
Performance
Baron Small Cap Fund had a good first quarter, gaining 5.64% in the period
ended March 31, 2015. This compares to gains of 6.63% for the
Russell 2000 Growth Index and 0.95% for the S&P 500 Index.
The market continued to be quite volatile in the quarter, weak at the
beginning of the year and strengthening as the quarter went on, as
economic reports continued to point to a strong U.S. economy, while
interest rates remained low and inflation very modest. Employment data
has been blowing through estimates with non-farm payroll increases
regularly over 200,000 per month.
Small cap stocks significantly outperformed the overall market. We consider
this a natural reversal from the previous year’s underperformance; small
caps took a back seat to larger stocks last year, therefore becoming
relatively more attractive. The U.S. dollar continued to strengthen and now
has risen about 20% against the trade weighted index of other currencies.
This affects small companies (and our portfolio) less than the broad
indexes, since these companies generate more of their profits from
domestic operations, another factor aiding small stocks. The increase in the
dollar negatively affected reported earnings in the fourth quarter and
caused many companies to reduce projections for early 2015, causing some
commotion during the quarter.
CLIFF GREENBERG
PORTFOLIO MANAGER
Retail Shares: BSCFX
Institutional Shares: BSFIX
Table II.
Percent
Impact
Table I.
Baron
Small Cap
Fund1, 2
Three Months3
5.64%
One Year
8.49%
Three Years
15.48%
Five Years
15.02%
Ten Years
8.73%
Since Inception (September 30, 1997) 10.29%
Russell
2000
Growth
Index1
6.63%
12.06%
17.74%
16.58%
10.02%
5.80%
S&P 500
Index1
0.95%
12.73%
16.11%
14.47%
8.01%
6.51%
Our best performers reported favorable developments during the quarter.
Also, there were announcements that four of our holdings were acquired
during the period, which we view as a positive trend.
Advent Software, Inc.
ICON plc
Acuity Brands, Inc.
Gaming and Leisure Properties, Inc.
Berry Plastics Group, Inc.
0.57%
0.51
0.46
0.44
0.42
Advent Software, Inc., a leading provider of software and services to
investment managers, is being acquired by SS&C Technologies at a
significant premium and its stock rose over 40% during the quarter. We
have owned the stock for six and a half years, and, in the aggregate, our firm
owned 9.2% of its shares. Advent is being acquired at 17 times estimated
2015 EBITDA, which is a rich multiple. Since the deal was accretive and
strategic to the acquirer, its shares also lifted.
Also in the quarter, MWI Veterinary Supply, Inc., a distributor of vet
products, was acquired at 40 times 2015 estimated earnings by
reduced by expense offsets from an unaffiliated transfer agent, without which performance would have been lower. Current performance may be lower or higher
than the performance data quoted. For performance information current to the most recent month end, visit www.BaronFunds.com or call
1-800-99BARON.
1
2
3
Not annualized.
22
March 31, 2015
Amerisource Bergen to enter animal health. Auspex Pharmaceuticals, Inc.,
our first foray into biotech investing, rose over 42% when it was announced
that the drug company was being bought by Teva Pharmaceutical to
strengthen its CNS franchise. Lastly, the CEO of SFX Entertainment, Inc.,
the electronic music concert promoter, announced that he was bidding to
take the company private.
ICON plc, a leading global CRO (contract research organization) rose after
reporting strong results and materially raising guidance. We continue to like
the trends towards outsourcing, as we explained in our last quarterly letter
and now own three companies in the industry (PRA Health Sciences, Inc.,
and INC Research Holdings, Inc., which together equal 2.6% of the
portfolio).
Acuity Brands, Inc., the leading domestic provider of lighting solutions,
continues to benefit from secular demand for more energy efficiency and
the rapid adoption of LED lighting. Sales of LEDs grew 70% in the quarter,
now representing over 40% of sales, which drove earnings growth of 37%.
We are excited about the recent acquisition of a building automation firm,
as we see a great fit with Acuity’s fixtures and controls offerings.
Gaming & Leisure Properties, Inc. (GLPI), the REIT which finances regional
casino operators, advanced after they announced interest in acquiring the
real estate assets of rival operator Pinnacle Entertainment. The deal would
be super accretive for GLPI and also a boon for Pinnacle, so we hope it
comes to pass.
Shares of Berry Plastics Group, Inc., a leading plastic packaging company,
rose as the company reported that major customers have increased interest
in its Versalite cup, which is a replacement for Styrofoam. Also, the drop in
resin prices, an oil derivative, should provide a nice tailwind to near-term
results going forward and lower the cost of plastic containers, which should
accelerate the conversion from glass and metal containers.
Other stocks that rose about 20% or more in the quarter include: Mattress
Firm Holding Corp., Cognex Corp., Rally Software Development Corp.,
NORD Anglia Education Inc., Fairway Group Holding Corp., Summit
Materials, Inc., Interface, Inc., GrubHub Inc. and Abengoa Yield plc.
Table III.
Percent
Impact
Lumber Liquidators Holdings, Inc.
Fossil Group, Inc.
FEI Company
Del Frisco’s Restaurant Group, Inc.
–0.46%
–0.33
–0.23
–0.17
–0.15
Shares of Lumber Liquidators Holdings, Inc., the retailer of hardwood
flooring, fell sharply in the quarter after a national news show aired a
scathing report alleging that some of its products contained high levels of
dangerous chemicals. The company steadfastly rejects the claims and
maintains that its products meet the applicable manufacturing standards
and are safe. The stock is heavily shorted and has long been controversial.
We expect the company’s sales to be negatively affected in the near term
and legal expenses to be elevated, so we have trimmed back our position as
we study these issues going forward.
Fossil Group, Inc. sells watches and accessories under its own brand and
many prominent licenses. Earnings were hurt by the strong dollar. We
believe sales will be hampered by the debut of the Apple watch, so we have
reduced our holdings. We still respect the company as a category-killer, see
great opportunity for it to expand sales globally, and believe the company
will benefit from the trend in “wearables” over time.
FEI Company, maker of electron microscopes, lowered guidance primarily
because of currency issues that will dampen earnings growth for this year.
We like the long-term growth opportunities, which we do not think are
reflected in the present stock price.
Del Frisco’s Restaurant Group, Inc., the operator of three steakhouse
concepts, lowered earnings guidance as near-term margins were pressured
by one-off sales shortfalls. We believe this is temporary, and that the
company is on the verge of significant long-lasting growth, so we increased
our position on weakness.
Other stocks that declined about 20% or more in the quarter include
Flotek Industries, Inc., The KEYW Holding Corp. and SunCoke Energy
Partners LP.
Portfolio Structure
As of March 31, 2015, the Fund had $5.49 billion under management and
was invested in 99 common stocks. At the end of the quarter, the top 10
positions represented 26.6% of the Fund’s assets. Most of these biggest
positions have been long time holdings of the Fund.
Table IV.
Quarter End
Investment Percent
Year
Value
of Net
Acquired (millions)
Assets
SBA Communications Corp.
TransDigm Group, Inc.
Gartner, Inc.
Berry Plastics Group, Inc.
Acuity Brands, Inc.
Brookdale Senior Living, Inc.
Bright Horizons Family Solutions, Inc.
Waste Connections, Inc.
The Ultimate Software Group, Inc.
FleetCor Technologies, Inc.
2004
2006
2007
2012
2011
2005
2013
2009
2008
2010
$193.2
191.4
167.7
162.9
138.7
132.1
120.4
120.4
119.0
113.2
3.5%
3.5
3.0
3.0
2.5
2.4
2.2
2.2
2.2
2.1
We continue to focus our efforts on increasing the Health Care portion of
the portfolio and have raised exposure again this quarter, though we still are
considerably underweight compared to the Russell 2000 Growth Index. Our
weightings in Consumer Discretionary stocks have declined, as has our
Energy exposure, which is now mostly all in MLP investments.
During the quarter, we adopted new market cap parameters that define
“small cap” stocks in order to be more aligned with industry standards. We
can now purchase companies up to the Russell 3000 Small Cap break point,
which is currently $3.38 billion, and under certain conditions up to $4.5
billion, which is the largest market cap in the Russell 2000 Growth Index.
Before we were limited to buying stocks under $2.5 billion. We believe this
higher limit will create opportunities to find investments in the full range of
companies that comprise the benchmark against which we are compared,
so we very much favor the change. However, we recognize that we manage
a fund with a higher than normal median market cap, brought about by our
23
proclivity to hold onto our stocks for a longer term than most others. We
plan to continue to fund our purchases of small caps by harvesting gains in
our larger companies, which we believe will enable us to continue to
manage the overall market cap of the Fund appropriately, even if we can
buy into a bit larger company to start with. Another benefit to having the
somewhat higher threshold is that it will allow us to scale up position sizes
more easily. We expect our turnover to increase somewhat with the change,
which was the case in the first quarter.
Recent Activity
Table V.
Year
Acquired
Catalent, Inc.
Diplomat Pharmacy, Inc.
Summit Materials, Inc.
The Spectranetics Corporation
Electronics For Imaging, Inc.
2014
2015
2015
2015
2015
Quarter End Amount
(billions) (millions)
$3.9
2.0
2.0
1.5
2.0
$25.2
25.1
23.1
21.0
20.1
Catalent, Inc. is the leading “contract manufacturer” to the pharmaceutical
industry, producing more than 70 billion commercial doses of medicines
annually for nearly 7,000 customer products. They provide advanced
delivery technologies for oral, injectable and respiratory administration of
the drugs. The business was founded in the 1930s with softgel know how
and the technologies and service portfolio have been developed over 80
years. The company was bought by drug distributor giant Cardinal Health in
the late 90s, and they made additional acquisitions to expand capabilities.
Blackstone acquired the business in 2007 and strategically culled its
offerings and added a sales and marketing focus that has led to a lift in
active development programs.
Catalent has long standing relationships with its major pharmaceutical
companies, particularly for advanced delivery tasks, where they “follow the
molecule” through all phases of a drug’s lifecycle. Catalent starts
collaborating in drug development to drive better formulations and faster
time to approval. This results in a mandate to produce the finished dose
throughout the life of the product, which often lasts for decades. Drug
manufacturers have continued to outsource manufacturing to tap into the
expertise of third party providers and because of the increased regulatory
burdens and complexity of the supply chain.
This all results in a very visible annuity-like business model for Catalent,
that we value highly. Growth comes from the increase in doses of existing
manufactured drugs, from layering on new products that are launched and
by acquiring other companies to add capabilities and relationships. The
company earns high EBITDA margins (close to 25%) and generates
significant free cash flow which supported a hefty debt load when private.
As a public company, we believe the company can grow organic revenues at
mid single digits, grow operating profits at high single digits, and earnings
24
at double digits, with the benefit of debt repayment and share repurchases.
We expect this to be supplemented by acquisitions, and we believe, as the
largest player in its industry, the company is a great platform and an
accomplished integrator.
The company came public at nine times projected current year EBITDA and
ten times earnings. We participated in its IPO last July. We think the stock
should trade closer to 12 times future cash flow and 20 times earnings. We
bought more stock recently to beef up our position which we were only
able to do because of the expansion of market cap parameters for the Fund.
Diplomat Pharmacy, Inc., is the largest independent specialty pharmacy
and fifth largest overall. The company provides customized patient care
management programs (including dispensing of medications) for specialty
drugs, which are typically high cost products that treat chronic conditions
and require specialized administration and handling. The company is
operated by the founding family, which started as a simple retail pharmacy
in the Midwest in 1975, went national in 2005 (when it did $27 million in
revenues) and has grown to a business now doing over $2 billion in
revenues. Pretty extraordinary.
The specialty pharmacy market is large and growing rapidly, as more
complex drugs are introduced by biotechs and in need of special services.
Industry spending was $50 billion in 2012 and is expected to grow to $120
billion in 2018, or roughly a 20% compound growth rate. Specialty drug
approvals comprised 50% plus of all FDA drug approvals in 2014, and there
are 3,000 plus oncology and immunology drugs, Diplomat’s sweet spot about 75% of revenues, in the global drug development pipeline.
As an independent operator (not part of a large Pharmacy Benefit Manager
or “PBM”), Diplomat has a unique competitive position, singularly focused
on specialty with a high touch model and entrepreneurial culture. They have
built strong relationships with both payors and pharmaceutical companies,
and are well situated as drug companies move more to “limited
distribution,” providing Diplomat exclusive or preferred dispensing rights to
certain newly approved drugs.
All this bodes well for Diplomat to continue to take market share and grow
considerably faster than the industry. Since going public, revenues have
grown 49% organically relative to industry growth of 25%. As the top line
expands, we expect EBITDA margins to improve from the present level of
1.8% towards 2.5% and beyond. And we expect the company to make
strategic and accretive acquisitions to enhance growth. The company
recently announced the acquisition of a specialty infusion company, which
cements Diplomat’s leadership position in this niche and expands potential
channels to new disease states and therapeutic categories. All in all, a very
exciting high growth business. We purchased at a $1.7 billion enterprise
value (and a high multiple of recent earnings) but we envision the
possibility of it being worth multiples of that in time.
In the quarter, we also bought positions in aggregates company, Summit
Materials, Inc.; in a medical device manufacturer, The Spectranetics
Corporation (thank you Baron Discovery Fund for the idea); and digital
printer, Electronics for Imaging, Inc.
March 31, 2015
Table VI.
Year
Acquired
MWI Veterinary
Supply, Inc.
SBA Communications
Corp.
Rexnord Corp.
Gartner, Inc.
Lumber
Liquidators Holdings, Inc.
Market
Quarter End
Cap
Market Cap or
When
Market Cap Amount
Acquired
When Sold
Sold
(billions)
(billions)
(millions)
2014
$1.8
$2.5
$59.9
2004
2012
2007
0.2
1.6
2.2
15.2
2.7
7.3
28.6
26.3
20.7
2010
0.6
0.8
16.4
increases many domestic companies are implementing to retain talent; and
the price of oil has bounced off the bottom, so deflation does not seem to
be a concern. Funny how that happens.
There is much focus, and anxiety, about when the Fed will raise interest
rates, which now may not be imminent. We view this as inevitable, but
expect modest and gradual increases. We do not believe it will change the
investment environment much. We do not see a recession in the offing, nor
are we concerned with significant increases in interest rates or inflation. We
believe if anything is to make the bull look like a bear, it will be economic
contagion brought on by issues outside of the States likely caused by the
aftershock of the precipitous drop in the price of oil and commodities and
the slowdown in growth in emerging markets.
During the quarter, we exited MWI Veterinary Supply, Inc. on its
acquisition. We sold all of our SunCoke Energy, Inc., and half of the sister
MLP SunCoke Energy Partners LP, when one of their customers
announced it was closing a plant that SunCoke supplied. We reduced our
stakes in SBA Communications Corp. and Gartner, Inc., two of our large
positions and long-term winners, to raise funds to buy positions in smaller
companies demonstrating our commitment to managing the Fund as a
small cap portfolio.
Valuations remain stretched and investor confidence is very high, which
makes us a little queasy. Still, we march on with our high quality businesses
that we believe can continue to significantly grow their profits and value
over time. Maybe these higher valuations are justified for these special
businesses in this low rate environment. The take outs of some of our stocks
at big premiums seem to be making this point. We believe this is the proper
positioning as long as we see room to make good returns over the long
term, without being too focused on trying to predict the near future. To this
task, we continue to uncover exciting new companies to add to the
portfolio, and very much like our holdings.
Outlook
Thanks very much for investing in the Fund and giving us the privilege of
managing some of your assets.
As we are six years into a bull market that is up 200%, the rally lost steam
in the first quarter with the broad indexes flat. . . (though we are pleased to
have made nice absolute returns). By quarter’s end, domestic economic
momentum seemed to have slowed, highlighted by a weak employment
report for March. Many companies are foreshadowing that corporate
earnings reports will be constrained by the rise in the dollar. Interestingly,
some of the things that were most concerning earlier in the year have
reversed. European economies are improving and the U.S. no longer seems
“decoupled” (meaning doing well while all others struggle) from the rest of
the world; inflation seems to be perking up as seen in the recent wage
Cliff Greenberg
Portfolio Manager
April 30, 2015
respective portfolio manager only through the end of the period stated in this report. The portfolio manager’s views are not intended as recommendations or investment advice to any person reading
This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Small Cap Fund by anyone in any jurisdiction where it would be unlawful under the laws of that
25
Dear Baron Opportunity Fund Shareholder:
Performance
Baron Opportunity Fund had a good start to the year, gaining 4.06%, in line
with the Russell 3000 Growth Index (the Fund’s new primary index), which
rose 4.05%, but nicely ahead of the broader market as represented by
S&P 500 Index, which increased 0.95%. The Fund has continued to perform
well to start the second quarter, and as of this writing (reflecting the close
of the market on April 12th), the Fund was up 6.70% for the year, ahead of
the two indexes mentioned above.
Table I.
Performance (Retail Shares)†
Russell
Baron
3000
Opportunity Growth
1,2
Fund
Index1
Three Months3
One Year
Three Years
Five Years
Ten Years
Since Inception
(February 29, 2000)
Russell
Midcap
Growth
Index1
S&P 500
Index1
4.06%
3.21%
11.03%
12.46%
10.35%
4.05%
15.76%
16.45%
15.71%
9.41%
5.38%
15.56%
17.41%
16.43%
10.19%
0.95%
12.73%
16.11%
14.47%
8.01%
5.29%
2.52%
4.00%
4.77%
Review & Outlook
The Baron Opportunity Fund has had a solid start to the year. The market
environment has been more favorable than last year for the higher growth,
innovative businesses in which we invest. But more importantly, our
companies have continued to show solid operating progress and the
innovative themes we focus on have continued to cement themselves even
further into the fabric of our business and consumer lives.
First, the lion’s share of our investments reported solid results during the
recent earnings season and management discussions during the formal
earnings calls, as well as our follow up calls and meetings, have indicated
that the vast majority of our companies are on path to achieving our longterm investment theses for their businesses. Unlike many other investors,
we don’t view earnings reports as a catalyst for short-term “pops” (or drops,
for short sellers) in stock prices. Rather, we see them as the latest check on
whether the fundamental growth drivers we have identified for our
investments are playing out as we had envisioned and whether there are
MICHAEL A. LIPPERT
PORTFOLIO MANAGER
Retail Shares: BIOPX
Institutional Shares: BIOIX
any material changes in the growth opportunities – good or bad – for our
businesses. And, for those companies that are facing challenges of one form
or another – competitive, economic, internal, investor communications,
etc. – we try to assess whether these challenges are normal growing pains
or stumbles, so to speak, or instead thesis-changers and a reason to exit our
investment. This earnings season, not only did the vast majority of our
companies report solid operational metrics and show themselves to be on
path, but, while a few are dealing with stumbles, we did not identify a single
thesis-changer.
Second, the long-term secular themes that we focus on for the Fund
continue to gain strength and play a bigger role in society. This is what gave
us confidence in the Fund’s strategy last year, even when our stocks were
underperforming in the short term. And it continues to bolster our belief
that a portfolio of well-managed, higher-growth businesses capitalizing on
innovative and longer-term secular growth themes should outperform the
broader market and passive indexes across market cycles. As we attend
conferences, visit companies, listen to a wide range of earnings calls, it
becomes more and more clear to us that the world is changing fast, that
legacy business models and technologies are being left behind, and that
consumers and enterprises alike are quickly adopting new ways of doing
things. By way of example:
investment will fluctuate; an investor’s shares, when redeemed, may be worth more or less than their original cost. The Adviser has reimbursed certain Fund
expenses (by contract as long as BAMCO, Inc. is the adviser to the Fund) and the Fund’s transfer agency expenses may be reduced by expense offsets from an
unaffiliated transfer agent, without which performance would have been lower. Current performance may be lower or higher than the performance data quoted.
For performance information current to the most recent month-end, visit www.BaronFunds.com or call 1-800-99BARON.
†
1
2
3
The Fund’s historical performance was impacted by gains from IPOs and/or secondary offerings. There is no guarantee that these results can be repeated or that the Fund’s level of participation in
IPOs and secondary offerings will be the same in the future.
The indexes are unmanaged. The Russell 3000® Growth Index measures the performance of those companies classified as growth among the largest 3,000 U.S. companies, the Russell Midcap®
Growth Index measures the performance of medium-sized U.S. companies that are classified as growth and the S&P 500 Index of 500 widely held large cap U.S. companies. Baron Opportunity Fund
no longer considers the Russell Midcap® Growth Index an appropriate benchmark index. The Russell Midcap® Growth Index is included in the table above for comparison
purposes for the period before the Fund converted to an all-cap fund. Prior to February 20, 2015, the Fund invested in companies with market capitalizations between $1
billion and $15 billion at the time of purchase. Since then, the Fund may invest in companies of all market capitalizations. The Adviser believes that the Russell 3000 Growth
Index is more representative of the Fund’s current investable universe. The indexes and the Fund are with dividends, which positively impact the performance results. Russell
Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark of Russell Investment Group.
Not annualized.
26
March 31, 2015
•
DNA sequencing has brought us to the dawn of a new age of using
genetic information to diagnose, treat and prevent disease and to
develop a new generation of targeted drugs and therapies.
•
Modern computing infrastructure and applications are being built for
the cloud, not legacy architectures of client-server or on-premise
software.
•
Solar is the fastest growing segment of electricity generation and
fast approaching grid parity with fossil fuels.
•
On demand digital media (music and video) will further disrupt
traditional TV and radio ecosystems – who wants to watch their
favorite program at 9 p.m. on Thursday, while enduring 20 minutes
of largely irrelevant ads, because some network executive says so or
pray that the radio DJ plays their favorite song?
•
Advertising will not only continue to follow consumer eyeballs to
mobile devices and the broader Internet, but will become more
relevant, targeted and people-based.
•
Mobile, including a new generation of connected devices, will
continue to occupy the central place in all of our lives, forever
changing the way we work, play, communicate, exercise, eat and
monitor our own health and well-being.
As mentioned above, this quarter we changed the Fund’s primary
benchmark from the Russell Midcap Growth Index to the Russell 3000
Growth Index, an all-cap benchmark. This was done in conjunction with a
firm wide review of how we define market cap categories for all Baron
mutual funds and a resetting of the market cap definitions of our small-,
mid- and large-cap portfolios. Since inception, the Baron Opportunity Fund
has always had wide flexibility to invest in large and small companies alike.
We’ve invested in small companies under $1 billion in market cap, as well
as some of the world’s largest and best known companies, including Apple,
Google and Facebook. In connection with this market cap review, we
decided the best approach would be to give the Fund maximum flexibility
by removing, rather than resetting, any market cap restrictions on the
portfolio. In doing so, we also determined that it also made sense to adopt
an all-cap index as our primary benchmark.
It is important for our investors to understand that these “changes” will
have no impact – zero – on the way we implement the Fund’s strategy
either in terms of how we build our portfolio or the goals we set for
ourselves. Our intent with the Fund’s strategy has always been to give our
investors something different from passive indexes or generalized growth
funds by focusing on building a portfolio of higher growth, innovative
businesses. The Fund stresses long-term secular growth and a set of themes
based on the innovation and disruption we are seeing across many
industries, as mentioned above. Our goals have never been to replicate an
index either in terms of makeup or performance – and, in fact, our portfolios
have always looked quite different than the indexes against which we have
compared ourselves and have sometimes performed quite differently than
those indexes. As strange as it may sound, we do not have short-term
portfolio performance goals. Echoing Warren Buffet, Ron Baron’s consistent
mantra, which has become ingrained in the culture of our firm, is to focus
on the portfolio – companies and their stocks – not performance. In so
doing, we look to build a portfolio of unique businesses that we believe can
double in value in four-to-five years; or, said another way, yield annualized
returns of 15-20% over that same four-to-five year period. If we do our jobs
well, allowing for the inevitable mistakes along the way, over the long term
and across market cycles, we believe our portfolio should “beat the market”
as measured by the S&P 500 Index or a generalized index, such as the
Russell 3000 Growth Index. We believe annualized outperformance of
300-500 basis points is a reasonable and achievable target (although, of
course, there is no guarantee that this will be the case).
Table II.
Percent
Impact
Twitter, Inc.
JUST EAT plc
Netflix, Inc.
Concho Resources, Inc.
SunEdison, Inc.
0.54%
0.50
0.46
0.43
0.37
Three of our top contributors – Twitter, Inc., Netflix, Inc. and Concho
Resources, Inc. – were top detractors last quarter, proving once again that
quarterly stock performance is largely irrelevant for long-term investors. As
Warren Buffet wrote in his recent investor letter, “[m]onthly or yearly
movements of stocks are often erratic and not indicative of changes in
intrinsic value. Over time, however, stock prices and intrinsic value
invariably converge.”
Twitter is an online social broadcasting and micro-blogging service. Shares
of Twitter were up due to strong fourth quarter results and a positive
outlook. In the past few months, the company has launched several new
efforts and product initiatives to increase both user growth and
engagement on the platform. While it is likely to take some time for these
efforts to gain greater traction, we believe that Twitter is in the early stages
of monetization and evolution as a platform. (Ashim Mehra)
Shares of JUST EAT plc, an online restaurant delivery marketplace in Europe,
Latin America, and Canada, rose during the first quarter. JUST EAT reported
solid results for the back half of 2014, guided toward sales slightly above
Street estimates for 2015, and demonstrated execution across its European
footprint. In our view, this provided further evidence that its #1 position
across most of its markets is defensible and sustainable. We believe JUST EAT
will benefit from the trend toward online delivery ordering and its large lead
in a winner-take-all industry. (Eric Guzman)
Shares of on-demand video service Netflix were up during the first quarter
based on stronger-than-expected fourth quarter subscriber additions and a
robust outlook for the first quarter of 2015. Because of the success of its
original content (House of Cards, Orange is the New Black, etc.) across all of
its markets and the solid growth experienced with its slate of international
launches, the company has decided to accelerate its international
expansion plans, with a goal of achieving near global coverage by the end
of 2016. In addition, the company is continuing to invest aggressively in
original content. While quarterly fluctuations in net additions will likely
continue, we believe Netflix will benefit from the growing global demand
for high-quality, ad-free online video content to ultimately reach 60 million
U.S. subscribers and over 100 million subscribers overseas. (Ashim Mehra)
Concho Resources is an independent exploration and production oil
company operating in the Permian Basin in West Texas and New Mexico.
Shares rebounded from the fourth quarter drubbing even as oil prices
remained weak. Concho prudently cut its spending rate, raised additional
capital, and positioned itself well, in our view, to survive the downturn and
emerge as a stronger company when oil prices recover. Strong results from
its Delaware Basin drilling program are enhancing an asset we believe to be
undervalued within the current share price. (Jamie Stone)
27
Shares of renewable energy company SunEdison, Inc. rose during the first
quarter on increased investor confidence in its strategy to develop cashgenerating assets and drop them down to its yieldco, TerraForm Power (also
a Fund investment). We believe SunEdison’s recent acquisition of First Wind
will help accelerate SunEdison’s development pipeline and TerraForm’s
portfolio. Over time, we think the yieldco structure will allow SunEdison to
monetize the value of its solar assets and raise capital at a low rate, creating
a cycle of growth and value creation. (Jamie Stone)
Table III.
Percent
Impact
AO World plc
Alibaba Group Holding Ltd.
Tesla Motors Inc.
athenahealth, Inc.
Flotek Industries, Inc.
–0.58%
–0.43
–0.41
–0.32
–0.27
AO World plc is the leading online seller of major domestic appliances in
the U.K., with a 12% market share. AO’s optimization of proprietary
software and logistics and focus on customer service sets it apart from
competitors. Shares were pressured in the first quarter by the company’s
announcement of a lower near-term growth forecast, based on a difficult
comp against a spike in sales in the wake of AO’s IPO last May. The
company has said that it expects growth to reaccelerate in the second half
of 2015, driven by improving sales in the U.K. and a continued ramp up in
Germany. (Ashim Mehra)
Alibaba Group Holding Ltd. is the largest e-commerce company in China
and the world. Shares declined in response to the company missing fourth
quarter Street revenue projections (although beating on gross merchandise
sales and operating cash flow) as a result of increased mobile contribution,
a greater mix of sales through its Taobao marketplace, and algorithm
changes. The stock has also been weak ahead of IPO lock-up expirations. We
view these issues as transitory, and have seen it play out with other Internet
companies (such as Facebook) transitioning to an emphasis on mobile. We
believe Alibaba’s market leading position, positive network effects, assetlight business model, and high cash generation give it a long runway for
continued growth. (Catherine Chen)
Shares of electric vehicle (EV) company Tesla Motors Inc. fell during the
first quarter due to increasing skepticism about the sustainability of
demand. Lower gas prices raised concerns that EV demand would drop. In
addition, sales in China have been below expectations and investors have
worries that the launch of the Model X could be delayed. As of this writing,
Tesla has pre-announced first quarter Model S deliveries of over 10,000
cars, beating Street expectations, launched a new Model S version called the
70D and has stated publicly that the Model X launch remains on track for
this Summer. We believe that, regardless of gas prices, Tesla’s talent pool,
first-mover advantage, track record of innovation, scale and brand will
enable it to disrupt the automobile market and take market share for years
to come. (Gilad Shany)
Shares of athenahealth, Inc., a provider of cloud-based payment and other
services to doctors, fell due to a shortfall in 2014 internal bookings targets.
Disruption at a channel partner, weak results from point-of-care medical
28
app Epocrates, and the reluctance of enterprise prospects to select
athenahealth without knowing more about its strategy to enter the
hospital market, all contributed to the shortfall. We believe athenahealth
will successfully enter the hospital market and gain share via its compelling
software-enabled-service offering. (Neal Kaufman)
Flotek Industries, Inc. is a leading supplier of specialized chemicals to the
oil & gas industry. Its proprietary citrus oil based products such as the
complex nano fluid experienced rapid growth related to the boom in shale
oil drilling in the U.S. and Canada in the last several years. Despite this, the
sharper-than-expected decline in U.S. drilling and completion activity has
taken a toll on its earnings outlook and its share price during the last couple
of quarters. We continue to see significant potential for differentiated
organic growth and a rebound in long-term earnings power at Flotek. (Jamie
Stone)
Portfolio Structure
Baron Opportunity Fund invests in high growth, innovative businesses
across all market capitalizations. As of the end of the first quarter, the
largest market cap holding in the Fund was $231 billion and the smallest
was $517 million. The median market cap of the Fund was $5.8 billion. The
Fund had $386.5 million of assets under management. The Fund had
investments in 56 securities. The Fund’s top 10 positions accounted for
32.9% of the portfolio. The Fund’s cash position was 0.3% at quarter end.
Table IV.
Quarter End
Quarter End Investment Percent
Market Cap
Value
of Total
(billions)
(millions) Investments
Guidewire Software, Inc.
Gartner, Inc.
CoStar Group, Inc.
Illumina, Inc.
Red Hat, Inc.
Shutterstock, Inc.
Benefitfocus, Inc.
Equinix, Inc.
CarMax, Inc.
$ 3.7
7.3
6.4
26.7
11.3
13.9
2.4
1.0
13.1
14.5
$19.3
15.5
13.5
11.6
11.6
11.4
11.3
11.1
11.1
10.9
5.0%
4.0
3.5
3.0
3.0
2.9
2.9
2.9
2.9
2.8
The goal of the Fund is to provide our investors with a differentiated
strategy – investing in higher growth, innovative businesses – not to
replicate any market index or even to look like general growth funds. We
focus on investing the Fund’s assets in themes and individual businesses
that we believe will experience significant secular growth rates. As a result,
the Fund’s sector weights are an output of our process, not an input. Not
surprisingly, most of our investments are in those industry sectors more
typically associated with growth. At quarter end, about 68.9% of the
portfolio was invested in the Consumer Discretionary and Information
Technology sectors. We also have meaningful investments across the
Health Care, Industrials and Energy sectors. In thinking about
diversification, we pay little attention to sector weights as defined by GICS,
instead focusing on the fundamental business drivers and end market
exposures for our investments.
March 31, 2015
Recent Activity
Table V.
Quarter End Amount
(billions)
(millions)
FireEye, Inc.
MasterCard, Inc.
WEX, Inc.
Mobileye N.V.
Aerie Pharmaceuticals, Inc.
$ 6.1
99.8
4.2
9.1
0.8
$4.7
4.0
3.8
3.6
3.4
FireEye, Inc. provides a comprehensive cybersecurity solution for detecting,
preventing and resolving advanced cyber-attacks that evade legacy
signature-based security products. You may have seen FireEye’s CEO Dave
DeWalt and its COO Keven Mandia on two recent 60 Minutes episodes
discussing the pandemic of cyber threats. FireEye’s solutions combine
proprietary virtual-machine (VM) technology, threat intelligence, and
advanced security expertise in a suite of products and services that reduces
its customers’ exposure to attacks by enabling accurate detection and rapid
response. FireEye’s unique VM technology captures and “detonates”
malicious-looking computer code in a virtual sandbox, or quarantine
environment, that looks to the “bad guys” like actual enterprise computing
systems. This VM technology combined with FireEye’s broader portfolio of
threat intelligence subscriptions, managed services, incident response, and
consulting services enable organizations to adapt their security profile as
threats evolve. This adaptive approach represents a paradigm shift in
cybersecurity necessary to combat today’s advanced attacks and a new
generation of perpetrators that have evolved from hackers to state actors,
terrorist organizations and well-financed criminal organizations. The
challenge for security vendors in the current threat environment is to
innovate and adapt as fast as the bad guys. We believe FireEye is among a
small set of security vendors equipped to do this.
MasterCard, Inc. (MA) is the world’s second-largest payments technology
company that connects consumers, businesses, banks, and governments,
enabling them to use electronic forms of payment instead of cash and
checks. MA’s centralized system authorizes credit, debit, and prepaid card
payments in real-time and accurately settles and reconciles transactions.
MA generates revenues from card issuers (banks) and merchant acquirers by
charging fees based on the number of transactions processed and the gross
dollar volume of payment activity on its branded cards. But MA doesn’t
issue cards or extend credit to consumers. MA is benefitting from and
helping drive what we believe is a mega-trend of conversion from cash to
electronic payments - 85% of all payment transactions are made with cash
or checks, while only 15% are made with electronic forms of payment.
Electronic payments are safer, more efficient, and more transparent than
paper-based payments.
WEX, Inc. is a leading provider of payment processing and information
management products/services to the U.S. vehicle fleet industry, with
emerging businesses involving international fleets, an extension of its core;
special use virtual cards, particularly in the online travel industry; and as a
provider of health savings accounts and health care payment solutions. The
core fleet business is relatively simple: providing fuel cards to small and midsized businesses with vehicle fleets so they can better control employee
expenses and limit leakage (unauthorized and unaccounted for employee
spend). WEX’s sweet spot is with small companies with a few vehicles (e.g.,
a landscaping biz) up to a mid-sized regional company (dairy). Think of a
WEX card as a limited use corporate card for people in the transportation
business. Because WEX owns its own closed loop network, it is also able to
harness the data and prepare valuable reports on spend/usage patterns for
companies so they can better evaluate employee behavior. Like MasterCard,
WEX is a key beneficiary and innovator participating in the electronic
payments mega-trend.
Mobileye N.V. is an Israeli software and systems design leader for camerabased advance driver assistance systems (ADAS). Mobileye’s technology
keeps passengers safer on the roads, reduces the risks of traffic accidents,
saves lives and has the potential to revolutionize the driving experience by
enabling autonomous driving. Tesla, another innovator in the auto space, is
an early and aggressive adopter of Mobileye’s solutions. Through its
innovation in camera technology, its unprecedented trove of driving data
and its proprietary software and chip designs, Mobileye is able to offer its
customers – Tier 1 auto-parts vendors and the automakers themselves – a
superior system that is not only far more accurate (zero false negatives and
a very low rate of false positives) but also vastly less expensive. In our view,
Mobileye is the leading innovator in another mega-trend of autonomous
driving.
Aerie Pharmaceuticals, Inc. is a specialty pharmaceutical company
developing novel ophthalmology treatments with a current focus on
glaucoma. Aerie’s lead assets – Rhopressa/Roclatan – represent the first
new potential market entrants in almost 20 years and have a two-year head
start on limited competition, in our view. Data to date has been promising
and additional data from Aerie’s first Phase 3 clinical trial will be reported
in the near future. We believe Aerie’s first drug is likely to win FDA approval
and enter the commercialization phase in the 2016/2017 timeframe. Our
investment is based on Aerie’s underappreciated assets, its M&A scarcity
value (as the only small-to-medium sized ophthalmology company) and its
experienced and well regarded management team.
Table VI.
Quarter End
Market Cap or
Market Cap Amount
When Sold
Sold
(billions)
(millions)
comScore, Inc.
Qualys, Inc.
Liberty Media Corp.
Illumina, Inc.
Discovery Communications, Inc.
$ 1.7
1.6
11.9
26.7
11.7
$6.6
5.6
4.8
4.5
4.2
comScore, Inc., Qualys, Inc. and Liberty Media Corp. were all, in our view,
successful investments for the Fund. We sold them due to our views that
they stocks offered less long-term return potential and to recycle capital
into other investments.
We further trimmed our Illumina, Inc. position on strength. As of the end
of the first quarter, Illumina remained a Top five position in the Fund.
While we have very high regard for the Discovery Communications, Inc.
management team, particularly its CEO, David Zaslav, we decided to exit
our Discovery investment because of our concerns (alluded to above) about
the secular declines in the traditional TV ecosystem.
29
Thank you for your support and for trusting us with your assets. We
look forward to updating you in future letters.
Sincerely,
Michael A. Lippert
Portfolio Manager
April 30, 2015
please scan this QR code with any
bar code reader on your mobile device.
The Adviser believes that there is more potential for capital appreciation in securities of high growth businesses benefiting from innovation through
development of pioneering, transformative or technologically advanced products or services, but there also is more risk. Companies propelled by innovation,
including technological advances and new business models, may present the risk of rapid change and product obsolescence and their successes may be difficult
to predict for the long term. Securities issued by small and medium sized companies may be thinly traded and may be more difficult to sell during market
downturns. The Fund may not achieve its objectives. Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.
This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Opportunity Fund by anyone in any jurisdiction where it would be unlawful under the laws of that
30
Baron Partners Fund
March 31, 2015
Dear Baron Partners Fund Shareholder:
Performance
Baron Partners Fund advanced 2.56% during the first quarter of 2015. The
Russell Midcap Growth Index, the benchmark against which we compare
the performance of this Fund, advanced 5.38% in the period. Baron Partners
Fund outperformed the S&P 500 Index, which measures the performance of
large cap companies, by 161 basis points in the period.
Although the Fund underperformed the benchmark index in the quarter and
the trailing twelve months, the Fund outperformed both its benchmark index
and the S&P 500 Index since its conversion from a partnership to a
mutual fund on April 30, 2003, as well as over the last 3 years, 5 years, 15
years, 20 years and since its inception on January 31, 1992 (though the Fund
slightly underperformed the benchmark in the 10-year period). The
businesses in which the Fund has invested have grown significantly over the
past twelve months. Since the Fund’s shares have not kept pace, we believe
the Fund is well positioned to outperform, although we obviously can’t
guarantee it.
RONALD BARON
CEO AND PORTFOLIO MANAGER
Retail Shares: BPTRX
Institutional Shares: BPTIX
Table I.
Three Months4
One Year
Three Years
Five Years
Ten Years
Since Conversion (April 30, 2003)
Fifteen Years
Twenty Years
Since Inception (January 31, 1992)
Baron
Partners
Fund1,2,3
Russell
Midcap
Growth
Index2
S&P 500
Index2
2.56%
7.32%
19.50%
16.98%
9.89%
14.31%
7.21%
12.21%
13.18%
5.38%
15.56%
17.41%
16.43%
10.19%
12.34%
4.02%
10.05%
9.85%
0.95%
12.73%
16.11%
14.47%
8.01%
9.28%
4.15%
9.39%
9.44%
After collapsing during the fourth quarter, oil prices remained at multi-year
lows during the first quarter, which pressured energy stocks. We think lower
oil prices is a positive for the U.S. economy and non-energy-related U.S.
stocks. This is because energy-intensive manufacturers will have lower
energy costs, resulting in higher cash flow, and consumers will have higher
disposable income to spend on goods and services. However, the current
environment is challenging for energy companies, and we chose to sell the
Fund’s energy holdings during the quarter in order to invest in businesses
with more certain prospects.
The Fund’s investments within the Financials and Industrials sectors were the
largest contributors to positive relative performance, while investments in
the Consumer Discretionary, Health Care and Utilities, and lack of exposure
to Consumer Staples, were the largest relative detractors. Strength in
Financials was largely attributable to the outperformance of Gaming and
Leisure Properties, Inc., which was also the Fund’s largest contributor on an
absolute basis in the quarter. Within Industrials, the Fund’s two largest
holdings in the sector, Air Lease Corp. and Verisk Analytics, Inc.,
contributed to performance. Within Consumer Discretionary, the Fund’s two
largest investments in the sector, Tesla Motors Inc. and Hyatt Hotels
Corp., declined. Within Health Care, the Fund’s lack of exposure to
biotechnology and pharmaceutical stocks, which rose 23.9% and 14.1%
respectively, within the benchmark, detracted from performance. Within
Utilities, the Fund’s position in ITC Holdings Corp. was one of the Fund’s
largest detractors on an absolute basis. Of the Fund’s average net assets,
Performance listed in the above table is net of annual operating expenses. Annual expense ratio for the Retail Shares as of December 31, 2014 was 1.51%
(comprised of operating expenses of 1.32% and interest expense of 0.19%). The performance data quoted represents past performance. Past performance is
no guarantee of future results. The investment return and principal value of an investment will fluctuate; an investor’s shares, when redeemed, may be worth more
or less than their original cost. The Fund’s transfer agency expenses may be reduced by expenses offsets from an unaffiliated transfer agent, without which
performance would have been lower. Current performance may be lower or higher than the performance data quoted. For performance information current to
the most recent month end, visit www.BaronFunds.com or call 1-800-99BARON.
1
2
3
4
Reflects the actual fees and expenses that were charged when the Fund was a partnership. The predecessor partnership charged a 20% performance fee after reaching a certain performance
benchmark. If the annual returns for the Fund did not reflect the performance fees for the years the predecessor partnership charged a performance fee, the returns would be higher. The Fund’s
shareholders will not be charged a performance fee. The predecessor partnership’s performance is only for periods before the Fund’s registration statement was effective, which was April 30, 2003.
During those periods, the predecessor partnership was not registered under the Investment Company Act of 1940 and was not subject to its requirements or the requirements
of the Internal Revenue Code relating to registered investment companies, which, if it were, might have adversely affected its performance.
The indexes are unmanaged. The Russell Midcap™ Growth Index measures the performance of medium-sized U.S. companies that are classified as growth and the S&P 500
Index of 500 widely held large cap U.S. companies. The Russell Midcap Growth Index, the S&P 500 Index and the Fund are with dividends, which positively impact the
performance results. Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark
of Russell Investment Group.
Not annualized.
31
Baron Partners Fund
31.71% produced double digit returns, 50.72% advanced by single digits and
33.67% declined. On average, 44.12% of the Fund’s net assets outperformed
the benchmark.
We try to explain the reasons certain stocks outperformed or
underperformed during the period in the “Top Contributors” and “Top
Detractors” sections. In many instances, we regard gains and losses in the
short term as random. We continue to believe all the businesses in which
we have invested have the potential to double in size in four to five years.
As a result, we believe stocks that have recently underperformed will
achieve above average returns and contribute positively to the Fund’s
performance in coming quarters, although we cannot guarantee this.
Biotech stocks have performed strongly over the past few years, and this
strong performance continued in the quarter. The biotech rally has been
driven in part by an increase in the number of novel new drugs approved by
the FDA relative to prior years, some potentially exciting breakthroughs in
cancer therapies, M&A activity, and the fact that biotech companies are
relatively insulated from global macro issues. Another factor that may be
fueling biotech stock outperformance is the industry’s increased
representation in the indices, which has driven increased purchases of the
stocks by ETFs, which has driven even higher representation in the indices.
To date, the Fund has avoided biotech stocks because of the difficulty of
predicting whether or not these businesses will be successful. Many of these
businesses have no revenue or earnings and their future prospects are
highly dependent upon the outcomes of clinical trials, which are difficult to
predict and fraught with risk. The Fund’s preferred way of participating in
the growth of the biotech industry to date has been through its investment
in Illumina, Inc., a company which supplies DNA sequencing instruments
and consumables to biotech and other life sciences customers. Illumina
benefits from many of the same trends as biotech companies but with less
risk. In contrast to many biotech companies, Illumina has a highly profitable,
razor/razor-blade business model with recurring revenues and cash flow.
Managing risk is a key part of our investment process. We manage risk from
a company perspective by investing in businesses that are conservatively
financed with high barriers to entry. Our proprietary research regarding
business’ long-term growth opportunities, competitive advantages,
management teams and risks determines how much we allocate to
individual securities. We invest in different industries that are affected
differently in the short term by unpredictable events. This is to achieve a
portfolio of investments with risks that are not correlated. This is part of our
effort to reduce the volatility of a non-diversified portfolio. Further, the
underlying businesses in which the Fund has invested historically have less
volatile earnings than the Fund’s benchmark index.
Our approach is to invest for the long term. We do not try to predict shortterm “macro” developments or shift our investment approach because
certain types of stocks are in or out of favor.
Although economic data from other regions around the world (Europe, China)
has not been robust, U.S. economic data continues to show broad signs of
strength, including gains in housing prices, starts and existing sales; increased
industrial production; strong auto sales; rising consumer confidence; and
lower unemployment claims. Interest rates remain at historically low levels.
Our outlook for stocks remains favorable. In our opinion, stocks remain
attractively valued, trading at 16.9 times earnings, approximating the
32
market’s long-term average valuation, while business activity is
accelerating. Historically, stocks have provided protection against inflation,
as well as better returns than other asset classes. We think that will
continue to be the case, but we can’t guarantee it.
Table II.
Year
Acquired
Gaming and Leisure
Properties, Inc.
Dick’s Sporting
Goods, Inc.
CoStar Group, Inc.
FactSet Research
Systems, Inc.
Air Lease Corp.
Market
Cap
Quarter
When End Market
Acquired
Cap
Total
2013
$4.2
$4.2
2005
2005
1.6
0.7
2007
2014
2.5
3.3
Percent
Impact
27.78%
0.94%
6.8
6.4
15.06
7.73
0.83
0.81
6.6
3.9
13.39
10.02
0.76
0.66
Shares of gaming REIT Gaming and Leisure Properties, Inc. increased in
the first quarter on speculation that it would buy the real estate assets of
Pinnacle Entertainment and spin off the operating company. We think the
deal as currently structured is highly accretive for Gaming and Leisure and
gives Pinnacle a higher pro-forma valuation than if Pinnacle converted to a
REIT itself. We think the deal will eventually be consummated at a higher
price, although still accretive for Gaming and Leisure. (David Baron)
Shares of sporting goods retailer Dick’s Sporting Goods, Inc. increased in the
first quarter. Dick’s performed well in a difficult environment. It reported a solid
increase in same store sales and continued to open stores at high productivity
levels, making it a positive outlier for the retail sector. We think inventory is at
appropriate levels, which should result in improving profitability throughout
2015. We also think the company is a candidate for private equity investors
who would likely pay a premium over current levels. (Michael Baron)
Shares of CoStar Group, Inc., an information and marketing services
provider to the commercial real estate industry, rose in Q1, as a result of
robust revenue and earnings results, strong synergy potential from the
acquisition of Apartments.com, and better relative performance from
higher multiple growth stocks. We believe investments in R&D and a
doubling of the sales force will help increase customer penetration, while
investments in Apartments.com will accelerate CoStar’s growth in the vast
multi-family market. (Neal Rosenberg)
Table III.
Quarter
Market
End
Cap
Market
When
Cap or Market
Year
Acquired Cap When Sold
Acquired (billions)
(billions)
Tesla Motors Inc.
Fastenal Co.
ITC Holdings Corp.
Wynn Resorts Ltd.
Hyatt Hotels Corp.
2014
2006
2005
2015
2009
$21.9
6.8
0.8
15.7
4.2
$23.7
12.2
5.8
14.1
8.8
Total
Return
Percent
Impact
–15.13%
–12.34
–7.04
–11.43
–1.64
–1.44%
–0.55
–0.54
–0.34
–0.16
Baron Partners Fund
March 31, 2015
quarter as lower gas prices raised concerns that EV demand would drop. In
addition, the launch of the company’s Model X SUV was delayed until late in
2015. We believe that, Tesla’s talent pool, first mover advantage, scale and
brand, will result in market share gains for Tesla in years to come. (Gilad Shany)
Shares of industrial supplies distributor Fastenal Co. fell in the first quarter.
Sales growth moderated due to slowing demand in oil and gas regions and
the impact of a stronger U.S. dollar on customers with large export
divisions. Current growth rates of about 10%, while industry-leading,
represent a deceleration from last year’s 15-20% runrate and are impacting
Fastenal’s ability to leverage earnings faster than sales growth. We still see
a path to double digit growth over the next several years, as well as an
attractive valuation and debt-free balance sheet. (Matt Weiss)
The stock of ITC Holdings Corp., the nation’s largest independent transmission
company, fell in the first quarter. An expected increase in interest rates
contributed to overall sector weakness as investors exited utilities and other
yield-oriented investments. The primary drivers for transmission investment –
reliability and connection of new generation (including renewables) – remain
intact, and we believe ITC has robust prospects for growth and will execute on
its growth strategy and concurrent five-year capital plan. (Rebecca Ellin)
Recent Portfolio Additions
Table IV.
Inovalon Holdings, Inc.
Zillow Group, Inc.
Mobileye N.V.
Under Armour, Inc.
Year
Acquired
Market
Cap
When
Acquired
(billions)
2015
2014
2014
2015
$4.1
4.3
7.9
16.2
Quarter
End
Market Amount
Cap
Purchased
(billions) (millions)
$4.5
5.8
9.1
17.4
$71.4
29.9
11.7
1.9
The Fund initiated a position in Inovalon Holdings, Inc., a health care data and
analytics company that came public during the quarter. The foundation of the
company is a proprietary data set which contains more than 9.2 billion
medical events from 120 million unique patients. This data is used to power
Inovalon’s advanced analytics, which help insurers identify gaps in care, quality,
data integrity and financial performance. Clients then leverage Inovalon’s
intervention platforms to drive improvement in clinical and quality outcomes,
utilization, and financial performance across the health care landscape.
Inovalon serves a vast addressable market. The company addresses a $14
billion annual opportunity, and we believe that logical adjacencies can
increase its addressable market opportunity by three-to-four times. Secular
drivers, particularly the need to reduce health care cost inflation and a shift
to value based from consumption based health care, are helping to accelerate
Inovalon’s growth. Finally, the company has an enviable financial model, with
98% retention rates, high levels of recurring revenue, EBITDA margins that are
approaching 40%, and strong free cash flow. (Neal Rosenberg)
We added to our position in Zillow Group, Inc. in the quarter. Zillow is the
leading online real estate site in the U.S. The company offers information on
homes for sale and rent, in addition to offering a mortgage marketplace. The
company also owns and operates Street Easy, the leading real estate site for
New York City. The company recently closed on its acquisition of Trulia, the
number two online real estate site after Zillow. With the continued consumer
transition to online and mobile, we believe that Zillow is well positioned to
grow its 4% share of the $12 billion dollar real estate advertising market. As
Zillow grows its share of the real estate advertising market in the next several
years, the company should generate meaningfully more revenue and cash
flow, with value accruing to shareholders. (Ashim Mehra)
Mobileye N.V. is a leader in the Advanced Driver Assistance Systems or ADAS
category. We believe people will be less likely to be injured from car accidents
with ADAS, and that computers will be safer and better at driving cars than
humans. Mobileye developed advanced image sensing and processing
technology for the automotive industry. The company’s technology interprets
and integrates the imaging data into the driver assistance systems, from
collision prevention to eventually, full autonomous driving. We believe
Mobileye’s technology and products are unique, developed by many hundreds
of software and hardware engineers, the products are based on the most
advanced artificial intelligence and machine learning technologies. We think
autonomous driving is a question of “when” rather than “if.” (Gilad Shany)
Investment Strategy
We invest for the long term in a non-diversified portfolio of competitively
advantaged, well-managed, growing businesses at what we think are
attractive prices. Often, we have opportunities to purchase stocks of
businesses we have researched extensively and that we believe are mispriced
or have fallen in price due to what we perceive to be temporary issues. This
quarter, we added to current holdings Zillow Group, Inc. and Mobileye N.V.,
and initiated a position in Under Armour, Inc. Our objective is to purchase
shares of well-established, appropriately capitalized, growing companies, with
strong positions in markets with stable demand for their products and
services. The Fund may use leverage to invest in stable and well-capitalized
growth companies, with the goal of enhancing its investment returns.
Another common theme for Baron Partners Fund’s investments is one of
businesses investing for growth, often at the expense of short-term profits.
These businesses are investing in order to become much larger, more
profitable businesses in the future. Virtually all the businesses in which we
have invested are making such capital commitments: Verisk Analytics, Inc.’s
startup investments in health care and real estate data services; CarMax,
Inc.’s line of new stores coupled with efforts to grow sales in existing stores;
and Hyatt Hotels Corp.’s investment in hotel renovations and improved
guest services, as well as its ongoing expansion in Asia; are noteworthy in this
regard. As long-term investors who hold stocks for an average of about four
years, we expect to benefit from these expenditures. In contrast, most other
mid-cap mutual funds are more trading oriented, turning over their entire
portfolios on average every nine months. Since these funds, in general, will not
care about or benefit from such long-term, strategic investments by
businesses, they accord them little or no value. This allows us to invest in
these companies at prices we feel are especially attractive.
Baron Partners Fund also has significant investments in growing “C”
corporations like Vail Resorts, Inc. and ITC Holdings Corp., whose shares
we believe are especially undervalued when compared to similar businesses
structured as REITs or master limited partnerships. The Fund’s investments
in alternative investment money manager The Carlyle Group and financial
intermediary The Charles Schwab Corp., are benefiting from strong
performance of equities since the Financial Panic of 2008-09.
33
Baron Partners Fund
Portfolio Structure
Thank you for investing in Baron Partners Fund.
The Fund’s non-diversified portfolio is currently invested in 26 businesses,
principally growing mid-cap companies. As of March 31, the weighted
average market capitalization of the Fund’s portfolio investments was
$10.12 billion, compared with $14.78 billion for the benchmark. The Fund
currently has significantly larger investments in Consumer Discretionary,
Financials and Utilities sectors than the Russell Midcap Growth Index. The
Fund’s investments in Health Care are weighted less than the index. The
Fund does not have investments in Consumer Staples, Materials, Energy, or
Telecommunication Services. We are not attempting to mirror any index
with the Fund’s portfolio.
Thank you for joining us as fellow shareholders in Baron Partners Fund. We
believe the growth prospects for the businesses in which Baron Partners
Fund has invested are favorable and improving. Since, in our opinion, the
share prices of our businesses do not reflect their prospects, we believe they
remain attractive. Of course, there can be no guarantee this will be the case.
We think the businesses in which the Fund has invested have the potential
to double in size within four to five years. We think because of the
competitive advantages of those businesses, it would take many years or
cost a lot of money, and, therefore, not be economically feasible, for new
entrants to compete against them. We think these barriers enable our
companies to generate strong returns on capital and provide them with the
ability to grow consistently over the long term.
We are continuing to work hard to justify your confidence and trust in our
stewardship of your family’s hard-earned savings. We also remain dedicated
to continuing to provide you with the information I would like to have
about your investments in Baron Partners Fund if our roles were reversed.
This is so you will be able to make an informed decision about whether this
Fund remains an appropriate investment for you and your family.
Respectfully,
Ronald Baron
April 30, 2015
Table V.
Market Quarter
Cap
End
When
Market
Percent
Year
Acquired
Cap
Amount
of Total
Acquired (billions) (billions) (millions) Investments
CoStar Group, Inc.
Tesla Motors Inc.
Arch Capital Group
Ltd.
ITC Holdings Corp.
Hyatt Hotels Corp.
CarMax, Inc.
FactSet Research
Systems, Inc.
Dick’s Sporting
Goods, Inc.
The Charles Schwab
Corp.
2005
2014
$0.7
21.9
$6.4
23.7
$217.6
155.7
9.4%
6.7
2002
2005
2009
2011
0.6
0.8
4.2
6.1
7.7
5.8
8.8
14.5
150.9
149.7
148.1
138.0
6.5
6.4
6.4
5.9
2007
2.5
6.6
123.4
5.3
2005
1.6
6.8
119.7
5.2
1992
2009
1.0
4.0
40.0
11.3
115.7
107.1
5.0
4.6
The Adviser believes that there is more potential for capital appreciation using non-diversification and leverage, but there also is more risk. Specific risks
associated with non-diversification and leverage include increased volatility of the Fund’s returns and exposure of the Fund to greater loss in any given period.
The Fund invests in companies of all sizes, including small and medium sized companies whose securities may be thinly traded and made difficult to sell
during market downturns. Leverage is the degree to which an investor or business is utilizing borrowed money. The Fund may not achieve its objectives.
Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.
The discussions of the companies herein is not intended as advice to any person regarding the advisability of investing in any particular security. The views expressed in this report reflect those of the
This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Partners Fund by anyone in any jurisdiction where it would be unlawful under the laws of that
34
March 31, 2015
Dear Baron Fifth Avenue Growth Fund Shareholder:
Performance
We are off to a good start in 2015. The Baron Fifth Avenue Growth Fund
returned approximately 5.0% for the quarter, which was a little better than
the 3.8% for the Russell 1000 Growth Index and nicely better than the 1%
return for the S&P 500 Index. Small caps outperformed mid caps which
outperformed large caps, but growth did better than value making for a
benign investing backdrop overall. We did not observe anything particularly
interesting in the marketplace, especially in the U.S., where the Fund is
primarily invested, and would, in fact, characterize the quarter as dull. This
is the kind of market environment in which we tend to do well.
As is typical for us, all of the excess returns came from stock selection with
12 of our investments appreciating more than 10% during the quarter. The
portfolio had an unusually good balance. We benefited from some reversion
to the mean, as Amazon.com, Twitter, and Concho Resources regained
most of last year’s losses. The stalwarts - Apple, Starbucks, and Costco
continued to perform very well, and our newer, more speculative (ambitious
is probably a better word) additions, FireEye and Ctrip.com, rewarded us
with unexpected (although not unwelcome) instant gratification.
We had one significant loser, Alibaba Group, which we added to and like
even more now than we did before, and one continuing, although less
meaningful now, source of pain and outright anxiety, Wynn Resorts, which
we stubbornly refuse to end on the count of us being late and the stock
appearing cheap. We generally did not do very much, adding one name
(Ctrip.com) and eliminating one (Ralph Lauren – bad investment thesis,
but luckily, not a bad outcome) turning over just 3% of the Fund. However,
we did benefit from net inflows again (just over 5%), all of which, were
promptly put to work. Overall, we were happy with the quarter’s results.
Table I.
Baron Fifth
Avenue
Growth
Fund1,2
Three Months3
One Year
Three Years
Five Years
Ten Years
Since Inception (April 30, 2004)
4.95%
13.14%
14.81%
13.89%
7.82%
7.57%
Russell
1000
Growth
Index1
3.84%
16.09%
16.34%
15.63%
9.36%
8.77%
S&P 500
Index1
0.95%
12.73%
16.11%
14.47%
8.01%
8.11%
ALEX UMANSKY
PORTFOLIO MANAGER
Retail Shares: BFTHX
Institutional Shares: BFTIX
Table II.
Amazon.com, Inc.
Twitter, Inc.
Apple Inc.
Starbucks Corp.
FireEye, Inc.
Quarter End
Market Cap
(billions)
Percent
Impact
$172.8
32.4
724.8
71.0
6.1
1.51%
1.19
0.67
0.54
0.52
Shares of Amazon.com rose 20% as the company finally reported
quarterly results that gave investors something to cheer about. While we
don’t get hung up too much on quarterly performance, we too, were
pleased with continuing improvements in the gross margins and betterthan-expected profitability outlook for 2015. We also believe that moves to
provide greater disclosure, including breaking out Amazon Web Services, will
prove to be beneficial in improving investor understanding and appreciation
for the strength and robustness of the company’s core business. As the
largest investment in the Fund, Amazon continues to be our highest
conviction long-term idea.
Performance listed in the table above is net of annual operating expenses. Annual expense ratio for the Retail Shares as of September 30, 2014 was 1.37%,
but the net annual expense ratio is 1.30% (net of the Adviser’s free waivers). The performance data quoted represents past performance. Past performance is
no guarantee of future results. The investment return and principal value of an investment will fluctuate; an investor’s, shares, when redeemed, may be worth
more or less than their original cost. The Adviser has reimbursed certain Fund expenses (by contract as long as BAMCO, Inc. is the adviser to the Fund) and the
fund’s transfer agency expenses may be reduced by expense offsets from an unaffiliated transfer agent, without which performance would have been lower.
Current performance may be lower or higher than the performance data quoted. For performance information current to the most recent
month-end, visit www.BaronFunds.com or call 1-800-99BARON
1
2
3
The indexes are unmanaged. The Russell 1000® Growth Index measures the performance of large-sized U.S. companies that are classified as growth and the S&P 500 Index
source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark of Russell Investment Group. On January 1, 2015 the
Fund changed its primary benchmark from the S&P 500 Index to the Russell 1000 Growth Index.
Not annualized.
35
After a 30% decline last quarter, shares of Twitter increased 40% recovering
most, but not all of the loss (trust us, the math is right on this). Similarly to
Amazon, the quarterly results were better than expected as several freshly
launched initiatives led to slightly better user growth, engagement, and
monetization. Naturally, with improved traction, the immediate outlook
looks better. Twitter was our second largest “add” in the fourth quarter of
2014 (behind Amazon) and, with this move, it has made an appearance in
our top ten holdings for the first time. We don’t think the likelihood of
Twitter’s eventual success is either higher or lower today than it was three
or six months ago. However, a meaningful decline in the price of the stock
due to short-term loss of investor confidence allowed us to build a full
position. This is similar to our experience with Facebook two years ago, and
Illumina, a year before that. We can only hope that our investment thesis
on Twitter plays out in a similar way.
I am not sure what more we can say about Apple after the company sold
and delivered a stunning 74.5 million iPhone units in the fourth quarter of
2014. On March 9th, Apple launched the iWatch, its first new product
category since the passing of Steve Jobs. The strength of the iPhone’s
product cycle combined with excitement around Apple’s “rediscovered”
ability to innovate again, contributed to a 13% rise in the stock in Q1. We
own Apple because … how can we not? We may have an answer to this
question at some point, but until we do, you should expect us to continue
to write about it.
Shares of Starbucks, the leading global specialty coffee platform (that’s
right!) rose 16% after reporting strong sales and earnings growth that were
better than expectations. While the core in-store beverage business remains
solid, we believe Starbucks is just scratching the surface of opportunities in
food, mobile payment and loyalty programs, emerging market expansion
and wholesale channel development in single serve. Starbucks continues to
be one of our core holdings.
Shares of FireEye were the largest purchase for the Fund in the first quarter.
They were purchased before the stock made most of its 26% move up
(hence instant gratification reference in the section above). FireEye is the
leader in the cybersecurity space with a new generation of software tools
and services designed to help companies deal with the most sophisticated
cyber-attacks. We believe that the well-publicized assaults on Sony and
JPMorgan Chase, as well as security breaches at Home Depot and Target are
the “tip of the iceberg” rather than isolated incidents. We believe that
FireEye has the best post-breach incident response service that minimizes
remediation time and damage and is the reason it is frequently the first call
for companies that have been victimized. This service consistently gets
FireEye into the door and gives them an opportunity to introduce and sell
their other security products potentially allowing them to build a real
cybersecurity platform of the future.
36
Table III.
Wynn Resorts Ltd.
Fastenal Co.
ASML Holding N.V.
Monsanto Co.
Quarter End
Market Cap
(billions)
Percent
Impact
$205.2
12.8
12.2
44.3
54.4
–0.86%
–0.35
–0.23
–0.16
–0.15
Alibaba Group is the largest e-commerce company in the world. The
company describes itself as the premier online shopping destination for
consumers, brands and retailers alike, as well as a global wholesale platform
for Chinese small businesses. Shares declined 19% as the company’s
transition from desktop to mobile caused a deceleration in the growth rate
of monetization, bad PR having to do with the sale of counterfeit goods,
and an unusually large lock-up expiration. All reasonable stumbling blocks,
none specific to the company, or, in our view, having much to do with the
long-term opportunity and growth potential. With over 300 million active
buyers (over 200 million of which are mobile), we believe Alibaba is poised
to disproportionately benefit from increased penetration of Internet,
mobile, and e-commerce usage in China. With almost 50% market share of
all online transactions and an unparalleled eco-system around its platform,
Alibaba should continue to grow north of 25% for years to come in a very
profitable manner. And that’s just the core business. Once we add in
Alibaba’s cloud computing and data management platforms, and Alipay,
which is China’s largest online and mobile payment solution, this becomes
an incredibly attractive proposition for investors anywhere in the world in
our view. We find both valuation and business prospects vis-a vis growth
opportunities and penetration extremely compelling, which is not at all
common after a six year bull market.
Shares of Wynn Resorts were down 15% in Q1 after declining 19% in the
last quarter. The Chinese government’s unrelenting anti-corruption
campaign has produced a material slowdown in Macau’s resorts and
casinos. We appear to have significantly underestimated the number of
corrupt Chinese government officials and their affinity for gambling and
other finer things in life. The stock is inexpensive and the company is
generating serious amounts of free cash flow that is being used to buy back
stock and pay an attractive dividend (5% yield). Having said that, it is pretty
obvious that our original “growth” thesis may no longer be valid and we
continue to scrutinize the merits of this investment on a daily basis.
Shares of industrial supplies distributor Fastenal fell 12% in Q1. Sales
growth moderated due to slowing demand in oil and gas regions and the
impact of a stronger U.S. dollar on customers with large export divisions.
March 31, 2015
Current growth rates of about 10%, while industry-leading, represent a
deceleration from last year’s 15-20% runrate and are impacting Fastenal’s
ability to leverage earnings faster than sales growth. We still see a path to
double digit growth over the next several years, as well as an attractive
valuation and debt-free balance sheet.
Shares of ASML Holding were down 6% due, in our opinion, to short-term
industry demand dynamics. We believe that ASML is a unique, de-facto
monopoly in the lithography segment of the semiconductor manufacturing
field. ASML’s equipment effectively prints the tiniest circuits for memory
and processing chips that are used by nearly every manufacturer in the
world. Over the next few years, ASML will roll out state of the art Extreme
Ultra Violet (EUV) equipment, which can print smaller circuits than any
other company in the world. We believe this equipment will become
indispensable to the industry.
Portfolio Structure
The top 10 positions represented 48.0% of the Fund, the top 20 were
72.9%, and we exited the quarter with 36 holdings.
Table IV.
Quarter End Quarter End
Market
Investment
Cap
Value
Percent of
(billions)
(millions) Net Assets
Amazon.com, Inc.
Illumina, Inc.
Facebook Inc.
Apple, Inc.
Google, Inc.
MasterCard, Inc.
Twitter, Inc.
The Priceline Group, Inc.
Starbucks Corp.
$172.8
26.7
230.9
724.8
375.1
99.8
32.4
60.5
71.0
205.2
$10.9
7.9
7.5
6.9
6.8
5.6
5.4
5.0
4.9
4.9
7.9%
5.8
5.5
5.0
4.9
4.1
4.0
3.7
3.6
3.5
Recent Activity
market. Ten years ago, cybercrime and cyberwarfare were subjects of
science fiction novels and bad movies. Today, cybercrimes in the U.S.
alone cost $130 billion per year and close to half a trillion dollars around
the globe. Cyber breaches are on everyone’s mind – from the individual
consumer or taxpayer who has all his or her personal data in the palm of
their hands, to boardrooms of Fortune 500 companies who find
themselves threatened on a daily basis. We believe we may be at an
inflection point for the way people think about cyber threats as our daily
lives become more and more digital. The necessity of protection and a
holistic approach to cybersecurity becomes more obvious. FireEye had
less than $12 million in revenues in 2010 and recognized over $425
million in revenues last year. Talk about inflection points. The company
anticipated the emergence of a new market and is in the process of
creating a platform and an eco-system that will help customers manage
and potentially solve their cybersecurity needs. FireEye is estimating that
they are currently addressing a $30 billion market of which they have a
small market share today. If they succeed in becoming the next
generation platform of choice for cybersecurity, they will likely become a
much larger company. One thing we are very confident about is that the
penetration of cybersecurity solutions is going to increase significantly
over time, and our research suggests that FireEye has the best products in
this space today and will have every opportunity to become a dominant
platform in this market.
Table VI.
Quarter End
Market Cap or
Market Cap Amount
When Sold
Sold
(billions)
(millions)
Monsanto Co.
Ralph Lauren Corp.
Las Vegas Sands Corp.
Liberty Media Corp.
$54.4
12.2
44.0
13.1
$1.8
1.1
0.7
0.6
Outlook
With continuing increase in the costs of postage and our renewed
commitment to keeping this shareholder letter concise, we will no longer
be offering an investment outlook!
Table V.
Quarter End Amount
(billions)
(millions)
FireEye, Inc.
Ctrip.com International Ltd.
Mobileye N.V.
Alexion Pharmaceuticals, Inc.
$
6.1
7.9
205.2
9.1
35.0
$3.1
1.2
0.9
0.7
0.5
FireEye’s relatively small size ($6.1 billion market cap) makes it somewhat
unusual for us to have a significant investment in the company this early
in its life cycle, so perhaps a bit more explaining is warranted here. We
believe there is a potentially a massive shift underway in the cybersecurity
Those of you who regularly manage to get this far know that we never
really offered much of an outlook anyway. Not for this Fund and certainly
not for the market.
Some six months ago we were approached by Wally Forbes, who is the
President of the Forbes Investors Advisory Institute. Mr. Forbes asked to
describe our philosophy and process for his readers, as well as, our highest
conviction ideas – ostensibly, our largest holdings. While we explicitly do
NOT endorse the title of the article, we think the substance is a worthwhile
read for the shareholders of this Fund. The article can be accessed at the
following link:
http://www.forbes.com/sites/wallaceforbes/2014/09/03/the-only-3stocks-you-need-to-own/
37
Apparently, enough people found the article insightful (or entertaining –
there was a Giselle Bundchen sighting, which may or may not have
materially affected the number of unique visitors that decided to check it
out!), which caused Mr. Forbes to come back with a request for a follow-up.
So on April 16th, we obliged with a brief discussion on our most recent adds.
If you want more details on why we like FireEye, Alibaba, and Mobileye for
the long term, you can see them at the link below.
http://www.forbes.com/sites/wallaceforbes/2015/04/16/3-stocks-ofcompanies-that-can-become-significantly-larger-than-they-are-today/
Thank you for investing in the Baron Fifth Avenue Growth Fund.
Sincerely,
Alex Umansky,
Portfolio Manager
April 30, 2015
The Fund invests primarily in large cap equity securities which are subject to price fluctuations in the stock market. The Fund may not achieve its objectives.
Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.
This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Fifth Avenue Growth Fund by anyone in any jurisdiction where it would be unlawful under the laws
of that jurisdiction to make such offer or solicitation.
38
March 31, 2015
Dear Baron Focused Growth Fund Shareholder:
Performance
Baron Focused Growth Fund trailed its benchmark in the first quarter of
2015. The Fund increased in value by 3.38% during this period while the
Russell 2500 Growth Index, the benchmark against which we compare the
performance of the Fund, increased 7.44%. The S&P 500 Index, which
measures the performance of large cap companies, gained 0.95% in the
quarter.
Table I.
Three Months4
One Year
Three Years
Five Years
Ten Years
Fifteen Years
Since Inception (May 31,1996)
Baron
Focused
Growth
Fund1,2,3
Russell
2500
Growth
Index2
S&P 500
Index2
3.38%
6.27%
12.17%
12.52%
9.30%
7.10%
11.54%
7.44%
13.83%
17.91%
16.97%
10.64%
4.84%
7.89%
0.95%
12.73%
16.11%
14.47%
8.01%
4.15%
8.16%
During the period, governments around the world attempted to combat
slowing economies. Many elected to engage in “competitive devaluation” of
their currencies. Through the lowering interest rates and printing money,
these governments intend to spur spending and investments. The resulting
devaluation of their currencies made their exports more attractive to
potential foreign buyers. With the U.S. economy growing and interest rates
set to modestly increase, the U.S. dollar increased in value. Larger,
multinational American companies were harmed as there was a slowdown
of international purchases of their goods. Smaller firms that are focused on
U.S. markets did not face these headwinds. The Fund’s top five performing
stocks, Vail Resorts, Inc., FactSet Research Systems, Inc., Choice Hotels
International, Inc., Financial Engines, Inc. and Dick’s Sporting Goods,
Inc. were all relatively insulated from the resulting strength of our currency.
Additionally, energy price declines impacted stock prices. Businesses with
direct exposure to the energy industry saw their values fall. Colfax Corp.,
which provides industrial machinery and welding equipment to infrastructure
end markets, generates 20% of its business from the oil and gas industry. The
decline in oil prices created a concern for weak future capital expenditures
from their customers. Additionally, Tesla Motors Inc., a manufacturer of
RONALD BARON
Retail shares: BFGFX
CEO
CHIEFAND
INVESTMENT
PORTFOLIO
OFFICER
MANAGER
AND PORTFOLIO MANAGER
Institutional Shares: BFGIX
electric vehicles, saw its shares fall as investors believed the value proposition
for its product became less appealing with lower energy prices.
Table II.
“Any Time at All.”
“The Long and
Winding Road”
Bush Years
“Here Comes
“Yesterday”
2000-2008
the Sun”
Clinton Years
9/11; Iraq;
Obama Years
1992-2000
Afghanistan;
2008-2015
Internet Bubble Housing Bubble; Recovery “Any Time
12/31/99 P/E 33x Financial Panic
P/E 16.8x
at All”
Annualized Returns
Inception
Inception
5/31/96 to
12/31/99 to 12/31/08 to 5/31/96 to
12/31/99
12/31/08
3/31/15
3/31/15
Baron Focused
Growth Fund
Russell 2500
Growth Index
S&P 500 Index
27.87%
2.72%
16.13%
11.54%
17.60%
26.58%
–3.99%
–3.60%
21.49%
16.65%
7.89%
8.16%
Performance listed in the above table is net of annual operating expenses. Annual expense ratio for the Retail Shares as of December 31, 2014 was 1.39%,
but the net annual expense ratio was 1.35% (net of the Adviser’s fee waivers). The performance data quoted represents past performance. Past performance
is no guarantee of future results. The investment return and principal value of an investment will fluctuate; an investor’s shares, when redeemed, may be worth
more or less than their original cost. The Adviser has reimbursed certain Fund expenses (by contract as long as BAMCO, Inc. is the adviser to the Fund) for and the
Fund’s transfer agency expenses may be reduced by expense offsets from an unaffiliated transfer agent, without which performance would have been lower.
Current performance may be lower or higher than the performance data quoted. For performance information current to the most recent month end, visit
1
2
3
4
Reflects the actual fees and expenses that were charged when the Fund was a partnership. The predecessor partnership charged a 15% performance fee through 2003 after reaching a certain
performance benchmark. If the annual returns for the Fund did not reflect the performance fees for the years the predecessor partnership charged a performance fee, the returns would be higher.
The Fund’s shareholders will not be charged a performance fee. The performance is only for the periods before the Fund’s registration statement was effective, which was
June 30, 2008. During those periods, the predecessor partnership was not registered under the Investment Company Act of 1940 and was not subject to its requirements or
the requirements of the Internal Revenue Code relating to registered investment companies, which, if it were, might have adversely affected its performance.
The indexes are unmanaged. The Russell 2500™ Growth Index measures the performance of small to medium-sized U.S. companies that are classified as growth and the
S&P 500 Index of 500 widely held large cap U.S. companies. The indexes and the Fund are with dividends, which positively impact the performance results. Russell Investment
Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell is a trademark of Russell Investment Group.
The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
Not annualized.
39
Table III.
Quarter
Market Cap
End
When
Market
Year
Acquired
Cap
Total
Acquired (billions) (billions) Return
Vail Resorts, Inc.
FactSet Research
Systems, Inc.
Choice Hotels
International, Inc.
Financial Engines, Inc.
Dick’s Sporting
Goods, Inc.
Percent
Impact
2013
$2.3
$3.8
14.20% 0.85%
2008
2.5
6.6
13.39
0.76
2010
2014
1.9
1.8
3.7
2.2
14.72
14.63
0.67
0.59
2005
1.6
6.8
15.06
0.58
Shares of Vail Resorts, Inc., the largest U.S. ski resort operator, rose in Q1 on
strong earnings during the 2014-15 ski season despite poor snow at its
Tahoe properties. Vail’s recent acquisition of Park City has improved the
diversification of its resorts. Vail has also been able to operate Park City
without a significant increase in selling, general and administrative expenses
due to improved scale, which in turn, helped margins. Vail generated strong
cash flow in Q1 and increased its dividend 50%. (David Baron)
Shares of market data vendor FactSet Research Systems, Inc. rose in
response to accelerated organic revenue growth, enhanced seat count
additions, and meaningful earnings growth. We believe FactSet is continuing
to take share across all markets, generate strong cash flow, and return it
aggressively to shareholders. We see continued strength in the company’s
buy side customer base and improving conditions on the sell side, which we
believe will be an added tailwind to growth. (Neal Rosenberg)
Shares of Choice Hotels International, Inc., the largest U.S. hotel franchisor,
increased in Q1 on reports of robust revenue per available room across its
portfolio. Choice used the revenue to boost unit growth and deals in its
pipeline of new hotel franchises. The uptick in revenue produced free cash flow
that the company used to buy back shares and increase its dividend. Choice
continues to develop its central reservations system business, which remains
on track with sales and could potentially be spun off or sold. (David Baron)
Table IV.
Year
Acquired
Tesla Motors Inc.
Colfax Corp.
Fastenal Co.
ITC Holdings Corp.
Airgas, Inc.
2014
2012
2007
2008
2011
Market
Cap
Quarter
When End Market
Acquired
Cap
Total
Percent
Impact
$31.2
2.4
6.4
2.2
5.3
–1.21%
–0.39
–0.38
–0.28
–0.15
$23.7
5.9
12.2
5.8
8.0
–15.05%
–8.74
–12.34
–7.04
–7.43
quarter as lower gas prices raised concerns that EV demand would drop. In
addition, the launch of the company’s Model X SUV was delayed until late in
2015. We believe that, Tesla’s talent pool, first mover advantage, scale and
brand, will result in market share gains for Tesla in years to come. (Gilad Shany)
40
Shares of industrial machinery company Colfax Corp. fell in Q1 as a result
of exposure to declining oil prices, slowing international markets, and a
weak Euro, which weighed on its expected earnings and growth outlook. We
maintain conviction based on the Rales Brothers’ ability to create a multiplatform industrial company as evidenced by their success at Danaher. We
believe Colfax will continue to use its business system to improve
operations at acquired companies, which will generate shareholder value
over time. (Rebecca Ellin)
Shares of industrial supplies distributor Fastenal Co. fell in Q1. Sales
growth moderated due to slowing demand in oil and gas regions and the
impact of a stronger U.S. dollar on customers with large export divisions.
Current growth rates of about 10%, while industry-leading, represent a
deceleration from last year’s 15-20% runrate and are impacting Fastenal’s
ability to leverage earnings faster than sales growth. We still see a path to
double digit growth over the next several years, as well as an attractive
valuation and debt-free balance sheet. (Matt Weiss)
Recent Purchases
Table V.
Year
Acquired
Tesla Motors Inc.
Benefitfocus, Inc.
2014
2014
Market
Cap
When
Acquired
(billions)
$31.2
0.7
Quarter
End
Market
Cap
(billions)
Amount
Purchased
(millions)
$23.7
1.0
$3.3
1.5
We added to our Tesla Motors Inc. investment during the quarter. During
2015, Tesla expects to increase its automobile production more than 70%
to 55,000 cars from 33,000 in 2014 and 22,000 during 2013. This translates
to non GAAP revenue of more than $5.5 billion in 2015 vs $3.3 billion last
year and $2.6 billion in 2011. Model S has been one of the most successful
luxury sedan launches in the recent history of cars, and Tesla had been
working on this model when it had limited production capacity. We expect
a highly publicized and successful Model X SUV launch later this year.
Finally, we expect the company to launch a $35 – 40,000 “mass market” car
in 2017. With supply constraints, we don’t think Tesla will be able to meet
demand for Gen 3 cars for years. (Gilad Shany)
The Fund opportunistically added to its position in Benefitfocus, Inc., a
leading provider of cloud-based benefits software. The company offers an
integrated suite of solutions to help customers shop, enroll, manage, and
exchange benefits information. Benefits are presented in a user-friendly
manner that allows insured individuals and their dependents to access all
their benefits in one place. Benefitfocus is experiencing accelerating
demand due to the ACA and a shift towards defined contribution benefit
programs, which requires the enhanced insight and consumer experience
only offered by modern software applications. We believe that Benefitfocus
serves an addressable market that is more than 100 times larger than its
current business, which should allow the company to compound revenue at
more than 30% annually. We see significant margin expansion over time, as
the company leverages its recent investments, hands off lower margin
consulting work to partners, and begins to compete for high margin
brokerage commissions. (Neal Rosenberg)
March 31, 2015
Portfolio Structure
The objective of Baron Focused Growth Fund is to double its value per share
within five years. Our strategy to accomplish this goal is to invest for the
long term in a focused portfolio of appropriately capitalized, well-managed,
small and mid-cap businesses at attractive prices. We attempt to create a
portfolio of less than thirty securities diversified by GICS sectors that will
be approximately 90% as volatile as the market. These businesses are
identified by our firm’s proprietary research.
We think the businesses in which Baron Focused Growth Fund has invested
have the potential to double in size within approximately five years and
double again over the subsequent five years. We think these well-managed
businesses have sustainable competitive advantages and strong, long-term
growth opportunities. Considering current stock price valuations, we believe
we have the opportunity to meet our performance goals during the next
decade, although there is no guarantee that we will do so.
As of March 31, 2015, Baron Focused Growth Fund held 24 investments. The
median market capitalization of those small and mid-sized growth
companies was $5.86 billion. Compared to its benchmark, the Fund’s
investments have higher profitability (as exhibited through greater
operating margin, EBITDA margin and net margin). They also exhibit better
internal returns (higher return on invested capital and return on equity).
And they are more conservatively financed (lower debt to market
capitalization ratio) and, as important as any other metrics, they have
actions more consistent with growth earnings (significantly lower standard
deviation of earnings and lower beta). We find these important metrics
important in limiting risk for a concentrated portfolio.
The Fund has had less exposure to the Health Care sector than its index.
Currently, the Fund does not hold any health care investments, while the
average weighting in the index approached 20%. The Health Care sector, and
particularly the biotech category, has been an extremely strong performer
the past few years as investors expect increased drug approvals and greater
profits. However, we believed that the industry did not offer sufficiently
attractive risk/reward characteristics for a concentrated portfolio. Instead,
the Fund invested in service providers to the health care space such as
Benefitfocus, which assist company employees select appropriate benefit
plans (including health care coverage). While not directly tied to the health
care industry, this company should benefit from an aging employee base
that is often confused by increasingly complex health coverage options. The
Fund’s lack of exposure to the strong returns in the biotech health care space
posed a significant relative disadvantage in the period.
Table VI.
Market Quarter
Cap
End
When
Market
Percent
Year
Acquired
Cap
Amount of Net
Tesla Motors Inc.
Hyatt Hotels Corp.
Vail Resorts, Inc.
CoStar Group, Inc.
FactSet Research
Systems, Inc.
CarMax, Inc.
Choice Hotels
International, Inc.
Manchester United plc
Benefitfocus, Inc.
2014
2009
2013
2014
$31.2
4.2
2.3
6.2
$23.7
8.8
3.8
6.4
$15.5
14.2
14.1
13.8
7.7%
7.1
7.0
6.9
2008
2011
2.5
5.7
6.6
14.5
11.9
10.4
5.9
5.1
2010
2012
2014
2014
1.9
2.3
1.8
0.7
3.7
2.6
2.2
1.0
9.6
8.8
8.4
8.3
4.8
4.4
4.2
4.1
Thank you for investing in Baron Focused Growth Fund.
We are continuing to work hard to justify your confidence and trust in our
stewardship of your family’s hard-earned savings. We are also continuing to
try to provide you with information I would like to have if our roles were
reversed. This is so you can make an informed judgment about whether
Baron Focused Growth Fund remains an appropriate investment for your
family.
Respectfully,
Ronald Baron
April 30, 2015
code reader on your mobile device
The Adviser believes that there is more potential for capital appreciation in small and medium-sized companies and using non-diversification, but there also
may be more risk. Specific risks associated with non-diversification include increased volatility of the Fund’s returns and exposure of the Fund to greater risk
of loss in any given period. Securities of small and medium-sized companies may be thinly traded and they may be more difficult to sell during market
downturns. The Fund may not achieve its objectives. Portfolio holdings are subject to change. Current and future holdings are subject to risk.
This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Focused Growth Fund by anyone in any jurisdiction where it would be unlawful under the laws of
that jurisdiction to make such offer or solicitation.
Beta: measures a fund’s sensitivity to market movements. The beta of the market (Russell 2500 Growth Index) is 1.00 by definition.
41
Dear Baron International Growth Fund Shareholder:
Performance
The Baron International Growth Fund (the “Fund”) gained 2.84% for the
first quarter of 2015, while its principal benchmark index, the MSCI ACWI
ex USA IMI Growth Index, returned 4.75% for the quarter. In general, global
equities appreciated as markets responded to declining sovereign interest
rates, in our view, largely driven by aggressive ECB monetary policy.
Economic momentum worldwide continued to diverge, with relative
strength in much of the developed world, led by a recovering Europe, and
ongoing signs of deterioration in the developing world, notably in China and
Brazil. Regardless, details related to ECB easing soothed concerns over
anticipated Fed rate hikes, driving asset prices higher. Across the globe, high
quality growth stocks, our principal investment focus, lagged their lower
quality, more capital intensive and cyclical peers. We also attribute this
largely to aggressive ECB easing, as the attendant decline in cost of capital
worldwide drove a mean-reverting relief rally for such equities. On the
contrary, the companies in which we seek to invest tend to be steady, valuecreating entities driven by organically high return on capital, and are
thereby much less sensitive to changes in the cost of or access to capital.
During the quarter, oil prices, currencies, bond yields and equities remained
volatile, we suspect driven by uncertainty over key macroeconomic variables
and a divergence in monetary policy expectations around the world.
Uncertainty over the timing of anticipated Fed rate hikes, as well as the
likelihood of Greece remaining in the EU, has also elevated market volatility.
For global equities overall, and particularly for the emerging markets, we view
the strength of the U.S. dollar, exacerbated by ECB policy, as a key risk factor,
particularly for those countries most exposed to declining commodity prices
and/or dollar denominated liabilities. We note that, for the most part, we have
refrained from investing in companies and markets directly exposed.
Table I.
Three Months3
One Year
Three Years
Five Years
Since Inception (December 31, 2008)
Baron
International
Growth
Fund1,2
MSCI
ACWI ex
USA IMI
Growth
Index1
MSCI
ACWI ex
USA Index1
2.84%
(1.07)%
7.48%
7.41%
13.14%
4.75%
1.18%
7.16%
5.87%
10.99%
3.49%
(1.01)%
6.40%
4.82%
10.04%
MICHAEL KASS
PORTFOLIO MANAGER
Retail Shares: BIGFX
Institutional Shares: BINIX
Although the current investment environment appears complex, we believe
that our discipline seeks to identify attractive investment opportunities in
all environments, often precisely due to the rapid evolution of change
across our universe. Such change drives the entrepreneurs and companies in
which we invest, and further, often motivates policymakers to engage in
progressive reforms, upon which we often base long-term investment
themes. We believe such opportunity is emerging now in a variety of
countries and industries, and we remain confident that our discipline will
continue to identify the source of tomorrow’s significant value creation.
While disappointed with our first quarter relative performance, we have
noted above the broad mean reversion away from high quality growth
strategies during the quarter. We are not concerned, and we remain
committed to our discipline, which we note has outperformed our broad
peer group, defined as the Lipper International Multi-Cap Growth Average,
by 291 basis points per annum since inception slightly over six years ago.
During the quarter, by far the largest driver of underperformance was our
collective investment in Brazil, where we entered the year overweight. For
several years, we have been able to far offset the macro and currency
headwinds in Brazil by owning very well positioned and strong performing
private sector companies, particularly in the Education sector. However, by
mid-January of this year, when the scope of the government’s excessive
Current performance may be lower or higher than the performance data quoted. For performance information current to the most recent month-end, visit
†
1
2
3
The Fund’s historical performance was impacted by gains from IPOs and/or secondary offerings. There is no guarantee that these results can be repeated or that the Fund’s
level of participation in IPOs and secondary offerings will be the same in the future.
The MSCI ACWI ex USA indexes cited are unmanaged, free float-adjusted market capitalization weighted indexes. The MSCI ACWI ex USA IMI Growth Index Net USD
measures the equity market performance of large, mid and small cap growth securities across developed and emerging markets, excluding the United States. The MSCI ACWI
ex USA Index Net USD measures the equity market performance of large and mid cap securities across developed and emerging markets, excluding the United States. The
indexes and Baron International Growth Fund include reinvestment of dividends, net of foreign withholding taxes, which positively impact the performance results.
Not annualized.
42
March 31, 2015
pre-election fiscal mismanagement, coupled with the Petrobras corruption
scandal, became clear, Brazil lost its credibility with the capital markets.
Bond yields widened noticeably while the currency depreciated, and the
new, more orthodox finance minister began to announce a rash of policies
aimed at restoring fiscal balance. Such policies for the first time squarely
targeted the private sector, which had previously been largely shielded.
Notably, one of the key policy adjustments was a revision in the terms of
the government-funded student financing program known as the FIES,
which, among other adverse adjustments, directly impaired our
performance during the quarter. Here, Kroton Educacional SA, GAEC
Educação S.A. and GOL Linhas Aéreas Inteligentes SA declined
materially. We actively reduced exposure to Brazil beginning in January and
exited the quarter with an approximate market weight position, and we will
monitor the policy environment for future opportunities. On the brighter
side, and partially offsetting developments in Brazil, the most significant
positive contribution to relative performance was in Japan, where reform
efforts have broadened to cultivate a more shareholder return driven
culture, leading to strong market conditions and solid appreciation in
several of our holdings, notably MonotaRo Co., Ltd., FANUC Corp. and
Rakuten, Inc. FANUC, in particular, has announced for the first time it will
evaluate share buybacks and an enlarged dividend payout, in line with
recent government requests and a material positive change for a serial cash
generator such as FANUC.
it will seek to improve returns via enhanced dividend payout and/or share
repurchase. We retain conviction due to the company’s dominant market
position and ability to generate high returns on capital. (Anuj Aggarwal)
Shares of JUST EAT plc, an online restaurant delivery marketplace in Europe,
Latin America, and Canada, rose in Q1. JUST EAT reported solid results for
the back half of 2014, guided toward sales slightly above Street estimates
for 2015, and demonstrated execution across its European footprint and
evidence that its #1 position across most of its markets is defensible and
sustainable. We believe JUST EAT will benefit from the trend toward online
delivery ordering and its large lead in a winner-take-all industry.
(Eric Guzman)
Rakuten, Inc. is a Japanese online shopping mall and financial services
company. Shares increased due to a solid Q4 earnings report, where
improvements in loss-making businesses have renewed investor optimism.
On the M&A front, the market has taken a less critical stance on its
acquisition of Viber, a loss-making mobile messaging app with 236 million
monthly active users, and a positive view of its recent acquisition of Ebates,
an online coupon supplier that strengthens Rakuten’s overseas presence.
(Catherine Chen)
Table III.
Table II.
Percent
Impact
Percent
Impact
MonotaRo Co., Ltd.
Domino’s Pizza Enterprises Ltd.
FANUC Corp.
JUST EAT plc
Rakuten, Inc.
0.77%
0.59
0.56
0.52
0.46
Shares of Japan-based online consumables distributor MonotaRO Co., Ltd.
rose in Q1 on strong quarterly growth in user activity and order size.
Management has proven it can transact at high returns on capital. We think
it will grow market share in the maintenance, repair and operations
segment by offering a wide array of products at low cost. Given its success
in Japan, we think MonotaRO can successfully compete in Korea and grow
profits by consolidating royalty income generated by key shareholder WW
Grainger’s online initiatives. (Aaron Wasserman)
Shares of Domino’s Pizza Enterprises Ltd. rose in Q1 on reports of strong
Q4 earnings. The company is the largest master franchiser of the Domino’s
Pizza brand, operating in its home market of Australia/New Zealand, certain
European countries, and Japan. It grew same store sales by 11% in
Australia/New Zealand, which is considered a mature market. Its European
operation has successfully undergone a turnaround and is showing solid
progress. Its newest market, Japan, has been showing strong operational
potential. (Kyuhey August)
Shares of FANUC Corp. rose in Q1, as a result of strong financial results. As
the world’s leading manufacturer of factory automation equipment and
robots, the company is a beneficiary of the secular growth in industrial
automation. The stock also benefited subsequent to an announcement that
GAEC Educação S.A.
Kroton Educacional SA
GOL Linhas Aéreas Inteligentes SA
AO World plc
Opera Software ASA
–0.90%
–0.72
–0.68
–0.54
–0.49
GAEC Educação S.A is a for-profit education company in Brazil. GAEC has
been a beneficiary of FIES, the government’s student financing program.
Due to Brazil’s fiscal problems, the government changed the rules for FIES,
impairing margins, return on capital and stock performance across the
industry. GAEC also made two acquisitions prior to the announcement,
which heightened concerns that it would be unable to extract synergies
given the change in FIES rules. We reduced our position during the quarter.
(Kyuhey August)
As the largest for-profit education company in Brazil, Kroton Educacional
SA has been a beneficiary of FIES, the government’s student financing
program. We also think it is an exceptionally well-managed company.
However, Brazil’s fiscal problems prompted the government to change the
rules on FIES, impairing margins, return on capital and stock performance
across the industry. In addition, the Brazilian Real and market have both
been weak due to fiscal credibility issues. We have reduced our position
during the quarter. (Kyuhey August)
GOL Linhas Aéreas Inteligentes SA is the second largest airline in Brazil.
Our investment thesis was based on industry-wide capacity rationalization
and operational improvements at GOL. GOL was also a cheaper way to own
Smiles SA, a high growth, high return loyalty program, of which GOL is a
majority shareholder. Shares fell sharply in Q1, weighed down by the
43
impact of the slowdown in Brazil and the adverse impact on the company
of the decline in the Brazilian Real. We reduced our position during the
quarter. (Kyuhey August)
Table VI.
AO World plc is the leading online seller of major domestic appliances in
the U.K., with a 12% market share. AO’s optimization of proprietary
software and logistics and focus on customer service sets it apart from
competitors. Shares in Q1 were pressured by a slower growth forecast,
down from a spike in sales in the wake of AO’s IPO last May. The company
has said that it expects growth to reaccelerate in the second half of 2015,
driven by improving sales in the U.K. and a continued ramp up in Germany.
(Ashim Mehra)
Japan
United Kingdom
Germany
Israel
Canada
France
United States
Spain
Switzerland
Australia
Ireland
Italy
Hong Kong
Norway
Opera Software ASA operates a leading Internet browser. Shares fell in Q1
based on disappointing fiscal results and outlook, driven down in large part
by foreign currency exposure to the Russian Ruble that was greater than
had been previously disclosed. We exited our position based on this new
disclosure, as well as concerns over the long-term strategic positioning of
its core mobile advertising business. (Ashim Mehra)
Portfolio Structure
Percentage of securities in developed markets as of March 31, 2015
Percent of
Net Assets
Table VII.
Percentage of securities in developing markets as of March 31, 2015
Percent of
Net Assets
Table IV.
Top 10 holdings as of March 31, 2015 - Developed Countries
Percent of
Net Assets
Constellation Software, Inc.
Check Point Software Technologies Ltd.
Mellanox Technologies Ltd.
Ingenico SA
Rakuten, Inc.
Symrise AG
Domino’s Pizza Group plc
Domino’s Pizza Enterprises Ltd.
ProSiebenSat.1 Media AG
RIB Software AG
3.1%
2.8
2.7
2.3
2.3
2.2
2.0
2.0
2.0
2.0
Top five holdings as of March 31, 2015 - Developing Countries
Percent of
Net Assets
1.6%
1.4
1.3
1.3
1.2
Exposure by Country: At the end of the first quarter of 2015, the Fund was
invested 75.7% in developed countries and 18.9% in developing
countries, with the remaining 5.4% in cash. The Fund seeks to maintain
broad diversification by country at all times. A detailed review of the
Fund’s holdings by country is available at the back of this Baron Funds
Quarterly Report.
44
China
India
Indonesia
Brazil
South Africa
7.6%
4.2
2.8
2.6
1.7
The Fund may invest in companies of any market capitalization, and we
strive to maintain broad diversification by market cap. As of March 31,
2015, the Fund’s median market cap was $7.32 billion, and we were
invested approximately 51.7% in large/giant cap companies, 32.1% in midcap companies, and 10.8% in small-cap companies, as defined by
Morningstar, with the remainder in cash.
Recent Activity
Table V.
Steinhoff International Holdings Ltd.
Kingdee International Software Group Co. Ltd.
Tencent Holdings, Ltd.
Axis Bank Ltd.
Tower Bersama Infrastructure Tbk PT
15.6%
14.3
11.7
5.5
5.2
4.2
3.9
3.8
3.0
2.6
1.7
1.5
1.4
1.3
During the quarter, we increased our holdings in Japan, Europe and the UK,
where we see country and company specific fundamentals improving, while
we decreased our exposure in the developing world, particularly in Brazil.
Notable new positions include Aena SA, the principal operator of airport
terminals in Spain that was recently privatized by the Spanish government,
and which we believe is very well positioned to benefit from improving
travel volumes as a result of stronger economic activity and the weaker
Euro. The company has strong cash generation potential and significant
operating leverage, which we believe will drive attractive dividend increases
in coming years. We also established new positions in Azimut Holding
S.p.A., a leading wealth management and asset management firm in Italy
positioned to benefit from the decline in deposit rates and yields on
European fixed income assets, and Abcam plc, which we have been
following for several years, a leading U.K. based provider of research-grade
antibodies for the biotech and research industries with a unique and
March 31, 2015
high-margin online network approach. During the quarter we eliminated
our position in Opera Software ASA due to disappointing earnings and
declining conviction in the longer-term outlook. In addition, we reduced a
number of developing world investments, most notably in Brazil, given
deteriorating fundamentals and in some cases, rising valuations.
Outlook
The first quarter of 2015 appeared to confirm the prior quarter’s passage
into a new, more volatile environment for the global capital markets. Oil
prices, currencies, bond yields and equities continued to exhibit gyrations, as
key macro variables remained uncertain, monetary policy expectations
further diverged, and, as a result, deviation among asset classes, countries
and sectors remained wide and volatile. Further, we observe that the recent
quarter reflected a mean-reverting rotation in performance away from highquality growth stocks and towards the lower quality, more capital intensive
and cyclical elements of the market. In our view, this was driven by the
aggressive stance of the ECB, which provided a jolt of liquidity to offset
previous concerns over anticipated Fed hikes, allowing those stocks most
sensitive to the cost of and access to capital to recover some lost ground.
To us, the key event of the first quarter was the detail of the ECB’s easing
campaign, which clearly “beat” market expectations. The relentless
suffocation of interest rates by developed world central bankers turned a
new chapter, with ten-year sovereign yields plunging to well below 50 basis
points across much of Europe and bank deposit rates going negative in
Switzerland and Scandinavia. In our complex and intertwined financial
world, such policy moves certainly create ripple effects, both intended and
unintended; the Euro has fallen to levels not seen in over a decade, and
yield-driven investors are forced further out on the risk spectrum. We
consider policies of financial repression self-reinforcing, as they encourage
sovereigns and corporates worldwide to add to already healthy levels of
leverage. As such, we suspect interest rates are likely to remain remarkably
low for a sustained period as any material increase is likely to stress the
system and thereby derail economic momentum. We view the current
financial and investment environment as a conundrum that we might
describe as the “Truman Show” market. Here, global monetary authorities
present a constructed reality, where developed world interest rates, the key
variable upon which all other market instruments must be evaluated on a
relative basis, are manipulated rather than set by market forces. Likewise,
we must consider whether the attendant pressure on rates has resulted in
capital misallocation and the mispricing of risk on fixed income
instruments. We note that as risk free rates drift closer to zero, asset prices
rise, and all-else equal, forward-looking returns on equity securities thereby
likely fall. Fortunately, our discipline recognizes the opportunity inherent in
change, and we continue to discover attractive investments over our fiveyear investment horizon. We note Europe, Japan, China, India and Indonesia
are particularly fertile grounds for such long-term opportunity given
significant reforms already underway.
We view the key risks to international and emerging market equities to be
a potential change in appetite for sovereign bonds in certain fundamentally
challenged countries, and/or a possible gradual or more abrupt devaluation
of the Chinese RMB. We do not currently view either as a likely event in the
near term, however, we are actively seeking and making investments in
companies that both fit our discipline and, in our view, are also shielded
from or even beneficiaries of such events. Finally, we reiterate that we
believe a key catalyst for long-term value creation in our markets remains
the ongoing shift in opportunity, resources and capital towards those
companies and entrepreneurs most capable of driving capital efficiency and
economic productivity. This phenomenon remains very much in play across
our investment universe, particularly in reform-driven countries such as
Japan, India, China and several countries within Europe.
Thank you for investing in the Baron International Growth Fund.
Sincerely,
Michael Kass
Portfolio Manager
April 30, 2015
Non-U.S. investments may involve additional risks to those inherent in U.S. investments, including exchange-rate fluctuations, political or economic instability,
the imposition of exchange controls, expropriation, limited disclosure and illiquid markets. This may result in greater share price volatility. Specific risks
associated with investing in small and medium-sized companies include that the securities may be thinly traded and they may be more difficult to sell during
market downturns. The Fund may not achieve its objectives. Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.
This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron International Growth Fund by anyone in any jurisdiction where it would be unlawful under the
laws of that jurisdiction to make such offer or solicitation.
45
Dear Baron Real Estate Fund Shareholder:
We are pleased to report that the Baron Real Estate Fund (the “Fund”)
generated solid performance in the first three months of 2015. During this
period, the Fund gained 4.51%, slightly underperforming the MSCI USA IMI
Extended Real Estate Index (the “MSCI Real Estate Index”), which gained
5.12%, and outperforming the S&P 500 Index, which gained 0.95%.
We are now in our sixth year managing the Fund. Since inception, the Fund
has generated a 21.79% average annual return, exceeding its primary
benchmark, the MSCI Real Estate Index (16.76%) by 503 basis points per
year, and the S&P 500 Index (14.87%) by 692 basis points per year.
Additionally, since inception, the Fund has generated a cumulative return of
181.47%, exceeding the MSCI Real Estate Index (125.61%) and the
S&P 500 Index (107.09%).
Looking ahead, we remain optimistic. In the most recent quarter, several of
our companies reported strong business results and announced strategic
acquisitions and/or initiatives that we believe will contribute to growth in
shareholder value in the years ahead. Many of these positive new
developments are detailed in this letter.
JEFFREY KOLITCH
PORTFOLIO MANAGER
Retail Shares: BREFX
Institutional Shares: BREIX
Performance
Table II.
Table I.
Baron
Real
Estate
Fund1,2
Three Months3
4.51%
One Year
16.19%
Three Years
24.10%
Five Years
21.34%
Since Inception
(December 31, 2009) (Annualized) 21.79%
Since Inception
(December 31, 2009) (Cumulative)3 181.47%
Quarter End
Market Cap
(billions)
MSCI
USA IMI
Extended
Real Estate
Index1
S&P 500
Index1
5.12%
19.12%
17.56%
15.65%
0.95%
12.73%
16.11%
14.47%
16.76%
14.87%
125.61%
107.09%
Mohawk Industries, Inc.
Diamond Resorts International, Inc.
Norwegian Cruise Line Holdings Ltd.
Hilton Worldwide Holdings, Inc.
Jones Lang LaSalle, Inc.
$13.6
2.5
12.3
29.2
7.6
Percent
Impact
0.54%
0.50
0.41
0.40
0.37
Many of our largest investments performed well in the first few months of
2015.
Mohawk Industries, Inc., the world’s largest flooring manufacturer,
announced the $1.2 billion acquisition of IVC Group, a leading producer of
Performance listed in the above table is net of annual operating expenses. Annual expense ratio for the Retail Shares as of December 31, 2014 was 1.32%.
The performance data quoted represents past performance. Past performance is no guarantee of future results. The investment return and principal value of
an investment will fluctuate; an investor’s shares, when redeemed, may be worth more or less than their original cost. The Adviser has reimbursed certain Fund
expenses (by contract as long as BAMCO, Inc. is the adviser to the Fund) and the Fund’s transfer agency expenses may be reduced by expense offsets from an
unaffiliated transfer agent, without which performance would have been lower. Current performance may be lower or higher than the performance data quoted.
For performance information current to the most recent month end, visit www.BaronFunds.com or call 1-800-99BARON.
1
2
3
The indexes are unmanaged. The MSCI USA IMI Extended Real Estate Index is a custom index calculated by MSCI for, and as requested by, BAMCO, Inc. The index includes
real estate and real estate-related GICS classification securities. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with
respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This
report is not approved, reviewed or produced by MSCI. The S&P 500 Index measures the performance of 500 widely held large cap U.S. companies. The indexes and the Fund
include reinvestment of interest, capital gains and dividends, which positively impact the performance results.
Not annualized.
46
March 31, 2015
sheet vinyl, luxury vinyl tile (LVT), and laminate. This acquisition should
generate a number of benefits and is expected to be highly accretive. Most
notably, the acquisition will increase the company’s exposure to the fast
growing LVT market, which currently accounts for 5% of total flooring sales
in the U.S. and is expected to grow at a mid-teens rate annually for the next
several years. Under the leadership of CEO Jeff Lorberbaum, the company
has a long-standing history of successful acquisitions, and we believe the
IVC acquisition will deliver similar results. We remain optimistic about the
longer-term prospects for Mohawk, and believe the company will continue
to grow through acquisitions, product innovations, international expansion,
and a cyclical recovery in the U.S. housing and commercial real estate
market.
In January, Diamond Resorts International, Inc., a leading timeshare
operator, announced that it will eliminate its external management
structure, whereby certain officers and employees were not employed or
directly compensated by the company, but rather by an external company.
We view this improvement in corporate governance favorably and believe it
will help to narrow Diamond Resorts’ significant valuation gap between
itself and its peers. Despite industry leading growth, Diamond Resorts
trades at only 8.7 times cash flow, while its peers trade at 12-13 times cash
flow. Earlier this year, the company also reported very strong business
results. Cash flow increased 43% in 2014, and the company is guiding to
continued strong growth in 2015. We first began acquiring shares in
Diamond less than two years ago at $14 per share. Since then, the shares
have more than doubled to $33. We believe the shares can continue to
achieve mid-teen returns in the years ahead.
Early in 2015, Norwegian Cruise Line Holdings Ltd. appointed Frank Del
Rio as President and CEO. Frank had been the CEO of Prestige Cruises,
which Norwegian acquired in 2014. We had the opportunity to meet with
him at the company’s first-ever investor day a few months ago and were
impressed. He detailed his long-term strategic vision to drive revenue
growth and lower costs. Management believes it can grow earnings in the
next three years from $2.32 per share in 2014 to $5 per share in 2017,
representing approximately 30% annual growth. If management is
successful in generating $5 per share, we believe the shares would be valued
at 16 to 18 times earnings and appreciate to $80-$90 or approximately
50-70% higher from current levels.
In February, Hilton Worldwide Holdings, Inc. sold its Waldorf Astoria hotel
in New York City for an incredible $1.95 billion or 32 times cash flow! Hilton
will continue to operate the property under a 100-year management
agreement. It utilized the proceeds from this sale to acquire five other U.S.
hotel properties at approximately 13 times cash flow. Hilton also reported
strong business results, and management continues to believe that its
prospects for growth and share price appreciation are strong. For more on
the company, please see the “Recent Activity” section later in this letter.
Following strong earnings results, the shares of Jones Lang LaSalle, Inc.
continued to perform well. The company is the world’s second largest
commercial real estate services firm after CBRE Group, Inc., which is also a
top holding in the Fund. Jones Lang LaSalle’s business lines include leasing,
sales, property and facility management, and investment management. In
our opinion, all of its business categories remain well-positioned for the real
estate market recovery and growth during the next few years. We anticipate
that the shares can continue to appreciate 15% per year over the next few
years, in line with anticipated earnings growth.
Table III.
Quarter End
Market Cap or
Market Cap
When Sold
Percent
(billions)
Impact
Wynn Resorts Ltd.
Las Vegas Sands Corp.
Essent Group Ltd.
American Tower Corp.
$12.8
44.0
2.2
3.5
39.6
–0.35%
–0.15
–0.14
–0.13
–0.10
The shares of Wynn Resorts Ltd. and Las Vegas Sands Corp. continued to
underperform in the first few months of 2015. Business conditions in
Macau have remained weak due to China’s anti-corruption campaign,
tightened visa restrictions, and the softer economic environment in Asia.
Though the near-term outlook may remain disappointing, several factors
bode well for both companies over the longer term. These include an
eventual rebound in gambling growth, improvements in travel
infrastructure (a new bridge, additional ferry and airport capacity, and rail
line upgrades) that should enhance visits to Macau, and the possible
issuance of new gaming licenses.
Essent Group Ltd. is a well-run mortgage insurance company that, in our
view, is well positioned to benefit from the emerging cyclical recovery in
housing and from the secular shift from public mortgage insurance to
private mortgage insurance. The shares, however, lagged in 2014, perhaps
due to the lackluster environment in the homebuilding market. More
recently, in response to the Federal Housing Administration (FHA)
announcement that it would cut its premium rates, the shares of the
company declined. This change could reduce the cost advantage of private
mortgage insurers and consequently reduce Essent’s addressable market.
We have chosen to exit our investment and reallocate the capital to our
higher conviction ideas.
Following a more than 65% return in 2014, the shares of Tower Bersama
Infrastructure Tbk PT, the second largest independent wireless tower
owner and operator in Indonesia, declined modestly in the first few months
of 2015. We remain optimistic about the prospects for the company.
Bersama’s core business is leasing space for antennas and other equipment
for wireless signal transmission under long-term lease agreements with
Indonesian telecommunication operators. The long-term nature of these
lease agreements (contracts are typically 10 years) provides high
predictability of future revenues. We believe that Indonesia, with the fourth
largest population in the world, approximately 250 million people, presents
an attractive wireless market opportunity because the country is
underpenetrated from a wireless infrastructure perspective. Management
believes it may double its tower count in the next 5 years.
47
Portfolio Structure
The Fund differentiates itself as a balanced and more diversified real
estate-related fund than a typical REIT-dominated fund. We also
concentrate on performance through real estate cycles spanning more than
just a single year. We believe that our philosophy of investing in broader real
estate-related categories is a more sensible strategy that should produce
superior results over the long term.
REITs represented 21.9% of the Fund’s net assets. Business conditions are
generally strong for our REIT companies, and they may continue to benefit
from the possibility that interest rates remain low, limited new construction
activity, and accretive investment opportunities. We are mindful, however,
that the valuations of many REITs have become pricey (with compressed
dividend yields), and REITs may be more vulnerable to an eventual rise in
interest rates. We will continue to closely monitor our REIT investments.
Hotel & Leisure companies comprise 18.0% of the Fund. We maintain that
the prospects for our investments in this category are attractive amid
expectations of solid demand and low supply forecasts and
company-specific initiatives, some of which were detailed earlier in this letter.
Building Products/Services companies represent 12.0% of the Fund. We
believe the Fund’s investments in these companies should continue to
benefit from a multi-year recovery in housing.
The Fund has invested 10.9% in Senior Housing Operators that are well
positioned, in our opinion, to benefit from favorable demographic trends,
industry consolidation, a cyclical recovery in their businesses, and, perhaps,
initiatives that can unlock real estate value.
The complete list of the Fund’s real estate-related categories as of
March 31, 2015 is as follows:
Table IV.
Fund investments in real estate categories as of March 31, 2015
Percent of
Net Assets
Cash and Cash Equivalents
1
2
3
4
21.9%
18.0
12.0
10.9
8.2
7.6
5.7
5.3
3.9
3.6
97.1
2.9
100.0%
Total includes 2.9% from Equinix, Inc., which has been operation as a REIT since
January 1, 2015.
Total would be 21.3% if included hotel REIT LaSalle Hotel Properties, Strategic
Hotels & Resorts, Inc. and Sunstone Hotel Investors, Inc.
Total would be 6.0% if included tower REIT American Tower Corp.
This category includes non-REIT Data Centers and Infrastructure-Related.
48
Recent Activity
Table V.
In the Most Recent Quarter:
REITs1
Hotel & Leisure2
Building Products/Services
Senior Housing Operators
Real Estate Service Companies
Real Estate Operating Companies
Casinos & Gaming Operators
Homebuilders & Land Developers
Tower Operators3
Other4
At March 31, the Fund maintained 49 positions. Our 10 largest holdings
comprised 36.6% of the Fund, with an average position size of 3.7%, and
our 20 largest holdings accounted for 60.9% of the Fund, with an average
position size of 3.0%.
MGM Resorts International
Global Logistic Properties Ltd.
Brookfield Infrastructure Partners L.P.
Wynn Resorts Ltd.
Quarter End
Market Cap
(billions)
Purchased
Amount
(millions)
$10.3
9.3
6.8
29.2
12.8
$56.7
32.9
23.0
20.2
18.1
The Fund recently initiated a position in MGM Resorts International after
its share price had declined by 40% from its March 2014 peak of $28 per
share. MGM is a leading global hospitality company that owns and operates
or has a joint venture interest in nineteen hotel and casino properties,
including ten properties in Las Vegas, one in Macau, and others within
Nevada, Mississippi, Michigan, and Illinois. Our favorable outlook for the
company is supported by a number of factors.
First, MGM owns several of the leading hotel and casinos in Las Vegas,
including the Bellagio, the MGM Grand Las Vegas, Mandalay Bay, The
Mirage, and New York-New York. Despite generating approximately 80% of
its cash flow in the United States where business conditions are modestly
improving and only 20% of its cash flow in Macau where business
conditions are currently poor, the shares of MGM Resorts have been lumped
together with the Macau-centric gaming companies, such as Wynn Resorts
and Las Vegas Sands. The shares of all three companies had fallen
approximately 40% from their peak share prices in 2014. MGM also owns
a high quality real estate portfolio that we believe is substantially
undervalued in the public markets.
At its current price of $21.50 per share, MGM Resorts now trades at
approximately 10-11 times cash flow, representing a substantial discount
to high quality public hotel REITs that trade between 14-18 times cash flow.
MGM’s shares also compare favorably to the 17 times cash flow that
Blackstone Real Estate, the world’s largest private equity real estate
investor, reportedly paid for the Cosmopolitan Hotel in Las Vegas just a few
months ago.
Second, in contrast to Macau, Las Vegas has begun to recover. In 2014,
visitation to Las Vegas increased 3.7%, resulting in gains in hotel occupancy
and room rates. We believe lower oil prices, increased domestic airline seat
capacity to Las Vegas, and an improvement in consumer spending should
support continued growth in Las Vegas over the next few years. Thirty
percent of all visitors to Las Vegas come from California. Many of these
travelers drive to Las Vegas. As such, we believe Las Vegas should benefit
considerably from lower gas prices. In 2014, MGM Resorts generated
approximately $1.5 billion in cash flow in Las Vegas, still 50% below the
company’s peak cash flow of $2.3 billion in 2007.
Third, the company is working on several development projects which
should drive revenue growth in the next few years. MGM Resorts is
March 31, 2015
expected to open a $1.2 billion casino in the second half of 2016 at
National Harbor, outside of Washington D.C. We believe this may become
one of the most successful regional casinos in the U.S. The company is also
building an $800 million casino in Springfield, Massachusetts that it expects
to complete in 2017. In Las Vegas, management is making improvements to
several of its properties including developing a new 20,000 seat arena,
expanding its convention center, and adding a music festival venue. In Asia,
the company expects to complete its $2.9 billion MGM Cotai (Macau) in
2016. Finally, we believe MGM is a leading contender to build and operate
an integrated resort in Japan and Korea if these countries pass casino bills.
Lastly, several additional catalysts could drive shares higher in the next few
years. Given the premium valuation of REITs, MGM may choose to convert
its gaming assets to a REIT to unlock substantial real estate value. In the
most recent quarter, an activist shareholder proposed a MGM REIT
conversion. We believe the shares would appreciate to at least $30 per
share as a REIT, or approximately 40% higher than current levels.
Management could also sell non-core real estate assets in Detroit,
Mississippi, New Jersey, and elsewhere, and use sale proceeds to repay debt.
Finally, we expect business conditions in Macau to improve over time as
China’s economy stabilizes, new casinos, such as the MGM Cotai, open to
meet the shortage of rooms, and the completion of infrastructure projects,
such as a new bridge, rail transit system, and ferry terminal.
At its current price of only $21.50 per share, we believe the “risk-reward” for
MGM’s shares in the next few years is compelling with only 10% downside
risk and 50% or more upside potential.
In the most recent quarter, we began acquiring shares in Global Logistic
Properties Ltd., a leading provider of modern logistics facilities
(i.e. warehouses) in China, Japan, Brazil and the U.S. The company’s property
portfolio of over 300 million square feet is strategically located across 77
cities, forming an efficient logistics network serving more than 800
customers. Currently, approximately 55% of the value of the company is
derived from China, 21% from Japan, 12% from Brazil, 4% from the U.S.,
and 8% from various other geographic regions. We are optimistic about
GLP because, in our opinion, the long-term growth prospects for its three
core business lines – operations, development, and fund management – are
quite promising. Further, we acquired the shares at an attractive price – a
20% discount to our conservative estimate of net asset value. We see the
potential for double digit annual returns the next few years from an
improvement in the company’s valuation and growth in its core portfolio,
development pipeline, and fund management business.
In Global Logistics’ core operations, the company leases logistics properties
to international and domestic manufacturers, retailers, and third-party
logistics companies. We believe the company’s large scale is a competitive
advantage. In China, GLP operates seven times the amount of logistics
space as its next closest competitor, while in Japan, the company has 62%
more space, and in Brazil, the company has over four times the amount of
modern logistics space. The company’s scale generates a powerful “network
effect” as 50% of its customer base leases from multiple locations. In our
opinion, the company is positioned to benefit over the long-term from
increasing demand in China (for example, China’s retail chain store market
is significantly below that of the U.S., and the pace of openings has
accelerated), and modern logistics facilities in China are in short supply.
According to management, 75% of China’s warehouses do not meet
modern logistics requirements and may be demolished as urbanization
spreads.
The company’s 50 million square foot development pipeline should serve as
an additional source of growth in the next several years (a 16% increase in
the size of the company’s real estate portfolio), and the company’s more
than $20 billion third-party fund management business provides stable
recurring income, helps to accelerate the company’s development pipeline,
and should grow over time.
We have high regard for the management team of Brookfield
Infrastructure Partners L.P. and its parent company Brookfield Asset
Management (also a holding of the Fund). We first began acquiring shares
in Brookfield Infrastructure more than five years ago at $16 per share. At its
recent price of $46, we believe the shares could continue to achieve
mid-teens annual returns. The company owns and operates a globally
diversified portfolio of high quality infrastructure assets. The outlook for the
company is stable and relatively predictable as 89% of its cash flow is
contractual or regulated, similar to REITs with long leased assets. We believe
the company’s holdings offer strong internal growth prospects, and
management is targeting to grow its close to 5% dividend yield by
approximately 5-9% per year.
Recently, the Fund has been acquiring additional shares in Brookfield
Infrastructure because of the possibility of several new and exciting growth
opportunities. First, the company recently invested $500 million in a
leading French communication tower infrastructure business. This is
Brookfield’s first investment in the tower sector. We have long held the
view that wireless towers are one of the more compelling niche real estate
categories given the long-term contracts and resultant predictable cash
flows and the secular growth opportunities as the global population moves
more and more to wireless communication. We believe the French tower
assets were acquired at an attractive valuation of less than 10 times cash
flow, and that additional tower acquisitions might be consummated in the
next few years.
Second, management noted in its most recent quarterly letter that it sees
“opportunities for step change growth” and that “2015 is shaping up to be
potentially one of the most active periods for infrastructure investors.” The
company is monitoring several large scale investment possibilities. We
believe it is possible that Brookfield will invest $1-$2 billion of equity
capital that could generate additional earnings of $1 per share (assuming a
15% return threshold on a $1.5 billion investment), which would represent
30% growth on the company’s 2014 base earnings of $3.45 per share.
Following recent meetings with the management of Hilton Worldwide
Holdings, Inc., the largest hotel company in the world, we acquired
additional shares in the company. We believe CEO Chris Nassetta, and his
team will continue to create significant value for shareholders in the years
ahead. The company has several leading brands and is generating industry
leading growth and market share gains. Its development pipeline of 215,000
rooms represents approximately 18% of all global hotel rooms under
construction, implying significant potential for continued growth.
Management continues to focus on growing its high-margin, more
predictable and less capital intensive management and franchise (52% of
cash flow) and timeshare (12% of cash flow) businesses, which should
result in higher cash flow generation. Approximately 64% of the company’s
cash flow is generated from these businesses. Management continues to
repay debt, and we believe may initiate a dividend and stock buyback
program later in 2015. Over the long-term, management is committed to
simplifying its business and may eventually spin off its owned real estate
business (approximately 35-40% of the value of the company) and its
49
timeshare business (approximately 12% of the value of the company) if
there is an opportunity to unlock additional value for shareholders. Finally,
Hilton management owns a significant amount of its shares, so
management’s interests are strongly aligned with ours.
Table VI.
Starwood Hotels & Resorts Worldwide, Inc.
Brookfield Residential Properties, Inc.
D.R. Horton, Inc.
Blackstone Mortgage Trust, Inc.
Essent Group Ltd.
Quarter End
Market Cap or
Market Cap
When Sold
(billions)
Amount Sold
(millions)
$14.3
3.6
10.4
1.8
2.2
$25.8
24.8
22.5
20.1
19.8
We recently reduced our investment in Starwood Hotels & Resorts
Worldwide, Inc. because we see better near-term growth and more share
price upside potential in some of our other hotel and real estate-related
investments. We have, however, maintained a position in the company
because we believe there are opportunities for new CEO Adam Aron, to
improve its operations and drive growth. We also believe the company
could be an attractive acquisition target.
In the most recent quarter, Brookfield Residential Properties, Inc. was
acquired by Brookfield Asset Management, Inc. (another holding of the
Fund) at about a 20% premium to the Fund’s cost basis. Brookfield
Residential is primarily a residential land development company. We believe
it will benefit from being a private company which would allow
management to focus on creating long-term value through land acquisition
and development.
Outlook
We are mindful that some of the contributors to positive equity market
performance in the last few years such as favorable valuations, an
accommodating Federal Reserve, and the undervalued U.S. dollar, are now
somewhat less compelling. Consequently, the outsized equity returns of the
last five years are unlikely to be repeated. Nevertheless, we continue to
believe that the prospects for real estate and the Fund are attractive.
In our opinion, economic conditions are generally solid, and currently offer
a rare and welcome combination of low interest rates, low inflation, cheap
oil prices, solid job growth, and increased household formation.
We believe stocks remain attractive versus bonds. Longer duration bonds
are so expensive now that they carry a negative yield when adjusted for the
normalized inflation that consumers may experience in future years. For
example, the 10-year treasury yield has declined from 6.58% in
January 2000 to 1.90% today, despite a longer-term inflation expectation
of at least 2.0%.
The backdrop for commercial real estate remains strong while demand, in
most cases, is outstripping new construction activity. Strong balance sheets,
low interest rates, and wide access to cheap capital afford many companies
the opportunity to develop and acquire real estate, and to propel growth.
In the housing market, it appears that, at long last, the pieces are falling in
place for a normalized and growing residential market. Employment and
household formation have improved. Credit conditions are easing and
mortgage rates are near historical lows. In numerous markets, renting is
more expensive than owning a home. There are signs that the millennial
generation (approximately 75 million ages 18-34) is beginning to move out
of mom and dad’s home. New home sales are up 25% year-to-date.
We decided to decrease our investment in D.R. Horton, Inc., one of the
largest public homebuilders in the U.S., and reallocate the capital to other
real estate-related companies that we believe are more attractively valued.
The company is one of the best-positioned builders for the recovery in
residential real estate, and we may buy additional shares at a more
attractive valuation.
In summary, business conditions for most of our companies are
improving – both in commercial and residential real estate. The first quarter
of 2015 was particularly encouraging, given the large number of the Fund’s
portfolio of companies that reported strong business results, strategic
acquisitions, corporate reorganizations, and/or favorable business outlooks.
In the most recent quarter, we exited both Blackstone Mortgage Trust,
Inc. and Essent Group Ltd. and reallocated the capital to higher conviction
investment ideas.
We also believe that a number of our holdings may pursue opportunities to
unlock their real estate values such as transitioning to REIT structures,
spin-offs, sales, or other value enhancing moves.
50
March 31, 2015
We are pleased with the Fund’s holdings. We believe we have assembled a
group of quality companies that are reasonably priced with good growth
prospects, led by great management teams.
Thank you for your continued support. I remain a major shareholder of
the Baron Real Estate Fund alongside you.
Sincerely,
Table VII.
Market
Investment
Cap
Value
Percent of
(billions)
(millions) Net Assets
Brookdale Senior Living, Inc.
CBRE Group, Inc.
Hyatt Hotels Corp.
Capital Senior Living Corp.
Norwegian Cruise Line Holdings Ltd.
Mohawk Industries, Inc.
MGM Resorts International
Wyndham Worldwide Corp.
Diamond Resorts International, Inc.
$ 6.9
29.2
12.9
8.8
0.8
12.3
13.6
10.3
10.9
2.5
$146.3
71.0
68.5
62.1
60.2
59.4
57.1
56.9
56.9
56.3
7.7%
3.7
3.6
3.3
3.2
3.1
3.0
3.0
3.0
3.0
Jeffrey Kolitch
Portfolio Manager
April 30, 2015
Baron Real Estate Fund is non-diversified, which means it may invest a greater percentage of its assets in fewer issues, and which increases the volatility of
its returns and exposes it to potentially greater losses in a given period. In addition to general market conditions, the value of the Fund will be affected by
the strength of the real estate markets. Factors that could affect the value of the Fund’s holdings include the following: overbuilding and increased
competition; increases in property taxes and operating expenses; declines in the value of real estate; lack of availability of equity and debt financing to
refinance maturing debt; vacancies due to economic conditions and tenant bankruptcies; losses due to costs resulting from environmental contamination
and its related cleanup; changes in interest rates; changes in zoning laws, casualty or condemnation losses; variations in rental income; changes in
neighborhood values; and functional obsolescence and appeal of properties to tenants. The Fund may not achieve its objectives. Portfolio holdings are subject
to change. Current and future portfolio holdings are subject to risk.
Discussions of the companies herein are not intended as advice to any person regarding the advisability of investing in any particular security. The views expressed in this report reflect those of the
This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Real Estate Fund by anyone in any jurisdiction where it would be unlawful under the laws of that
51
Dear Baron Emerging Markets Fund Shareholder:
Performance
The Baron Emerging Markets Fund (the “Fund”) declined 0.42% for the first
quarter of 2015, while its principal benchmark index, the MSCI EM IMI
Growth Index, returned 4.10% for the quarter. In general, global equities
appreciated as markets responded to declining sovereign interest rates, in
our view largely driven by aggressive ECB monetary policy. Although the
majority of emerging market economies, particularly China, showed signs of
ongoing deterioration, details regarding ECB easing soothed concerns over
anticipated Fed rate hikes, driving asset prices higher. Across the globe, high
quality growth stocks, our principal investment focus, lagged their lower
quality, more capital intensive and cyclical peers; we also attribute this
largely to aggressive ECB easing, as the attendant decline in cost of capital
worldwide drove a mean-reverting relief rally for such equities. On the
contrary, the companies in which we seek to invest tend to be steady, valuecreating entities driven by organically high return on capital, and are
thereby much less sensitive to changes in the cost of or access to capital.
During the quarter, oil prices, currencies, bond yields and equities remained
volatile, we suspect driven by uncertainty over key macroeconomic
variables and a divergence in monetary policy expectations around the
world. Uncertainty over the timing of anticipated Fed rate hikes, as well as
the likelihood of Greece remaining in the EU, has also elevated market
volatility. For the emerging markets overall, we view the strength of the U.S.
dollar, exacerbated by ECB policy, as a key risk factor, particularly for those
countries most exposed to declining commodity prices and/or dollar
denominated liabilities. We note that, for the most part, we have refrained
from investing in companies and markets directly exposed.
Table I.
Baron
Emerging
Markets
Fund1,2
MSCI
EM IMI
Growth
Index1
MSCI
EM IMI
Index1
Three Months3
(0.42)%
One Year
1.28%
Three Years
8.02%
Since Inception (December 31, 2010) 4.46%
4.10%
3.42%
3.29%
0.10%
2.42%
0.53%
0.69%
(1.45)%
MICHAEL KASS
PORTFOLIO MANAGER
Retail Shares: BEXFX
Institutional Shares: BEXIX
Although the current investment environment appears complex, we believe
that our discipline seeks to identify attractive investment opportunities in
all environments, often precisely due to the rapid evolution of change
across our universe. Such change drives the entrepreneurs and companies in
which we invest, and further, often motivates policymakers to engage in
progressive reforms, upon which we often base long-term investment
themes. We believe such opportunity is emerging now in a variety of
countries and industries, and believe that our discipline will continue to
identify the source of tomorrow’s significant value creation.
While disappointed with our first quarter performance, we recognize that
our investment discipline cannot outperform at all times. We have noted
above the broad mean reversion away from high quality growth strategies
during the quarter. We are not concerned, and we remain committed to our
discipline, which we note has outperformed our broad peer group, defined as
the Lipper Emerging Market Funds Average, by over 600 basis points per
annum since inception slightly over four years ago. During the quarter, by far
the largest driver of underperformance was our collective investment in
Brazil, where we entered the year overweight. For several years, we have been
able to far offset the macro and currency headwinds in Brazil by owning very
†
1
The MSCI EM (Emerging Markets) IMI indexes cited are unmanaged, free float adjusted market capitalization weighted indexes reflected in U.S. dollars. The MSCI EM (Emerging
Markets) IMI Growth Index Net USD and the MSCI EM (Emerging Markets) IMI Index Net USD are designed to measure equity market performance of large-, mid- and smallcap securities in the emerging markets. The MSCI EM (Emerging Markets) IMI Growth Index Net USD screens for growth-style securities. The indexes and Baron Emerging
Markets Fund include reinvestment of dividends, net of foreign withholding taxes, which positively impact the performance results.
2
Not annualized.
3
52
March 31, 2015
well positioned and strong performing private sector companies, particularly
in the Education sector. However, by mid-January this year, when the scope
of the government’s excessive pre-election fiscal mismanagement, coupled
with the Petrobras corruption scandal, became clear, Brazil lost its credibility
with the capital markets. Bond yields widened noticeably while the currency
depreciated, and the new, more orthodox finance minister began to
announce a rash of policies aimed at restoring fiscal balance. Such policies
for the first time squarely targeted the private sector, which had previously
been largely shielded. Notably, one of the key policy adjustments was a
revision in the terms of the government-funded student financing program
known as the FIES, which, among other adverse adjustments, directly
impaired our performance during the quarter. Here, Kroton Educacional SA,
GAEC Educação S.A. and GOL Linhas Aéreas Inteligentes SA declined
materially. We actively reduced exposure to Brazil beginning in January and
exited the quarter with an underweight position. We will monitor the policy
environment for future opportunities. We note that although the quarter
included the rare occurrence of a broader theme being discredited, our
performance remained roughly in line with a more targeted peer group of
high quality EM growth managers.
Table II.
Percent
Impact
Lupin Ltd.
Kingdee International Software Group Co. Ltd.
China Mengniu Dairy Co. Ltd.
0.53%
0.37
0.36
0.35
0.32
Shares of Lupin Ltd. rose in Q1, as a result of good financial performance
and increased investor appetite for high quality emerging market health
care stocks. As a leading Indian generics pharmaceutical player, the
company is experiencing substantial growth in the U.S. as branded drugs
continue to go off-patent. We believe Lupin is well positioned to generate
double-digit earnings growth for the next three to five years, driven by its
strong product pipeline and healthy cash flow generation. (Anuj Aggarwal)
Shares of Kingdee International Software Group Co. Ltd. rose during Q1
after the company reported continued improvement in gross profit
generation. Kingdee is a software vendor to small and medium-sized
businesses in China. The company is undergoing a strategic transformation
from a direct to indirect sales approach, which we think will allow it to sell
software more profitably and earn higher returns on capital over the long
run. (Aaron Wasserman)
Tencent Holdings, Ltd. is a leading Internet service platform in China.
Shares rose in response to the launch of infeed ads on the company’s highly
popular WeChat messaging app, which added an important revenue driver
to the company’s growth profile. Tencent also reported solid results for Q4.
We have conviction in Tencent’s large user base, strength in mobile, superior
management team, and platform business model. (Catherine Chen)
Shares of Steinhoff International Holdings Ltd. rose in Q1. The company
is the second largest European furniture retailer (behind Ikea), with a
vertically integrated business model. Strong financial performance drove
shares up. The stock price was also boosted by Steinhoff’s planned duallisting on the Frankfurt Stock Exchange in July. We retain conviction as we
believe Steinhoff is well managed and a beneficiary of accelerated industry
consolidation. (Anuj Aggarwal)
Shares of China Mengniu Dairy Co. Ltd. rose in Q1 on reports of strong
earnings growth driven by a product mix shift and ongoing operating cost
rationalization. The company is China’s leading dairy conglomerate with
over 20% market share. We believe Mengniu Dairy is well positioned to gain
market share as smaller players exit the industry or are acquired as part of
a government mandated consolidation effort. (Anuj Aggarwal)
Table III.
Percent
Impact
GOL Linhas Aéreas Inteligentes SA
GAEC Educação S.A.
Opera Software ASA
–0.80%
–0.74
–0.66
–0.47
–0.34
GOL Linhas Aéreas Inteligentes SA is the second largest airline in Brazil.
Our investment thesis was based on industry-wide capacity rationalization
and operational improvements at GOL. GOL was also a cheaper way to own
Smiles SA, a high growth, high return loyalty program, of which GOL is a
majority shareholder. Shares fell sharply in Q1, weighed down by the
impact of the slowdown in Brazil and the adverse impact on the company
of the decline in the Brazilian Real. We reduced our position during the
quarter. (Kyuhey August)
As the largest for-profit education company in Brazil, Kroton Educacional
SA has been a beneficiary of FIES, the government’s student financing
program. We also think it is an exceptionally well-managed company.
However, Brazil’s fiscal problems prompted the government to change the
rules on FIES, impairing margins, return on capital and stock performance
across the industry. In addition, the Brazilian Real and market have both
been weak due to fiscal credibility issues. We have reduced our position
during the quarter. (Kyuhey August)
GAEC Educação S.A is a for-profit education company in Brazil. GAEC has
been a beneficiary of FIES, the government’s student financing program.
Due to Brazil’s fiscal problems, the government changed the rules for FIES,
impairing margins, return on capital and stock performance across the
industry. GAEC also made two acquisitions prior to the announcement,
which heightened concerns that it would be unable to extract synergies
given the change in FIES rules. We reduced our position during the quarter.
(Kyuhey August)
Opera Software ASA operates a leading Internet browser. Shares fell in Q1
based on disappointing fiscal results and outlook, driven down in large part
by foreign currency exposure to the Russian Ruble that was greater than
had been previously disclosed. We exited our position based on this new
disclosure, as well as concerns over the long-term strategic positioning of
its core mobile advertising business. (Ashim Mehra)
Alibaba Group Holding Ltd. is the largest e-commerce company in China
and the world. Shares declined due to a revenue miss as a result of
increased mobile contribution, a greater mix of sales through its Taobao
marketplace, and an algorithm change. The stock has also been weak ahead
53
of post-IPO lock-up expirations. We view these issues as temporary.
We believe Alibaba’s market leading position, positive network effects,
asset-light business model, and high cash generation give it a long runway
for continued growth. (Catherine Chen)
Portfolio Structure
Table IV.
Percent of
Net Assets
Haitong Securities Co., Ltd.
Samsung Electronics Co., Ltd.
Sinopharm Group Co., Ltd.
Lupin Ltd.
Torrent Pharmaceuticals Ltd.
Axis Bank Ltd.
Fomento Económico Mexicano, S.A.B. de C.V.
Taiwan Semiconductor Manufacturing Co., Ltd.
2.5%
2.5
2.1
1.9
1.8
1.8
1.7
1.7
1.7
1.6
Exposure By Country
Table V.
Percentage of securities by country as of March 31, 2015
Percent of
Net Assets
China
India
Taiwan
Korea
South Africa
Brazil
Philippines
Indonesia
Mexico
Hong Kong
Thailand
Singapore
Chile
United Arab Emirates
United Kingdom
21.4%
18.1
10.2
8.4
7.1
5.7
4.7
4.7
4.5
2.8
1.5
1.3
0.3
0.2
0.2
Exposure by Market Cap: The Fund may invest in companies of any market
capitalization, and we have generally been broadly diversified across large-,
mid- and small-cap companies, as we believe developing world companies
of all sizes often exhibit attractive growth potential. At the end of the first
quarter of 2015, the Fund’s median market cap was $5.02 billion, and we
were invested approximately 52.9% in large/giant cap companies, 30.0% in
mid-cap companies and 8.2% in small/micro-cap companies, as defined by
Morningstar, with the remainder in cash.
Recent Activity
During the quarter, the most notable area of investment was a new theme
based on the emergence of a group of competitively advantaged Asian
54
textile suppliers. As global retail market share continues to consolidate in the
hands of the huge “fast fashion” leaders such as Inditex (Zara), H&M and Fast
Retail (Uniqlo), the select suppliers that meet exacting requirements for
quality, scale, reliability and tight inventory turns are also quickly gaining
their own scale, strategic significance and pricing power. A similar
phenomenon is occurring in the sports and performance category, where
increased demand for technology, R&D capability, scale and reliability from
leaders such as Under Armour, Nike and lululemon, are driving similar
consolidation and pricing power to select suppliers. We have initiated
investments in Makalot Industrial Co., Ltd., Eclat Textile Co., Ltd. and
Shenzhou International Group Holdings Ltd. during the quarter. While all
of these leaders are exhibiting attractive growth and financial returns in their
own right, we further believe they are all beneficiaries of a strong dollar,
lower oil prices, and a subdued environment for wage inflation across the
Asian base of countries in which they produce. Finally, we note that in the
case of a Chinese RMB devaluation, they should also enjoy material margin
expansion, thereby likely offering attractive upside should one of the risk
scenarios mentioned in the following outlook section play out.
Outlook
The first quarter of 2015 appeared to confirm the prior quarter’s passage
into a new, more volatile environment for the global capital markets. Oil
prices, currencies, bond yields and equities continued to exhibit gyrations,
as key macro variables remained uncertain, monetary policy expectations
further diverged, and, as a result, deviation among asset classes, countries
and sectors remained wide and volatile. Further, we observe that the recent
quarter reflected a mean-reverting rotation in performance away from
high-quality growth stocks and towards the lower quality, more capital
intensive and cyclical elements of the market. In our view, this was driven
by the aggressive stance of the ECB, which provided a jolt of liquidity to
offset previous concerns over anticipated Fed hikes, allowing those stocks
most sensitive to the cost of and access to capital to recover some lost
ground.
To us, the key event of the first quarter was the detail of the ECB’s easing
campaign, which clearly “beat” market expectations. The relentless
suffocation of interest rates by developed world central bankers turned a
new chapter, with ten-year sovereign yields plunging to well below 50 basis
points across much of Europe and bank deposit rates going negative in
Switzerland and Scandinavia. In our complex and intertwined financial
world, such policy moves certainly create ripple effects, both intended and
unintended; the Euro has fallen to levels not seen in over a decade, and
yield-driven investors are forced further out on the risk spectrum. We
consider policies of financial repression self-reinforcing, as they encourage
sovereigns and corporates worldwide to add to already healthy levels of
leverage. As such, we suspect interest rates are likely to remain quite low for
a sustained period as any material increase is likely to stress the system and
thereby derail economic momentum. We view the current financial and
investment environment as a conundrum that we might describe as the
“Truman Show” market. Here, global monetary authorities present a
constructed reality, where developed world interest rates, the key variable
upon which all other market instruments must be evaluated on a relative
basis, are manipulated rather than set by market forces. Likewise, we must
consider whether the attendant pressure on rates has resulted in capital
misallocation and the mispricing of risk on fixed income instruments. We
note that as risk free rates drift closer to zero, asset prices rise, and all-else
equal, forward-looking returns on equity securities thereby likely fall. While
March 31, 2015
we continue to discover attractive investments over our five-year
investment horizon, we submit that they are marginally more difficult to
find. For these reasons, our cash position is moderately above desired levels,
and we have become a bit more conservative with regard to liquidity and
balance sheet quality.
We view the key risks to emerging market and global equities to be a
potential change in appetite for emerging market bonds in certain
fundamentally challenged countries, and/or a possible gradual or more
abrupt devaluation of the Chinese RMB. We do not currently view either as
a likely event in the near term, however, we are actively seeking and making
investments in companies that both fit our discipline, and, in our view, are
also shielded from or even beneficiaries of such events. Finally, we reiterate
that we believe the key catalyst for long-term value creation in emerging
markets remains the ongoing shift in opportunity, resources, and capital
towards those companies and entrepreneurs most capable of driving capital
efficiency and economic productivity. This phenomenon remains very much
in play across our investment universe, particularly in the reform-driven
countries such as India, China, Indonesia and Mexico, which collectively
represent over 50% of our invested capital, and which we believe will serve
as a catalyst for more countries to follow suit in coming years. After a
sustained period of relative underperformance for emerging market equities
in general, we suspect we may soon see increasing opportunities, and we
remain focused on the future value creation latent in our markets and
inherent in our discipline.
Thank you for investing in the Baron Emerging Markets Fund.
Sincerely,
Michael Kass
Portfolio Manager
April 30, 2015
In addition to the general stock market risk that securities may fluctuate in value, investments in developing countries may have increased risks due to a
greater possibility of: settlement delays; currency and capital controls; interest rate sensitivity; corruption and crime; exchange rate volatility; and inflation
or deflation. The Fund invests in companies of all sizes, including small and medium sized companies whose securities may be thinly traded and more difficult
to sell during market downturns. The Fund may not achieve its objectives. Portfolio holdings are subject to change. Current and future portfolio holdings are
subject to risk.
This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Emerging Markets Fund by anyone in any jurisdiction where it would be unlawful under the laws
55
Dear Baron Energy and Resources Fund Shareholder:
Performance
In our letter last quarter, we noted that we thought that oil and energy
equity markets had reached pretty oversold levels and that while things
could get worse in the short term, we were pretty confident that “the sun’ll
come out tomorrow.” Both of those statements appeared to actually be
true in the first quarter. The quarter got off to a very shaky start, with oil
prices dropping to five-year lows in early January with West Texas
Intermediate (WTI) oil prices dropping to the low $40s per barrel and
energy stocks and our Fund falling 7-10% in the first couple of weeks of the
quarter. However, as the quarter progressed, a number of forces began to
exert themselves on the energy industry that we believe have led to a
bottom being formed for the oil market and perhaps the U.S. natural gas
market, which, in turn led to a strong recovery in share prices and a solid
start to the year for Baron Energy and Resources Fund (we will discuss these
forces later in the Outlook section of this letter). The Fund rose 1.65% for
the quarter compared to a decline of 1.51% for our primary benchmark
(S&P North American Natural Resources Sector Index) for a relative gain of
316 basis points. The results of the first quarter allowed our Fund’s trailing
three year returns to also pull ahead of those of our benchmark.
One of the reasons why our Fund did well in the first quarter was that we
did not panic last quarter and materially alter the portfolio or our overall
strategy. We felt secure in the belief that we owned good companies with
good assets/businesses that were excessively penalized by the downturn in
oil markets last year and still offered excellent value over the long-term. In
addition, we were fortunate to largely have asset inflows during the quarter
that allowed us to opportunistically purchase additional shares in some of
the more battered and undervalued names in the portfolio and add some
new names at attractive prices, which ended up contributing positively to
our overall returns for the quarter.
Table I.
S&P North
Baron
American
Energy and
Natural
Resources
Resources
S&P 500
Fund1,2
Sector Index1 Index1
Three Months3
1.65%
One Year
(16.67)%
Three Years
1.55%
Since Inception (December 30, 2011) 1.55%
(1.51)%
(13.47)%
0.50%
1.75%
0.95%
12.73%
16.11%
19.05%
JAMES STONE
PORTFOLIO MANAGER
Retail Shares: BENFX
Institutional Shares: BENIX
A closer analysis of our performance in the first quarter relative to our
benchmark indicates that all of our absolute and relative performance was
a function of our stock selection within the Energy portion of the portfolio.
Our Fund is technically underweight in Energy relative to the benchmark,
however a closer look at the Fund shows that stocks that are classified in
the portfolio as Utilities and Information Technology represent our
investments in renewable energy and our largest holding in the Materials
category is a company whose principal business is supplying chemicals,
tools and services to the global oil industry. Therefore, if we roll these
positions into our overall Energy exposure, we find that our weighting
toward Energy is pretty similar to that of the benchmark, but our stock
selection and our weightings differ dramatically contributing to a high
active share in the portfolio. The combined contribution of these
investments and our core energy investments outperformed our
benchmark by 478 basis points. Offsetting this relative performance were
poor contributions from our various holdings in the Materials and
Industrials sectors.
In addition to the Fund’s performance relative to our benchmark, the Fund
has also continued to be one of the leading energy & natural resource
funds within the universes of funds followed by both Morningstar and
Lipper. While we believe that the Lipper universe of comparable funds is
composed of funds that are more strategically similar to our Fund than
the Morningstar universe, we were nevertheless pleased to have had the
Performance listed in the above table is net of annual operating expenses. Annual expense ratio for the Retail Shares as of December 31, 2014 was 1.79%, but
the net annual expense ratio was 1.35% (net of the Adviser’s fee waivers). The performance data quoted represents past performance. Past performance is no
guarantee of future results. The investment return and principal value of an investment will fluctuate; an investor’s shares, when redeemed, may be worth more
or less than their original cost. The Adviser has reimbursed certain Fund expenses (by contract as long as BAMCO, Inc. is the adviser to the Fund) and the Fund’s
transfer agency expenses may be reduced by expense offsets from an unaffiliated transfer agent, without which performance would have been lower. Current
performance may be lower or higher than the performance data quoted. For performance information current to the most recent month end, visit
†
1
The indexes are unmanaged. The S&P North American Natural Resources Sector Index measures the performance of U.S.-traded natural resources related stocks and the S&P
500 Index of 500 widely held large cap U.S. companies. The indexes and the Fund are with dividends, which positively impact the performance results.
2
The performance data in the table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemptions of Fund shares.
Not annualized.
3
56
March 31, 2015
Institutional share class of our Fund upgraded to a 4-Star fund by
Morningstar during the first quarter. In addition, we continued to receive
Lipper’s top rating (5) for total return, consistent return, and tax
efficiency, and finished the first quarter ranked in the top quartile for the
trailing three-year period among the peer funds within our Lipper fund
category.*
We believe that our favorable performance relative to other competitive
offerings over the past three years is a reflection of the differences in our
investment process and the strategies we seek to employ, which
incorporate both the types of companies in which we seek to invest and
how we choose to weight various sub-industries within the portfolio.
Our investment process focuses on the following strategies:
1. Invest for the long term with a typical time horizon of three-to-five
years;
2. Seek growth opportunities that do not depend on rising commodity
prices;
3. Focus on best in class assets, defensible market positions, and/or
emerging key technologies;
4. Partner with entrepreneurial and/or experienced best in class
management;
5. Limit risk by seeking companies with strong financial positions;
6. Emphasize purchase price and proprietary research and modeling as
key determinants of appropriate valuation; and
7. Be consistent.
Table II.
Year
Acquired
SM Energy Co.
SunEdison, Inc.
Newfield Exploration Co.
Tallgrass Energy Partners, LP
2012
2012
2014
2015
2013
Percent
Impact
0.92%
0.75
0.62
0.62
0.46
Table III.
Primoris Services Corp.
Canyon Services Group Inc.
RigNet, Inc.
Tesco Corporation
Year
Acquired
Percent
Impact
2013
2013
2014
2012
2014
–0.66%
–0.41
–0.34
–0.33
–0.28
Portfolio Structure
As we discussed in the review of our performance earlier in this letter, we
believe that we have a process and a strategy that differentiates our Fund
from our peers and that this has been one of the factors that has contributed
to our strong performance over the past several years. The results of this
process and strategy are reflected in the structure of our portfolio as well as
in our individual stock selection. Our focus on growth over the long term
often leads us to invest in more mid-cap companies than large-cap, and we
have chosen to eschew investing in the mega-cap oil companies that we
believe are long-term growth challenged. In addition, we choose to allocate
more capital to the midstream and energy infrastructure segments of the
industry and towards renewable or alternative energy companies than many
of our peer funds. At the end of the quarter, our portfolio could be broken
down into the following sub-industries or categories:
Oil & Gas Exploration & Production – The E&P sub-industry represented
36.4% of the Fund at the end of the quarter and is largely focused on U.S.
based producers that operate in a number of different unconventional
resource plays in the U.S. Even though these companies are suffering under
the current weight of low oil prices, we believe these companies are
capable of generating strong long-term growth in a more normalized price
environment and represent good value at current levels. Our top positions
in the E&P sector represent six of the top ten positions in the Fund.
Oil & Gas Storage and Transportation – This sub-industry, which is
largely composed of master limited partnerships and publicly traded
* As of March 31, 2015, for the one-year (102 funds in the Morningstar US OE Equity Energy Category), three-year (81 funds in the category) and Since Inception (December 30, 2011) (81 funds in
the category) periods, Morningstar ranked Baron Energy and Resources Fund Retail Share Class in the 41st, 34th and 40th percentiles, respectively, and ranked Baron Energy and Resources Fund
Institutional Share Class in the 40th, 31st and 38th percentiles, respectively, in the category. These rankings are based on total returns.
For the period ended 3/31/2015, Morningstar 1-year star rating is based on risk adjusted returns with 102 funds in the category; and 3-year star rating is based on risk adjusted returns with 81 funds
in category. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s
monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of
funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted
as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.)
As of March 31, 2015, for the one-year (150 funds in the Lipper Global Natural Resources Funds Category), three-year (138 funds in the category) and Since Inception (December 30, 2011) (136
funds in the category) periods, Lipper ranked Baron Energy and Resources Fund Retail Share Class in the 48th, 22nd and 24th percentiles, respectively, and ranked Baron Energy and Resources Fund
Institutional Share Class in the 47th, 21st and 23rd percentiles, respectively, in the category. These rankings are based on total returns.
Lipper Leader ratings for Total Return reflect funds’ historical total return performance relative to peers. Ratings for Total Return are computed for all Lipper classifications with five or more distinct
portfolios and span both equity and fixed-income funds (e.g., large-cap core, general U.S. Treasury, etc.).
Lipper Leader ratings for Consistent Return reflect funds’ historic returns, adjusted for volatility, relative to peers. Ratings for Consistent Return are computed for all Lipper classifications with five or
more distinct portfolios and span both equity and fixed-income funds (e.g., large-cap core, general U.S. Treasury, etc.).
Lipper Leader ratings for Tax Efficiency reflect funds’ historical success in postponing taxable distributions relative to peers. Scores for Tax Efficiency are computed for all Lipper classifications with
five or more distinct portfolios and span both equity and fixed-income funds (e.g., large-cap core, general U.S. Treasury, etc.).
The ratings are subject to change every month and are calculated for the following time periods: 3-year, 5-year, 10-year, and overall. The overall calculation is based on an equal-weighted average
of percentile ranks for the Total Return metrics, Consistent Return metrics or Tax Efficiency metrics, respectively, over three-, five-, and ten-year periods (if applicable). The highest 20% of funds in
each classification are named Lipper Leaders for Total Return, Consistent Return and Tax Efficiency, respectively, the next 20% receive a rating of 4, the middle 20% are rated 3, the next 20% are
rated 2, and the lowest 20% are rated 1.
57
general partnerships, is the second largest sub-industry for the Fund and
represented 25.7% of our assets at the end of the quarter, a strong
overweight compared to our benchmark. We continue to see strong
opportunities for distributable cash flow growth from our holdings in this
sub-industry and expect our investments in this area to deliver excellent
risk-adjusted returns. We tend to focus on companies with a high
proportion of cash flows related to fixed fee businesses and growth that is
driven either by highly visible organic investments or sizeable inventories
of qualifying assets that can be dropped down to an MLP over time.
Oil & Gas Equipment, Services & Drilling – We are relatively
underweight this sub-industry at 13.7% of assets, as we believe that in the
current environment, E&P companies are in a better position to create
value and gain an advantage over service and equipment providers.
However, we did moderately increase our exposure to the sub-industry
during the quarter as valuations became more attractive, and we began to
anticipate that industry conditions would likely bottom in the first half of
this year.
Renewable Energy – Renewable or Alternative Energy is not a specific
sub-industry, but this is really the appropriate classification for our
investments in the Utilities and Information Technology sectors, since our
investments in these two areas are companies involved in the construction
and operation of solar and wind electricity generation assets. We believe
that investment in renewable energy assets and businesses will be perhaps
the fastest growing segment of the energy industry for the next decade and
beyond, and we have actively ramped up our exposure to this segment over
the past 12 months. Our holdings in renewable energy related companies
rose to 7.0% at the end of the quarter, and we see room for additional
growth.
Industrials and Materials – About 9.6% of our portfolio is allocated to
these sectors, but most of our investments in these sectors are businesses
that are closely related to the energy industry and will benefit from our
long-term view on key growth trends affecting various parts of the energy
industry. For example, Flotek Industries is classified as a Materials company,
but it essentially sells chemicals to the oil industry that are used in the
drilling and completion of shale oil & gas wells.
Table IV.
Market Quarter
Cap
End
When
Market
Percent
Year
Acquired
Cap
Amount of Net
Parsley Energy, Inc.
SM Energy Co.
SunEdison, Inc.
Halliburton Co.
Gulfport Energy Corp.
Bonanza Creek Energy, Inc.
SemGroup Corp.
58
2012
2015
2014
2012
2014
2012
2012
2013
2013
2014
$10.1
3.9
2.5
4.9
5.6
31.4
1.7
4.1
1.2
3.3
$13.9
5.7
2.3
3.5
6.5
37.3
5.4
3.9
1.2
3.6
$3.4
3.0
2.9
2.7
2.6
2.6
2.5
2.4
2.4
2.1
4.2%
3.6
3.5
3.4
3.2
3.1
3.0
2.9
2.9
2.5
Recent Activity
Table V.
Quarter End Amount
(billions)
(millions)
Laredo Petroleum, Inc.
Columbia Pipeline Partners LP
C&J Energy Services Ltd.
Globe Specialty Metals, Inc.
$5.7
2.8
2.8
1.3
1.4
$2.5
1.7
1.3
1.3
1.2
During the quarter, our purchases clearly outweighed our sales as we
experienced net inflows throughout the first quarter and therefore we were
able to focus on adding to existing positions at attractive prices and
establish a series of new positions during the quarter. All of our top net
purchases in the quarter were new positions for the Fund.
Newfield Exploration Co. – We initiated our position in this U.S. based
exploration & production company this quarter after the shares had fallen
sharply in conjunction with lower oil prices. We have followed Newfield for
many years and have watched as the management has transformed the
company and focused its efforts on its core assets in Oklahoma and, to a
lesser extent, in Utah and North Dakota. We have become increasingly
interested in the Oklahoma assets, which are centered in the Anadarko
Basin and are increasingly demonstrating commercial potential for
unconventional horizontal resource development across multiple-stacked
geological payzones. Newfield and other companies are defining and
delineating these resources and it appears that these will be among the
lowest cost, highest return shale plays in the country. Newfield
strengthened its balance sheet during the quarter with the sale of
additional equity, and we think it is in great shape to weather the current
environment of low prices as well as reaccelerate activity, as its costs come
down and cash flows build back up when oil prices eventually recover. The
company is in position to deliver solid growth over the next several years,
and we believe its shares are attractively valued on both a cash flow and net
asset value basis.
Laredo Petroleum, Inc. – Laredo is another U.S. exploration & production
company that we added to the portfolio in the quarter. We had been
looking at Laredo shares for nearly a year, attracted by its asset base and
management’s strong historical focus on employing cutting edge
technology to analyze and understand its resource base. We watched the
shares fall sharply during the oil price retreat, as investors severely penalized
the shares due to a view that Laredo’s balance sheet was too highly
leveraged and that it would lack access to the capital necessary to enable
it to continue to develop its strong oil-weighted assets in the Midland subbasin within the greater Permian Basin. As a result of this pressure from
investors, Laredo management and its existing private equity partner
concluded it was necessary to sell equity at a discount in order to
recapitalize its balance sheet and provide greater stability to its outlook. We
capitalized on that opportunity and initiated our Laredo position on this
offering. We think that Laredo has a uniquely concentrated and high quality
acreage position in West Texas with the potential to significantly expand its
productive capacity over the next several years. Furthermore, the company
March 31, 2015
has already made substantial investments in infrastructure and reservoir
modeling that should enhance the company’s future capital efficiency and
its valuation.
Columbia Pipeline Partners LP – We purchased Columbia Pipeline Partners
on its IPO earlier this year, as we were quite attracted to the company’s
high quality natural gas transportation assets in the Appalachian Basin and
the potential backlog of MLP qualifying assets still being held at Columbia’s
parent company NiSource Inc. We believe the significant inventory of assets
at NiSource represents a large opportunity for Columbia to grow through
dropdown acquisitions over the next five plus years. In addition, we see the
opportunity for organic growth by investing in incremental pipeline
gathering and transmission assets to accommodate the strong expected
growth in Appalachian gas production and the need to move this
production out of the basin to key growth markets for natural gas
consumption in the Northeast and the Southeast U.S.
C&J Energy Services Ltd. – This is not the first time that we have invested
in C&J Energy, but this is also not the same company that it was when we
sold it a couple of years ago, at much higher prices than the levels at which
we re-engaged on the stock in the quarter. C&J Energy is an increasingly
diversified oilfield service & equipment company with its operations
primarily in the U.S. However, the company has grown and expanded
significantly since we last owned its shares. It recently completed a major
merger with a subsidiary of Nabors Industries that has not only more than
doubled the size of the company’s core hydraulic fracturing operations, but
also added market leading positions in new businesses for the company such
as fluid management and well servicing. The Nabors assets were generating
substantially lower margins and returns than C&J management has
managed to generate on its own comparable assets, and we think the
opportunity to manage these assets more efficiently and profitably along
with significant potential for cost savings from the merger could significantly
enhance C&J’s long-term earnings power. Given the ongoing decline in rig
count and well completion activity, current conditions in all of C&J’s markets
and businesses are extremely challenging, and we expect earnings to suffer
sharply. However, we also think it could be an ideal time to be integrating
this acquisition, as it should allow management to get the synergy savings
more quickly and put C&J in one of the strongest positions to benefit from
the eventual rebound in well completion and well servicing related activity.
Table VI.
Net Amount
Sold
(million)
Canyon Services Group, Inc.
PBF Logistics LP
SunCoke Energy, Inc.
Badger Daylighting Ltd.
$0.7
0.6
0.5
0.5
0.5
Outlook
During the quarter, oil markets faced continued headwinds as the
oversupply situation that was anticipated by markets after OPEC decided
not to rein in production last November materialized. As a consequence,
U.S. oil prices fell by another 10.7% during the quarter. However, at points
in mid-January and early-March, prices were down at least 20% from the
end of the year before rallying back. We think that the behavior of oil prices
during the quarter reflected the push and pull of bearish and bullish forces
as industry fundamentals gave conflicting signals during the quarter. U.S.
inventories built relentlessly to record levels, prompting fears among some
investors that the U.S. could actually run out of room to store all the oil that
was building up in inventory. However, while U.S. inventories were rising to
record levels, oil and product inventories in Europe and Asia were not
building as expected and suggested that: 1) the oversupply problem was
really constrained to the U.S. market, which is distorted by U.S. oil export
policies; and 2) that the oversupply was not as bad as initially feared would
be the case due to stronger than expected demand in the first quarter.
Recent data from the International Energy Agency indicates that global
demand has been stronger than expected, particularly driven by higher
demand in the U.S., India and more recently in China. U.S. petroleum
product demand appears to have risen by over 4% year-over-year in the
quarter, and China’s demand last month appears to have grown by 7%, its
fastest growth rate in many months. In addition, the lack of inventory
accumulation in Europe or Asia indicates that demand in these markets has
also been stronger than expected. We have seen this in the strength of
refining margins in both regions, which are often a good proxy for demand.
We believe that demand is responding to a combination of lower prices and
stronger economic growth and could continue to benefit as the effects of
quantitative easing improve the economic outlook in a number of key
developed economies.
In addition to seeing “green shoots” for a recovery in the demand data from
the world’s two largest consumers of oil, we also are seeing indications of what
will likely happen to future oil supply as a consequence of the fall in prices and
consequently cash flows for oil companies. During the quarter, oil companies
around the world announced capital spending budgets for 2015 that indicated
not only a very steep decline in spending, but that companies would be getting
to lower levels of drilling and completion activity much quicker than expected.
As a result, production guidance and growth rates were slashed throughout the
industry, leading us to believe that while U.S. oil production may grow this year
as a consequence of last year’s drilling strength, production growth would
likely fall to zero by the end of the year and be on a downward trajectory
heading into 2016. We expect a similar pattern to emerge for non-U.S. and
non-OPEC production, which had not grown in the past five years despite oil
prices averaging over $100 per barrel and record levels of investment. If nonU.S. and non-OPEC producers were not growing in a $100 oil price
environment, it is unlikely that growth can be achieved with 40-50% less cash
flow as is implied by the current oil price level.
We believe that the combination of stronger than expected demand and
slowing supply growth (if not outright declines) will lead to a more
balanced oil market in the quarters ahead and a recovery toward
“normalized” prices that, in our view, should range between $70-90 over
time. We define a “normalized” oil price as the price level that allows
the industry to generate sufficient cash flow to support the level of
reinvestment and the returns on investment that are needed to offset
reservoir depletion, grow production and meet rising demand. Based
on our analysis of industry economics over the past 25 years, we do not see
the current oil price as sustainable and the market reaction that we are
seeing of stimulating demand and curtailing investment is a perfect
example of why current prices are not sustainable. We don’t know when
prices will return to “normalized” levels (we suspect sooner rather than
59
later), but as long-term investors in the industry, we believe that our
patience and our strategy of investing in companies that can grow in a
“normalized” or price neutral environment is likely to be even more
rewarded when we have opportunities to invest during a period in which
the market prices for oil and for natural gas are so far below our view of
“normalized” prices. This is what we did during the first quarter and is what
we will continue to do.
In summary, while investing in the Energy sector has always involved having
to live with a significant amount of short-term volatility, we believe that
the long-term returns and the potential for future gains make it a
worthwhile proposition. We think the current downturn in the industry will
prove to be relatively short-lived, as the problems the industry faces are
relatively small compared to the massive demand shock faced in 2009 and
the massive supply capacity overhang that plagued the industry in the midlate 1980s. The current imbalance between supply and demand is pretty
minor in historical context, and the growth themes and opportunities for
value creation that we have highlighted the last several years, such as the
development of unconventional resources, the need for increased
infrastructure investment, the role of technology in unlocking the resources
needed to meet growing market demand for oil and gas, remain intact and
core to our investment strategy.
I am pleased to have had the opportunity to share my thoughts with
you in this letter. Thank you for having the confidence to join me in
investing in Baron Energy and Resources Fund.
Sincerely,
James Stone
Portfolio Manager
April 30, 2015
The Fund is non-diversified, which means the volatility of the Fund’s returns may increase and expose the Fund to greater risk of loss in any given period.
Energy companies can be affected by fluctuations in energy prices and supply and demand of energy fuels. Resources industries can be affected by
international political and economic developments, the success of exploration projects, and meteorological events.
This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Energy and Resources Fund by anyone in any jurisdiction where it would be unlawful under the
laws of that jurisdiction to make such offer or solicitation.
60
March 31, 2015
Dear Baron Global Advantage Fund Shareholder:
Performance
The Baron Global Advantage Fund appreciated 2.5% during the
March quarter. The MSCI ACWI Growth and the MSCI ACWI Indexes rose
4.4% and 2.3%, respectively. Most of the global markets continued to grind
higher with the notable exceptions of Brazil and Canada. We were very
pleased with the overall balance exhibited by the portfolio during the period
of time that saw significant dislocations in certain sectors, countries and
currencies. We did well again in North America and Europe (UK mostly) and
not so well in the rest of the world. We got hurt in Indonesia and Brazil due
mostly to macro factors and significant currency depreciations. Sizable
overweights in China and India were good but were more than offset by
relatively poor performance of our specific holdings and our lack of
exposure to Japan is starting to hurt us again, like it did in 2013. Many of
our largest investments performed very well during these three months
with Amazon.com, JUST EAT (leading online restaurant delivery company
based in the UK), and SunEdison (alternative energy provider) all rising at
least 20% and Qunar (online travel company based in China) appreciating
over 45%. On the other side of the ledger, Alibaba Group and Baidu gave
up a portion of last year’s gains after reporting sloppy quarterly earnings
results. Sarana Menara Nusuntara, Cetip, and Tower Bersama
Infrastructure were punished for being in bad neighborhoods (Indonesia
and Brazil) and Coupons.com’s earnings report and commentary were
confusing again, and, this time, painful enough, that we decided it was time
to move on. All in all, we were actually content with the Fund’s quarterly
performance. A number of our investment companies had experienced
positive developments without much of a corresponding reaction from
their stock prices. We think there is a good likelihood that will get rectified
over some future period of time. Since its inception on April 30, 2012, the
Baron Global Advantage Fund has returned 45.61% on a cumulative basis,
net of all fees and expenses, compared to 40.29% and 37.41% for the MSCI
ACWI Growth and MSCI ACWI Indexes.
Baron
Global
Advantage
Fund1,2
MSCI
ACWI
Growth
Index1
MSCI
ACWI
Index1
2.54%
6.67%
13.75%
4.36%
9.55%
12.31%
2.31%
5.42%
11.51%
Retail Shares: BGAFX
Institutional Shares: BGAIX
April 30, 2015 will mark the three year anniversary of this Fund. In the next
quarterly letter, we plan to provide a more detailed performance analysis
and discuss what’s worked, what has not, and what lessons were learned in
the process of managing this Fund over the last three years.
Table II.
Quarter End
Market Cap
(billions)
JUST EAT plc
Amazon.com, Inc.
SunEdison, Inc.
Qunar Cayman Islands Ltd.
TerraForm Power, Inc.
Table I.
Three Months3
One Year
Since Inception (April 30, 2012)
ALEX UMANSKY
PORTFOLIO MANAGER
$ 3.7
172.8
6.5
4.9
4.5
Percent
Impact
1.24%
1.04
0.94
0.76
0.47
JUST EAT plc is a fast-growing online restaurant delivery company based in
the UK, with leading market shares in Europe, Latin America, and Canada.
Shares rose 34% during the first quarter, as the company reported
encouraging results for the back half of 2014 and offered slightly better
than expected guidance for 2015. The company’s strong results
demonstrated both continued execution across its European footprint and
Performance listed in the table above is net of annual operating expenses. Annual expense ratio for the Retail Shares as of December 31, 2014 was 3.61%, but the
net annual expense ratio is 1.50% (net of the Adviser’s fee waivers). The performance data quoted represents past performance. Past performance is no guarantee
of future results. The investment return and principal value of an investment will fluctuate; an investor’s shares, when redeemed, may be worth more or less than their
original cost. The Adviser has reimbursed certain Fund expenses (by contract as long as BAMCO, Inc. is the adviser to the Fund) and the Fund’s transfer agency expenses
may be reduced by expense offsets from an unaffiliated transfer agent, without which performance would have been lower. Current performance may be lower or
higher than the performance data quoted. For performance information current to the most recent month-end, visit www.BaronFunds.com or call 1-800-99BARON
†
1
2
3
The indexes are unmanaged. The MSCI ACWI indexes cited are unmanaged, free float-adjusted market capitalization weighted indexes reflected in US dollars. The MSCI ACWI
Growth Index Net USD measures the equity market performance of large and mid cap growth securities across developed and emerging markets. The MSCI ACWI Index Net
USD measures the equity market performance of large and mid cap securities across developed and emerging markets. The indexes and the Baron Global Advantage Fund
include reinvestment of dividends, net of foreign withholding taxes, which positively impact the performance results.
Not annualized.
61
evidence that its #1 position across most of its markets is defensible and
sustainable. We believe that penetration rates for online restaurant delivery
services are still low, especially in Latin America, and that JUST EAT has a lot
of room for return-generative growth across its markets. We also think that
the company’s large lead over competitors in a winner-take-all industry is a
meaningful and sustainable competitive advantage.
Shares of Amazon.com rose 20% as the company finally reported quarterly
results that gave investors something to cheer about. While we don’t get hung
up too much on quarterly performance, we, too, were pleased with continuing
improvements in the gross margins and better-than-expected profitability
outlook for 2015. We also believe that moves to provide greater disclosure,
including breaking out Amazon Web Services, will prove to be beneficial in
improving investor understanding and appreciation for the strength and
robustness of the company’s core business. As the largest investment in the
Fund, Amazon continues to be our highest conviction long-term idea.
SunEdison is one of the largest developers of solar projects in the world.
TerraForm Power is a YieldCo created and majority owned by SunEdison
(70%) for the purpose of owning the operating assets and producing and
distributing cash flows to shareholders. The YieldCo serves to lower the cost
of capital, which, in turn, increases the value of the solar assets. Late last
year, the two companies announced a joint acquisition of First Wind for
$2.4 billion, making the combined company one of the largest producers
and operators of wind projects as well. SunEdison, the second largest
position in the Fund at the end of this quarter, appreciated 23%, while
TerraForm, our 11th largest investment, was up 19%. We believe the shares
of both companies did well due to increased investor confidence in the
companies’ strategies and execution. We continue to be optimistic about
their long-term growth and value creation prospects and our conviction, as
well as the size of our positions, remains unchanged.
With the shares rising over 45%, Qunar was our best absolute performer.
Based in Beijing, China, Qunar is one of the leading online travel providers
in what is a very rapidly growing market. With a rising standard of living
and the emerging middle class, we believe that demand for travel services
in China will continue to expand at a fast pace, and we think Qunar is
likely to be one of the main beneficiaries of this multi-year growth
opportunity.
Table III.
Coupons.com Incorporated
Cetip SA – Mercados Organizados
Sarana Menara Nusantara Tbk PT
62
Quarter End
Market Cap or
Market Cap
When Sold
(billions)
Percent
Impact
$205.2
0.8
2.6
3.1
3.5
–0.89%
–0.55
–0.46
–0.41
–0.26
Shares of Alibaba Group declined 20% during the quarter giving up a
portion of last year’s gains. In addition to a sloppy quarter, we believe the
stock pulled back due to concerns about bad PR having to do with the sale
of counterfeit goods, disappointing take rate as the company transitions
from desktop pc usage to mobile, and an unusually large lock-up expiration.
None of these issues affect our view on the long-term opportunity or
potential growth of the company. Here is how we look at it. Alibaba is
unique as the largest and most dominant e-commerce platform in China.
With over 300 million active buyers (over 200 million of which are mobile),
we believe Alibaba is poised to disproportionately benefit from increased
penetration of Internet, mobile, and e-commerce usage in China. With
almost 50% market share of all online transactions and an unparalleled
eco-system around its platform, Alibaba should continue to grow north of
25% for years to come in a very profitable manner. That’s just the core
business. Once we add in Alibaba’s cloud computing and data management
platforms and Alipay, which is China’s largest online and mobile payment
solution, this becomes an incredibly attractive proposition for investors
anywhere in the world in our view.
Coupons.com reported disappointing fourth quarter results and reduced
expectations going forward. While their ambition to build out a digital
couponing platform may yet play out. we have decided to cut our losses
and move on to higher conviction ideas.
Cetip SA – Mercados Organizados administers over-the-counter markets
in Brazil for trading and registration of fixed income securities, derivatives,
and auto liens. The company reported good financial results during Q1 with
double-digit revenue and earnings growth while returning significant excess
capital to shareholders through dividends. However, the stock
underperformed as the Brazilian economy weakened and the Brazilian Real
depreciated against the U.S. Dollar. We continue to own the stock because
of the company’s durable competitive advantages, solid growth prospects,
and inexpensive valuation.
Shares of Sarana Menara Nusantara declined 8% during the first quarter
as management cautioned investors to expect a muted new-build outlook
from a key carrier customer in 2015. Sarana Menara Nusantara is the largest
tower owner-operator in Indonesia. Given its dominant position and
healthy balance sheet, we believe that Sarana Menara Nusantara will be an
active tower builder and consolidator in a wireless market that remains
underdeveloped.
Shares of Tower Bersama Infrastructure were down 7% during the
March quarter as management cautioned investors to expect a muted newbuild outlook for a large carrier customer in 2015. Tower Bersama owns and
operates wireless tower assets in Indonesia. We believe that the pending
Mitratel tower acquisition will create value for shareholders in three
important ways: immediate cash flow accretion, improved creditworthiness
of Tower Bersama’s customer mix, and a deleveraging of the company’s
balance sheet. We continue to think that the Indonesian tower market
presents attractive long-term investment opportunities.
March 31, 2015
Portfolio Structure
Recent Activity
The portfolio is constructed on a bottom-up basis with the quality of ideas
and conviction level having the highest roles in determining the size of each
individual investment. Sector or country weights tend to be an outcome of
the portfolio construction process and are not meant to indicate a positive
or a negative “view.”
Table VI.
While there was little change at the top of the portfolio, we continue search
for new ideas and attempt to upgrade our lower conviction investments.
During the quarter, we added seven new investments and sold out of six
others. Portfolio turnover during the quarter was just above 6%.
The top 10 positions represented 42.6% of the Fund, the top 20 were 67.0%
and we exited the quarter with 45 holdings.
Table IV.
Market
Investment
Cap
Value
Percent of
(billions) (thousands) Net Assets
Amazon.com, Inc.
SunEdison, Inc.
JUST EAT plc
Facebook Inc.
Google, Inc.
Sarana Menara Nusantara Tbk PT
Illumina, Inc.
Mellanox Technologies, Ltd.
$172.8
6.5
3.7
230.9
375.1
3.1
26.7
2.1
205.2
3.5
$529.9
402.9
394.8
386.6
348.5
343.4
317.4
310.3
282.4
249.2
6.3%
4.8
4.7
4.6
4.2
4.1
3.8
3.7
3.4
3.0
Exposure by Country
Table V.
Percentage of securities by country as of March 31, 2015
Percent of
Net Assets
United States
China
Indonesia
United Kingdom
Israel
Brazil
India
Canada
South Africa
Spain
Japan
Netherlands
Norway
48.1%
11.5
7.1
6.1
6.0
4.6
4.3
3.8
2.2
1.9
1.8
1.6
0.7
Quarter End
Amount
(billions)
(thousands)
Naspers Ltd.
Westlake Chemical Partners LP
Axis Bank Ltd.
Columbia Pipeline Partners LP
$64.7
6.8
0.7
21.2
2.8
$167.5
151.1
88.8
85.3
74.6
Based in Cape Town, South Africa, Naspers is a $65B conglomerate with
assets in Internet services, print, television, and digital media, as well as other
technology services. Amont its impressive investment portfolio is a 34%
stake in Chinese Internet powerhouse Tencent and a 29% stake in Russian
Internet holding company Mail.ru. All in all, Naspers owns part or all of
additional 140+ Internet assets. Their stake in publicly traded Tencent is
worth a hair more than Naspers’ entire market cap. While we think Tencent
may be close to fairly valued and an appropriate holding company discount
should apply, the optionality offered by Naspers’ other investments is
enormous in our view, and we are not paying very much at all to own them.
Brookfield Infrastructure Partners owns and operates global infrastructure
assets (utilities, towers, transport, etc.) and is 30% owned by Brookfield Asset
Management, a company we have owned since the inception of the Fund.
We like the predictable (i.e., recurring) cash flow stream, believe
management’s effort in accelerating growth is likely to bear fruit and find our
purchase price at roughly 15% discount to NAV to be very attractive.
Westlake Chemical Partners is a vertically-integrated, international
manufacturer of basic chemicals, polymers, and fabricated building
products. We established a small position in July of 2014 on the thesis that
the market was undervaluing the sustainability and longevity of the
company’s growth and ability to generate and reinvest the excess cash
flows (we believe they are far less correlated to the commodity prices than
the market appears to be). In the first quarter of 2015, the market “decided”
to undervalue this ability even more, so we built a medium sized position
as a result. We are fans of the management team and their strategy of going
after profitable growth, as well as their significant stake in the company.
Table VII.
Dominion Midstream Partners LP
PBF Logistics LP
Monsanto Co.
Youku Tudou, Inc.
Coupons.com Incorporated
Market Cap
When Sold
(billions)
Amount
Sold
(thousands)
$ 2.4
0.7
56.9
3.4
0.8
$–115.2
–113.5
–80.4
–53.6
–47.1
63
We took profits in Dominion Midstream Partners, PBF Logistics and
Monsanto – all still owned elsewhere by Baron Funds, and were sold to
make room for higher conviction ideas listed in the table above. We cut our
losses in Youku Tudou and Coupons.com as we have lost faith in our
investment theses in both and decided to move on.
in which we are invested and continue to search for new ideas and
investment opportunities.
Thank you for investing in the Baron Global Advantage Fund.
Sincerely,
Outlook
Our goal remains to maximize long-term returns without taking significant
risks of permanent loss of capital. Our focus continues to be on identifying
and investing in unique companies with sustainable competitive
advantages that we believe have the ability to reinvest capital at high rates
of return. We are excited about the long-term prospects of the companies
Alex Umansky,
Portfolio Manager
April 30, 2015
Growth stocks can react differently to issuer, political, market and economic developments than the market as a whole. Non-U.S. investments may involve
additional risks to those inherent in U.S. investments, including exchange-rate fluctuations, political or economic instability, the imposition of exchange
controls, expropriation, limited disclosure and illiquid markets, resulting in greater share price volatility. Securities of small and medium-sized companies may
be thinly traded and more difficult to sell.
This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Global Advantage Fund by anyone in any jurisdiction where it would be unlawful under the laws
64
March 31, 2015
Dear Baron Discovery Fund Shareholder:
Performance
Baron Discovery Fund increased 6.72% in the quarter, slightly better than
the Russell 2000 Growth Index which increased 6.63%. Both Baron
Discovery Fund and the Russell 2000 Growth Index outperformed the
S&P 500 Index, which was impacted by the strengthening U.S. dollar
negatively impacting the profits of companies with overseas operations.
In general, we thought the first quarter represented a strong start to
2015. Our companies continue to grow despite macro headwinds,
including potential Federal Reserve interest rate hikes and a strengthening
dollar.
The portfolio benefitted from our overweight position in Health Care in
the first quarter. Health Care was the best performing sector in the
Russell 2000 Growth Index and was the largest contributor to the Fund’s
performance. Within Health Care, we saw strong stock performance across
the board (diagnostic testing, biotech, specialty pharma, medical devices
and health care services). We are excited about our Health Care
investments, though we did trim some positions in the quarter when
valuations started getting close to our price targets. That being said, we
believe we are finding new Health Care companies with both great growth
prospects and reasonable valuations, so we expect to continue being
overweight Health Care.
RANDY GWIRTZMAN AND LAIRD BIEGER
PORTFOLIO MANAGERS
Retail Shares: BDFFX
Institutional Shares: BDFIX
Table II.
The Consumer Discretionary sector also outperformed during the quarter.
Consumers started to benefit from lower gas prices, which combined with
a stronger employment backdrop, helped sales at some of our regional
casinos, specialty retailers and restaurant holdings. While difficult winter
weather conditions will certainly impact earnings in the first quarter, we
think the longer-term prospects for our retailers, restaurants and hotels and
casinos are as bright as they have been since the financial crisis.
Table I.
For period ended March 31, 2015
Baron
Russell
Discovery
2000
S&P 500
1,2
Fund
Growth Index1 Index1
Three Months3
6.72%
One Year
11.17%
Since Inception (September 30, 2013) 25.92%
6.63%
12.06%
14.06%
0.95%
12.73%
17.17%
Percent
Impact
Esperion Therapeutics, Inc.
Pinnacle Entertainment, Inc.
Intersect ENT, Inc.
JUST EAT plc
3.19%
2.01
1.36
0.85
0.72
Foundation Medicine, Inc. was an outstanding performer for the Fund in
the quarter. FMI is a diagnostic lab company that specializes in analyzing the
most complex cancers. It uses next generation genetic sequencing to find
over 300 relevant cancer genes. On top of this, its information technology
platform links pharmaceutical companies (40 of which are its customers)
with oncologists (trying to help their patients) and scientific research (from
many sources). We have been writing about this unique and exciting
company since the Fund’s first investor letter in the fourth quarter of 2013.
Performance listed in the above table is net of annual operating expenses. Annual expense ratio for the Retail Shares as of September 30, 2014 was 2.16%,
†
1
2
3
Not annualized.
65
While the investment has been volatile, we were finally rewarded in the first
quarter with a major validation of the company’s technology and business
strategy. Shares doubled in January when Roche Holdings announced a broad
strategic relationship with FMI and initiated a tender for over 50% of FMI’s
shares at $50 per share. Included in the various agreements with Roche are
plans to co-market FMI’s tests overseas, development of additional high value
tests, and use of Roche’s US sales force to educate medical professionals
about the advantages of FMI’s technology. And Roche left the existing
management team intact, which we view to be a highly favorable outcome.
We continue to believe FMI is the company best positioned to take share in
the emerging multi-billion dollar complex cancer diagnostics market.
least an additional billion dollars if new Intersect devices are approved for
non-surgical, in-office treatment of sinusitis. This could happen in late 2017
or early 2018. Shares rose in the quarter after XENT beat earnings
expectations and noted that it is advancing its product development on
schedule. We have been shareholders of the company since its IPO last July,
and we have been big fans of management and its growth strategy.
Esperion Therapeutics, Inc. is a biotech company developing a drug called
ETC-1002 for the treatment of hypercholesterolemia or elevated
cholesterol. One of the founders of the company was the co-inventor of
Lipitor, one of the most successful drugs of all time. ETC-1002’s novel
mechanism of action lowers “bad” LDL cholesterol, without many of the
muscle-related side effects of statins (like Lipitor) which are currently the
most popular drugs to treat elevated LDL cholesterol. In addition, Esperion’s
drug has shown success lowering LDL cholesterol more significantly when
used in combination with either statins or non-statin LDL drugs (such as
Zetia, classified generically as ezetimibe). Investors have gotten very excited
about recent clinical data on ETC-1002, which indicate that ESPR might
have a blockbuster drug on its hands.
We are very excited by the company’s long-term prospects. The company
continues to extend its dominance in its key countries, allowing for increased
scale and margins over time. In addition, in the markets where JUST EAT is
the #1 player, it will be almost impossible for the second largest player to
compete effectively. Today, JUST EAT is the #1 player in 10 of its 12 key
markets. As a result, we believe we will see impressive profit growth and
increased barriers to entry over the next few years.
In the Fall of 2014, Esperion showed positive data from a phase 2b clinical
trial (called 008) in statin intolerant patients (showing great LDL lowering
effects without the side effects of statins). Additionally, the market saw the
unexpected successful completion of Merck’s IMPROVE-IT trial (which helped
to establish a firmer link between lowering LDL cholesterol and lowering the
risk of heart disease). Esperion has had significant events in 2015 as well. First,
Esperion was notified by the FDA that it could engage in long-term studies of
the drug (as a “clinical hold” related to safety concerns was lifted). Second,
ESPR released complete data from the 008 trial that incrementally bolstered
investor confidence. Finally, the company released positive initial results from
the ETC-1002-009 trial (showing significant additional LDL lowering effects
when ESPR’s drug was used in combination with a statin).
In March, Esperion raised about $190 million in an equity offering to fund
future trial development and position the drug for the market. Given the
size of the cholesterol market (20-27 million patients in U.S. and EU, which
equates to tens of billions of dollars in value) and the scarcity value of a late
stage cardiovascular disease asset, we believe Esperion is a top choice asset
for any large pharmaceutical company seeking pipeline and see Esperion as
a natural take-out candidate.
Pinnacle Entertainment, Inc., an operator of regional casinos, benefitted
from two unrelated factors. First, the company saw strong regional gaming
fundamentals with improved spend at its properties leading to higher
revenue and margins across its portfolio. Second, the company received an
unsolicited offer for its real estate holdings from Gaming and Leisure
Properties, Inc. We believe an acquisition of Pinnacle’s real estate by
Gaming and Leisure Properties, if it were to take place at the right price,
would be beneficial to shareholders of both companies.
Intersect ENT, Inc. sells a novel drug coated device (called Propel) that is
implanted in patients that have had surgery for chronic sinusitis. It’s very
much like a stent for your sinuses. The market for Propel is now worth
potentially $750 million. We believe this market could be extended by at
66
JUST EAT plc provides online takeaway ordering services that allow
consumers to search for and order in real-time from their local takeaway
restaurants. The stock performed well in the first quarter because the
company provided strong 2014 results and issued a strong 2015 outlook.
Table III.
Percent
Impact
BioScrip, Inc.
Coupons.com, Incorporated
Varonis Systems, Inc.
E2open, Inc.
–1.13%
–0.60
–0.55
–0.46
–0.31
BioScrip, Inc., a provider of specialty drug infusion services, was down in the
first quarter. We believe that BIOS is on the cusp of breaking out of some
operating difficulties caused by its (in retrospect) overly aggressive
acquisition strategy. We saw some early signs of this in last quarter’s
earnings report. However, shares sold off after the company took a big
charge this quarter for bad debt and raised capital to shore up its balance
sheet. We still believe in management and that the valuation is reasonable,
with the potential for large upside if the company is acquired. There has been
a significant amount of M&A activity in this area, and there is a good activist
presence in the investor base as well. We have maintained our investment.
Coupons.com, Incorporated offers a promotion platform that allows
consumer packaged goods companies to offer coupons to consumers. The
company is attempting to offer a digital replacement for the paper coupons
that exist in newspapers today. During the first quarter, the company issued
guidance that was below Street expectations. As a result, the stock declined
in the first quarter. While we realize there will be some volatility in
Coupons.com’s earnings, we are very excited by its Retail IQ digital coupon
platform. The company continues to roll out the platform to additional
retailers and early results are promising.
Varonis Systems, Inc. is a provider of software that that allows enterprises
to map, analyze, manage and migrate their unstructured data. This data
includes spreadsheets, documents, presentations, emails, and other
employee generated data. During the quarter, the stock underperformed its
peers as investors’ expectations for a fourth quarter “beat” versus prior
management guidance were not met. We take a longer-term view and see
a very large market opportunity that VRNS can capture. We have high
conviction in management’s ability to execute its growth plan.
March 31, 2015
Flotek Industries, Inc. provides specialty chemicals and downhole
equipment for the oil industry. The company’s stock performed poorly in
the first quarter as a result of lower drilling activity because of the recent
declines in the price of oil. The company is still one of the most unique
companies within the oilfield service sector, and we believe it will rebound
strongly when the price of oil eventually rebounds. While we recognize
profits will be depressed in the short run, when drilling activity inevitably
picks up, we think Flotek will show outsized profit growth for many years.
E2Open, Inc. is a provider of cloud-based software that helps some of the
world’s largest companies to analyze and manage their complex
manufacturing supply chains. The company missed expectations, and shares
sold off dramatically. We bought additional shares at the lows, which proved
to be a good decision, as the company agreed to be purchased by private
equity in January. We sold the position in the market as its trading price
approached the acquisition price.
Portfolio Structure
As of March 31, 2015, the Fund had $94.1 million under management and
was invested in 56 publicly traded stocks. At the end of the quarter, the top
10 positions represented 30.0% of the Fund’s assets.
Our key sector weightings at the end of March 2015 were 34.2% Health
Care (9.5% greater than the Russell 2000 Growth Index), 20.5%
Information Technology (5.3% below the Index), 14.4% Consumer
Discretionary (1.3% lower than the Index), 8.9% Industrials (5.4% below
the Index), and 8.5% Financials (1.0% greater than the Index).
Table IV.
Quarter End
Investment Percent
Year
Value
of Net
Acquired (millions)
Assets
The Spectranetics Corporation
DigitalGlobe, Inc.
Amber Road, Inc.
JUST EAT plc
ExamWorks Group, Inc.
Strategic Hotels & Resorts, Inc.
CaesarStone Sdot-Yam Ltd.
Rexford Industrial Realty, Inc.
Intersect ENT, Inc.
2013
2013
2014
2014
2014
2014
2014
2013
2014
2014
$3.9
3.4
2.9
2.8
2.7
2.7
2.7
2.4
2.4
2.3
4.1%
3.6
3.1
3.0
2.9
2.9
2.9
2.6
2.5
2.4
Recent Activity
Table V.
Quarter End Amount
Year
Acquired (billions)
(millions)
Fidelity National Financial
Inc. – FNFV Group
Chuy’s Holdings, Inc.
Mercury Systems, Inc.
NN, Inc.
Rexford Industrial Realty, Inc.
2015
2015
2015
2015
2014
$1.3
0.4
0.5
0.5
0.9
$2.2
1.8
1.5
1.3
1.2
Fidelity National Financial Inc. - FNFV Group is a portfolio of four
companies that are in the process of being sold or spun off to FNFV Group
shareholders. We believe the individual value of the four investments in the
portfolio (Fleetcor Technologies, Ceridian HCM, American Blue Ribbon
Holdings and J. Alexander’s) are worth more than the value that FNFV
Group stock trades at today. Over the next couple of years, FNFV Group will
monetize these portfolio companies, allowing the value of these individual
investments to be realized. The next company to be monetized is the
restaurant chain, J. Alexander’s. We expect the stock of J. Alexander’s to be
spun off to shareholders sometime in the second quarter of 2015. We
believe that J. Alexander’s has the ability to both grow average restaurant
volumes and to increase the number of restaurant units. We believe a
standalone J. Alexander’s will be well received by investors.
Chuy’s Holdings, Inc. is the operator of the 61 Chuy’s “Tex Mex”
restaurants in fourteen states. The company offers fresh prepared food at
reasonable prices in a casual dining environment. The company had been a
high flyer after its IPO in 2012. More recently, the company has undergone
some operational challenges that had caused the stock to drop by nearly
half. We used this dislocation in the stock to take a position in the company.
We believe the operational challenges the company has faced can be fixed
over the next few quarters and that the company can resume 20%+ unit
growth. We believe the concept is unique and that profit growth, which has
stalled recently, can reaccelerate.
NN, Inc. manufactures and supplies precision metal and bearing
components used in the automotive and general industrial end markets. It
has 25 manufacturing facilities around the world, including in the U.S.,
Europe, South America and China. The company’s products are engineered
to extremely tight tolerances (down to the single micron level), which is a
significant competitive advantage, particularly as NN can manufacture its
components at high volumes with zero defects. In September 2014, NN
acquired Autocam, a precision manufacturer with significant auto market
presence. This gave NN the ability to produce components that enhance
fuel efficiency, with uses in many key areas such as direct fuel injection,
high end transmissions, variable valve timing and electric steering. These
products are experiencing fast growth, as government mandated fuel
efficiency standards increase around the world and these new products
start to see mainstream adoption. NN’s CEO envisions building company
revenues to $1 billion by 2018, which would double its current rate. And he
sees operating margins expanding as well. If he is able to execute his “2018
Vision” plan, cash flow will grow exponentially, and we believe the Fund’s
shareholders will benefit greatly.
Rexford Industrial Realty, Inc. is a high growth real estate investment trust
that owns a portfolio of 101 infill industrial properties, comprising 10
million square feet, concentrated in Southern California. Southern California
is considered to be among the most attractive markets for industrial real
estate in the country, owing to the diverse set of industries that drive
demand for warehouse space (manufacturing, distribution, consumer
staples, IT businesses, etc.), and new infill development activity that is
limited by a scarcity of developable land and “higher and better use”
opportunities to develop land for purposes other than warehouse space.
Rexford is growing rapidly, both organically (increasing occupancy, rising
market rents, contractual rent escalators in leases) and through
acquisitions, in a highly fragmented market. The management team, led by
two seasoned real estate executives, draws on its deep rolodex of contacts
to identify acquisition candidates. Acquisitions are often negotiated “off
67
market,” resulting in more attractive purchase prices versus results achieved
in more competitive auctions. Since the company’s IPO in July 2013,
management has doubled the size of the portfolio, with plans to double it
again over the next few years. We believe its valuation is attractive relative
to the high quality of the platform and the significant growth we expect to
see over the next several years.
Table VI.
Market
Cap
When
Market Cap
Year
Acquired When Sold
Acquired (billions) (billions)
E2open, Inc.
Polypore International, Inc.
Tallgrass Energy Partners LP
Chesapeake Lodging Trust
Capital Senior Living Corp.
2013
2014
2013
2013
2014
$0.6
1.5
1.0
1.2
0.7
$0.3
2.7
2.3
1.8
0.7
Net
Amount
Sold
(millions)
$1.7
1.6
1.6
1.4
0.9
Polypore International, Inc. is a leading producer of microporous
membranes that are used in batteries as well as in industrial and health care
applications. We have been holders of PPO since February 2014. We have
always admired its management team, and we believe in the company’s
ability to capture a good chunk of the market for lithium-ion battery
separators. This product should grow dramatically due to increased
automotive and energy storage demands. In the quarter, PPO was acquired
by Asahi Kasei, and we sold our investment.
E2Open, Inc. underwent a corporate transaction where the parent
company was sold.
Outlook
One of the things we have spoken about over the last 18 months was that
we expected to see a handful of our companies acquired each year. We felt
that way because we typically are buying businesses with high barriers to
entry, and in cases where another company wants to get into the same
business, it is generally faster and significantly cheaper to buy our
companies than it would be to try and develop the same business from the
ground up. Last year was a little bit of an anomaly as only one of our
companies was acquired during the year (Open Table). However, in the first
quarter of this year, we had two companies accept takeover offers
(Polypore International and E2Open), one company receive a large
investment at a stock price that was up almost 100% from where it had
been trading prior to the announcement (Foundation Medicine) and one
company receive an offer for its real estate holdings that valued the whole
company at a 50% premium to where it had been trading (Pinnacle
Entertainment). We really believe these offers validate our thesis and, while
we do not expect to see this level of activity every quarter, we do believe
that we will continue to see more takeover offers go forward.
Thank you for investing in the Fund.
Randy Gwirtzman & Laird Bieger
Portfolio Managers
April 30, 2015
Tallgrass Energy Partners LP and Chesapeake Lodging Trust were sold
after they hit our price targets.
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respective portfolio manager only through the end of the period stated in this report. The portfolio managers’ views are not intended as recommendations or investment advice to any person reading
This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Discovery Fund by anyone in any jurisdiction where it would be unlawful under the laws of that
68
Baron Funds
Portfolio Market Capitalization (Unaudited)
Baron Asset Fund
Baron Asset Fund invests in mid-sized growth companies with market capitalizations above $2.5 billion or the smallest market cap stock in the Russell Midcap
Growth Index at reconstitution, whichever is larger, and below the largest market cap stock in the Russell Midcap Growth Index at reconstitution.
Company
The Priceline Group, Inc. . . . . . . . . . . . . . . . . . . . . . .
The Charles Schwab Corp. . . . . . . . . . . . . . . . . . . . . .
LinkedIn Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illumina, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cerner Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
T. Rowe Price Group, Inc. . . . . . . . . . . . . . . . . . . . . . .
Roper Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
Nielsen N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SBA Communications Corp. . . . . . . . . . . . . . . . . . . .
CarMax, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Concho Resources, Inc. . . . . . . . . . . . . . . . . . . . . . . . .
FleetCor Technologies, Inc. . . . . . . . . . . . . . . . . . . . .
Equinix, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Western Gas Equity Partners LP . . . . . . . . . . . . . . . .
CBRE Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wynn Resorts Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fastenal Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stericycle, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Henry Schein, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Universal Health Services, Inc. . . . . . . . . . . . . . . . . .
Tractor Supply Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ralph Lauren Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tiffany & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Verisk Analytics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
Pall Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mettler-Toledo International, Inc. . . . . . . . . . . . . . .
Towers Watson & Co. . . . . . . . . . . . . . . . . . . . . . . . . .
Westinghouse Air Brake Technologies Corporation . .
Mobileye N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Cooper Companies, Inc. . . . . . . . . . . . . . . . . . . .
Hyatt Hotels Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quintiles Transnational Holdings, Inc. . . . . . . . . . . .
Equity
Market Cap
(in millions)
$60,465
39,968
31,262
26,695
25,098
21,101
17,261
16,522
15,151
14,493
13,911
13,836
13,150
13,135
12,891
12,780
12,244
11,928
11,700
11,645
11,609
11,482
11,367
11,289
10,706
9,228
9,196
9,154
9,108
9,050
8,782
8,358
% of
Net
Assets
1.4%
2.8
1.4
3.5
0.7
0.9
1.6
2.0
3.0
1.8
1.0
3.2
1.3
0.4
2.7
0.9
1.7
1.2
1.7
1.5
1.4
0.9
1.1
3.4
1.4
3.2
1.9
1.5
0.6
1.7
2.1
1.0
Company
First Republic Bank . . . . . . . . . . . . . . . . . . . . . . . . . . .
Airgas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ANSYS, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Verisign, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arch Capital Group Ltd. . . . . . . . . . . . . . . . . . . . . . . .
Gartner, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Helmerich & Payne, Inc. . . . . . . . . . . . . . . . . . . . . . .
IDEXX Laboratories, Inc. . . . . . . . . . . . . . . . . . . . . . . .
WABCO Holdings Inc. . . . . . . . . . . . . . . . . . . . . . . . .
Dick’s Sporting Goods, Inc. . . . . . . . . . . . . . . . . . . . .
FactSet Research Systems, Inc. . . . . . . . . . . . . . . . . .
IDEX Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colfax Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Middleby Corp. . . . . . . . . . . . . . . . . . . . . . . . . . .
Phillips 66 Partners LP . . . . . . . . . . . . . . . . . . . . . . . .
Shell Midstream Partners, L.P. . . . . . . . . . . . . . . . . . .
SS&C Technologies Holdings, Inc. . . . . . . . . . . . . . .
Receptos, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TerraForm Power, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
Core Laboratories N.V. . . . . . . . . . . . . . . . . . . . . . . . .
Inovalon Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . .
West Pharmaceutical Services, Inc. . . . . . . . . . . . . .
United Natural Foods, Inc. . . . . . . . . . . . . . . . . . . . .
Vail Resorts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guidewire Software, Inc. . . . . . . . . . . . . . . . . . . . . . .
Choice Hotels International, Inc. . . . . . . . . . . . . . . .
The Boston Beer Company, Inc. . . . . . . . . . . . . . . . .
HomeAway, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shutterstock, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alexander’s, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MRC Global, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity
Market Cap
(in millions)
$8,094
7,971
7,939
7,828
7,710
7,339
7,327
7,236
7,184
6,770
6,640
5,932
5,908
5,879
5,674
5,262
5,255
5,202
4,549
4,506
4,460
4,332
3,858
3,759
3,691
3,677
3,596
2,852
2,449
2,331
1,213
% of
Net
Assets
0.8%
0.6
1.7
1.4
2.8
4.7
0.2
4.4
0.5
1.1
2.8
1.2
1.1
1.6
1.0
0.9
1.4
0.5
1.2
0.4
1.2
1.5
0.7
3.6
1.7
1.8
0.2
0.8
0.5
1.3
0.2
98.7%
69
Baron Funds
Baron Growth Fund
Baron Growth Fund invests in small-sized growth companies with market capitalizations up to the largest market cap stock in the Russell 2000 Growth Index
at reconstitution, or companies with market capitalizations up to $2.5 billion, whichever is larger.
Company
Under Armour, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edwards Lifesciences Corp. . . . . . . . . . . . . . . . . . . . .
Church & Dwight Co., Inc. . . . . . . . . . . . . . . . . . . . . .
ANSYS, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IHS, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LKQ Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gartner, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alexandria Real Estate Equities, Inc. . . . . . . . . . . . .
Brookdale Senior Living, Inc. . . . . . . . . . . . . . . . . . . .
MSCI, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CoStar Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Community Health Systems, Inc. . . . . . . . . . . . . . . .
Colfax Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITC Holdings Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Targa Resources Corp. . . . . . . . . . . . . . . . . . . . . . . . . .
SS&C Technologies Holdings, Inc. . . . . . . . . . . . . . .
Genesee & Wyoming, Inc. . . . . . . . . . . . . . . . . . . . . .
American Campus Communities, Inc. . . . . . . . . . . .
Copart, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Penske Automotive Group, Inc. . . . . . . . . . . . . . . . .
MSC Industrial Direct Co., Inc. . . . . . . . . . . . . . . . . .
MAXIMUS, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LaSalle Hotel Properties . . . . . . . . . . . . . . . . . . . . . .
West Pharmaceutical Services, Inc. . . . . . . . . . . . . .
Douglas Emmett, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
Booz Allen Hamilton Holding Corp. . . . . . . . . . . . . .
Panera Bread Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gaming and Leisure Properties, Inc. . . . . . . . . . . . .
Air Lease Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vail Resorts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bio-Techne Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TreeHouse Foods, Inc. . . . . . . . . . . . . . . . . . . . . . . . .
70
Equity
Market Cap
(in millions)
$17,399
15,318
11,166
9,228
7,939
7,826
7,773
7,710
7,339
7,327
7,236
7,062
6,929
6,891
6,770
6,640
6,392
6,104
5,908
5,879
5,809
5,365
5,255
5,210
4,814
4,750
4,651
4,506
4,467
4,460
4,397
4,387
4,332
4,331
4,297
4,290
4,191
3,871
3,858
3,759
3,724
3,691
3,677
3,638
% of
Net
Assets
3.8%
0.5
1.5
2.2
2.0
0.3
0.6
2.9
2.9
0.3
1.7
0.9
0.1
1.6
2.8
3.1
2.4
2.1
1.3
3.2
3.0
1.0
2.3
2.3
0.3
1.2
0.5
0.4
0.4
0.1
2.4
0.8
0.8
1.2
1.3
0.9
1.6
0.9
2.1
2.6
1.1
0.7
2.3
1.8
Company
The Boston Beer Company, Inc. . . . . . . . . . . . . . . . .
Generac Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . .
Morningstar, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acadia Pharmaceuticals Inc. . . . . . . . . . . . . . . . . . . .
FEI Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bright Horizons Family Solutions, Inc. . . . . . . . . . . .
Landstar System, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
Valmont Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . .
Primerica, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manchester United plc . . . . . . . . . . . . . . . . . . . . . . .
Marriott Vacations Worldwide Corp. . . . . . . . . . . . .
Oaktree Capital Group, LLC . . . . . . . . . . . . . . . . . . .
Diamond Resorts International, Inc. . . . . . . . . . . . .
Alexander’s, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advent Software, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
BRP, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nord Anglia Education Inc. . . . . . . . . . . . . . . . . . . . .
Pinnacle Entertainment, Inc. . . . . . . . . . . . . . . . . . . .
Financial Engines, Inc. . . . . . . . . . . . . . . . . . . . . . . . .
CaesarStone Sdot-Yam Ltd. . . . . . . . . . . . . . . . . . . .
Masonite International Corp. . . . . . . . . . . . . . . . . . .
Diplomat Pharmacy, Inc . . . . . . . . . . . . . . . . . . . . . . .
American Assets Trust, Inc. . . . . . . . . . . . . . . . . . . . .
The Carlyle Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cohen & Steers, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
Trex Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Neogen Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pegasystems, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interval Leisure Group, Inc. . . . . . . . . . . . . . . . . . . . .
Foundation Medicine, Inc. . . . . . . . . . . . . . . . . . . . . .
Smart & Final Stores, Inc. . . . . . . . . . . . . . . . . . . . . .
ClubCorp Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . .
Penn National Gaming, Inc. . . . . . . . . . . . . . . . . . . .
AO World plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bottomline Technologies (de), Inc. . . . . . . . . . . . . . .
Benefitfocus, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iridium Communications Inc. . . . . . . . . . . . . . . . . . .
The Container Store Group, Inc. . . . . . . . . . . . . . . . .
IPC Healthcare, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
Badger Daylighting Ltd. . . . . . . . . . . . . . . . . . . . . . . .
Whistler Blackcomb Holdings, Inc. . . . . . . . . . . . . .
Agrinos AS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity
Market Cap
(in millions)
$3,596
3,364
3,323
3,265
3,194
3,161
2,970
2,930
2,659
2,606
2,605
2,468
2,454
2,449
2,331
2,320
2,267
2,221
2,174
2,174
2,131
2,025
1,971
1,886
1,867
1,859
1,749
1,727
1,660
1,497
1,402
1,298
1,251
1,248
1,144
1,091
1,047
918
914
806
791
543
19
% of
Net
Assets
0.7%
1.6
1.1
0.2
0.6
1.4
0.4
0.6
1.7
1.0
1.4
0.9
0.1
0.3
0.7
1.1
0.2
0.6
1.1
1.2
1.3
1.2
0.4
0.4
0.7
1.1
1.1
0.2
0.6
0.8
0.3
0.1
0.2
0.7
1.1
0.3
1.0
1.1
0.1
0.1
0.5
0.2
0.0
98.6%
Baron Funds
Baron Small Cap Fund invests 80% of its net assets in small-sized growth companies with market capitalizations up to the largest market cap stock in the
Russell 2000 Growth Index at reconstitution, or companies with market capitalizations up to $2.5 billion, whichever is larger.
Company
FleetCor Technologies, Inc. . . . . . . . . . . . . . . . . . . . .
Equinix, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liberty Media Corp. . . . . . . . . . . . . . . . . . . . . . . . . . .
CBRE Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SL Green Realty Corp. . . . . . . . . . . . . . . . . . . . . . . . .
TransDigm Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . .
Gartner, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acuity Brands, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Madison Square Garden Co. . . . . . . . . . . . . . . .
Waste Connections, Inc. . . . . . . . . . . . . . . . . . . . . . .
Liberty Broadband Corp. . . . . . . . . . . . . . . . . . . . . . .
Platform Specialty Products Corp. . . . . . . . . . . . . . .
The Ultimate Software Group, Inc. . . . . . . . . . . . . .
DexCom, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nordson Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ICON plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Berry Plastics Group, Inc. . . . . . . . . . . . . . . . . . . . . . .
Cognex Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Graco, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gaming and Leisure Properties, Inc. . . . . . . . . . . . .
WEX Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fossil Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cepheid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Catalent Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GrubHub Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Clean Harbors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
FEI Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auspex Pharmaceuticals, Inc. . . . . . . . . . . . . . . . . . .
Bright Horizons Family Solutions, Inc. . . . . . . . . . . .
Sarana Menara Nusantara Tbk PT . . . . . . . . . . . . . .
HomeAway, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valero Energy Partners LP . . . . . . . . . . . . . . . . . . . . .
Columbia Pipeline Partners LP . . . . . . . . . . . . . . . . .
Rexnord Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Abengoa Yield plc . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dominion Midstream Partners, L.P. . . . . . . . . . . . . .
ACI Worldwide, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
DigitalGlobe, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Cheesecake Factory, Inc. . . . . . . . . . . . . . . . . . .
Equity
Market Cap
(in millions)
$15,151
13,836
13,150
13,137
12,891
12,822
11,529
9,228
7,339
7,293
7,236
6,929
6,503
5,969
5,839
5,809
5,674
5,365
5,210
4,932
4,862
4,832
4,825
4,506
4,387
4,344
4,303
4,300
4,249
4,191
4,165
4,154
4,067
3,861
3,858
3,797
3,691
3,345
3,194
3,190
3,161
3,137
2,852
2,787
2,787
2,715
2,702
2,655
2,510
2,472
2,464
% of
Net
Assets
3.5%
2.1
1.5
1.1
0.8
0.6
3.5
1.5
3.0
2.5
1.9
2.4
1.5
2.2
0.5
0.5
0.9
1.3
1.4
0.9
2.2
1.4
1.0
0.5
0.9
1.7
3.0
1.3
0.5
1.8
1.4
0.6
0.8
1.0
2.0
0.2
1.4
1.1
1.2
0.5
2.2
0.8
1.0
0.8
0.3
0.7
0.2
0.4
1.4
1.5
1.0
Company
Mattress Firm Holding Corp. . . . . . . . . . . . . . . . . . . .
Advent Software, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
Healthcare Services Group, Inc. . . . . . . . . . . . . . . . .
Nord Anglia Education Inc. . . . . . . . . . . . . . . . . . . . .
Essent Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monro Muffler Brake, Inc. . . . . . . . . . . . . . . . . . . . . .
Summit Materials, Inc. . . . . . . . . . . . . . . . . . . . . . . . .
INC Research Holdings, Inc. . . . . . . . . . . . . . . . . . . .
Chesapeake Lodging Trust . . . . . . . . . . . . . . . . . . . . .
On Assignment, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
Cantel Medical Corp . . . . . . . . . . . . . . . . . . . . . . . . . .
Diplomat Pharmacy, Inc . . . . . . . . . . . . . . . . . . . . . . .
Electronics For Imaging . . . . . . . . . . . . . . . . . . . . . . .
Franklin Electric Co., Inc. . . . . . . . . . . . . . . . . . . . . . .
RBC Bearings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Artisan Partners Asset Management Inc. . . . . . . . .
Forum Energy Technologies, Inc. . . . . . . . . . . . . . . .
comScore, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRA Health Sciences, Inc. . . . . . . . . . . . . . . . . . . . . .
ExamWorks Group, Inc. . . . . . . . . . . . . . . . . . . . . . . .
Tumi Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Knowles Corporation . . . . . . . . . . . . . . . . . . . . . . . . .
Moelis & Company . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scorpio Tankers Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
Iconix Brand Group, Inc. . . . . . . . . . . . . . . . . . . . . . .
The Spectranetics Corporation . . . . . . . . . . . . . . . . .
Acxiom Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Globe Specialty Metals, Inc. . . . . . . . . . . . . . . . . . . .
Interface, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HealthEquity, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Western Refining Logistics, LP . . . . . . . . . . . . . . . . .
BJ's Restaurants, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
Penn National Gaming, Inc. . . . . . . . . . . . . . . . . . . .
Bonanza Creek Energy, Inc. . . . . . . . . . . . . . . . . . . . .
National CineMedia, Inc. . . . . . . . . . . . . . . . . . . . . . .
SunCoke Energy Partners, LP . . . . . . . . . . . . . . . . . . .
Lumber Liquidators Holdings, Inc. . . . . . . . . . . . . . .
Flotek Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
PBF Logistics LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Westlake Chemical Partners LP . . . . . . . . . . . . . . . .
The Chefs' Warehouse, Inc. . . . . . . . . . . . . . . . . . . . .
Del Frisco's Restaurant Group, Inc. . . . . . . . . . . . . .
Rally Software Development Corp. . . . . . . . . . . . . .
SFX Entertainment, Inc. . . . . . . . . . . . . . . . . . . . . . . .
The KEYW Holding Corp. . . . . . . . . . . . . . . . . . . . . . .
Fairway Group Holdings Corp. . . . . . . . . . . . . . . . . .
Viggle, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity
Market Cap
(in millions)
$2,439
2,320
2,290
2,221
2,216
2,174
2,060
2,044
2,020
1,998
1,977
1,973
1,971
1,958
1,815
1,789
1,779
1,762
1,747
1,725
1,713
1,660
1,639
1,633
1,622
1,612
1,466
1,429
1,395
1,383
1,376
1,358
1,325
1,248
1,217
928
914
845
833
805
746
726
561
472
396
382
309
295
24
% of
Net
Assets
1.8%
1.6
0.4
1.1
0.6
1.6
0.5
0.5
0.4
0.8
1.4
0.6
0.5
0.4
0.2
0.5
0.6
0.3
0.5
0.5
0.5
0.8
0.4
0.7
0.9
1.2
0.4
0.4
1.5
0.4
0.6
0.4
0.9
0.9
0.2
0.1
0.6
0.1
0.2
0.6
0.3
0.4
0.9
0.8
0.7
0.3
0.3
0.1
0.0
98.8%
71
Baron Funds
Baron Opportunity Fund invests in high growth businesses of any market capitalization selected for their capital appreciation potential.
Company
Equity
Market Cap
(in millions)
Facebook Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alibaba Group Holding Ltd. . . . . . . . . . . . . . . . . . . .
Amazon.com, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MasterCard, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
salesforce.com, inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Charles Schwab Corp. . . . . . . . . . . . . . . . . . . . . .
Alexion Pharmaceuticals, Inc. . . . . . . . . . . . . . . . . . .
Twitter, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LinkedIn Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illumina, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netflix, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tesla Motors Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Under Armour, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Workday, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CarMax, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Red Hat, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equinix, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mobileye N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ANSYS, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gartner, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SunEdison, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CoStar Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FireEye, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Zillow Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$230,938
205,187
172,797
99,770
60,465
43,467
39,968
35,032
32,444
31,262
26,695
25,209
23,740
17,399
15,869
15,151
14,493
13,911
13,894
13,150
11,289
9,108
7,939
7,339
6,537
6,392
6,110
5,879
5,779
72
% of
Net
Assets
2.5%
1.8
1.7
1.1
1.7
1.7
0.9
0.7
1.5
1.4
3.0
2.2
2.3
1.0
1.4
2.5
2.8
2.7
2.9
2.9
3.0
0.9
2.8
4.0
2.0
3.5
1.3
1.3
1.5
Company
athenahealth, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
WEX Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cepheid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restoration Hardware Holdings, Inc. . . . . . . . . . . . .
JUST EAT plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pacira Pharmaceuticals, Inc. . . . . . . . . . . . . . . . . . . .
Golar LNG Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HomeAway, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medidata Solutions, Inc. . . . . . . . . . . . . . . . . . . . . . .
Liberty Tripadvisor Holdings Inc. . . . . . . . . . . . . . . .
Mellanox Technologies Ltd. . . . . . . . . . . . . . . . . . . . .
Acxiom Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AO World plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aerie Pharmaceuticals, Inc. . . . . . . . . . . . . . . . . . . . .
Unilife Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity
Market Cap
(in millions)
$4,560
4,549
4,460
4,165
4,067
3,957
3,691
3,677
3,220
3,104
2,852
2,707
2,606
2,472
2,449
2,388
2,131
2,072
1,466
1,429
1,402
1,376
1,144
1,047
805
754
517
% of
Net
Assets
1.4%
1.2
0.5
1.1
1.4
1.4
5.0
1.5
1.3
1.0
1.5
1.5
2.1
1.9
2.9
1.5
1.4
1.4
1.2
1.7
0.5
1.0
1.0
2.9
1.0
0.9
0.5
99.7%
Baron Funds
Baron Partners Fund
Baron Partners Fund is a non-diversified fund that invests primarily in U.S. companies of any size with significant growth potential.
Company
Equity
% of
Market Cap
Total
(in millions) Investments
The Charles Schwab Corp. . . . . . . . . . . . . . . . . . .
Illumina, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tesla Motors Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
Under Armour, Inc. . . . . . . . . . . . . . . . . . . . . . . . .
CarMax, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Norwegian Cruise Line Holdings, Ltd. . . . . . . . .
Fastenal Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Verisk Analytics, Inc. . . . . . . . . . . . . . . . . . . . . . . .
Mobileye N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hyatt Hotels Corp. . . . . . . . . . . . . . . . . . . . . . . . .
Arch Capital Group Ltd. . . . . . . . . . . . . . . . . . . . .
Gartner, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IDEXX Laboratories, Inc. . . . . . . . . . . . . . . . . . . .
$39,968
26,695
23,740
17,399
14,493
12,343
12,244
11,289
9,108
8,782
7,710
7,339
7,236
5.0%
1.8
6.7
0.1
5.9
0.3
3.2
4.6
1.3
6.4
6.5
2.3
3.5
Company
Equity
% of
Market Cap
Total
(in millions) Investments
Dick’s Sporting Goods, Inc. . . . . . . . . . . . . . . . . .
FactSet Research Systems, Inc. . . . . . . . . . . . . . .
CoStar Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . .
The Middleby Corp. . . . . . . . . . . . . . . . . . . . . . . .
ITC Holdings Corp. . . . . . . . . . . . . . . . . . . . . . . . .
Zillow Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
Inovalon Holdings, Inc. . . . . . . . . . . . . . . . . . . . .
Gaming and Leisure Properties, Inc. . . . . . . . . .
Air Lease Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vail Resorts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
Manchester United plc . . . . . . . . . . . . . . . . . . . .
The Carlyle Group . . . . . . . . . . . . . . . . . . . . . . . .
$6,770
6,640
6,392
5,879
5,809
5,779
4,460
4,191
3,871
3,759
2,606
1,867
5.2%
5.3
9.4
1.2
6.4
1.7
3.2
3.5
4.5
4.1
3.7
3.9
99.7%
Baron Fifth Avenue Growth Fund invests in large-sized growth companies with market capitalizations above the smallest market cap stock in the top 85%
of the Russell 1000 Growth Index at reconstitution, or companies with market capitalizations above $10 billion, whichever is smaller.
Company
Equity
Market Cap
(in millions)
Apple, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Google, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Facebook Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amazon.com, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Visa, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MasterCard, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Biogen, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Starbucks Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SoftBank Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costco Wholesale Corp. . . . . . . . . . . . . . . . . . . . . . . .
Monsanto Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regeneron Pharmaceuticals, Inc. . . . . . . . . . . . . . . .
ASML Holding N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Las Vegas Sands Corp. . . . . . . . . . . . . . . . . . . . . . . . .
VMware, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alexion Pharmaceuticals, Inc. . . . . . . . . . . . . . . . . . .
YUM! Brands, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$724,773
375,081
230,938
205,187
172,797
160,621
99,770
99,064
71,006
69,356
66,654
60,465
54,389
46,330
44,274
43,950
35,069
35,032
34,117
% of
Net
Assets
5.0%
4.9
5.5
3.5
7.9
3.5
4.1
2.1
3.6
1.6
1.3
3.7
2.0
1.8
2.1
1.2
1.6
2.1
1.7
Company
Brookfield Asset Management, Inc. . . . . . . . . . . . . .
Twitter, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CME Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LinkedIn Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illumina, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Red Hat, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equinix, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liberty Media Corp. . . . . . . . . . . . . . . . . . . . . . . . . . .
Wynn Resorts Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fastenal Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mobileye N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ctrip.com International, Ltd. . . . . . . . . . . . . . . . . . . .
FireEye, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liberty Broadband Corp. . . . . . . . . . . . . . . . . . . . . . .
Equity
Market Cap
(in millions)
$33,811
32,444
31,970
31,262
26,695
13,911
13,894
13,150
13,137
12,780
12,244
11,289
9,108
7,932
6,110
5,839
5,262
% of
Net
Assets
3.0%
4.0
2.0
1.2
5.8
1.8
2.4
2.4
0.9
2.1
1.5
1.7
1.0
1.1
3.2
0.5
1.2
95.0%
73
Baron Funds
Baron Focused Growth Fund is a non-diversified fund that invests in small and mid-sized growth companies with market capitalizations up to the largest
market cap stock in the Russell Midcap Growth Index at reconstitution.
Company
Tesla Motors Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CarMax, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fastenal Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Church & Dwight Co., Inc. . . . . . . . . . . . . . . . . . . . . .
Airgas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CoStar Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colfax Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74
Equity
Market Cap
(in millions)
$23,740
14,493
12,244
11,289
11,166
8,782
7,971
7,710
6,770
6,640
6,392
5,908
5,809
% of
Net
Assets
7.7%
5.1
2.5
3.0
2.1
7.1
1.8
3.1
4.1
5.9
6.9
2.4
3.7
Company
Vail Resorts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Carlyle Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iridium Communications Inc. . . . . . . . . . . . . . . . . . .
Equity
Market Cap
(in millions)
$5,210
4,549
3,759
3,691
3,677
2,606
2,174
2,131
1,867
1,047
918
% of
Net
Assets
3.8%
2.0
7.0
2.7
4.8
4.4
4.2
3.6
3.5
4.1
3.9
99.4%
Baron Funds
Baron International Growth Fund is a diversified fund that invests in non-U.S. companies with significant growth potential. Investments may be made across
all market capitalizations. The Fund invests principally in companies of developed countries and may invest up to 30% in companies of developing countries.
Company
Equity
Market Cap
(in millions)
Tencent Holdings, Ltd. . . . . . . . . . . . . . . . . . . . . . . . .
Inditex SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SoftBank Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FANUC Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China Telecom Corp. Ltd. . . . . . . . . . . . . . . . . . . . . . .
Compagnie Financière Richemont SA . . . . . . . . . . .
Suncor Energy Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deutsche Post AG . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Haitong Securities Co., Ltd. . . . . . . . . . . . . . . . . . . . .
Bridgestone Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Panasonic Corporation . . . . . . . . . . . . . . . . . . . . . . . .
Syngenta AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mitsui Fudosan Co. Ltd. . . . . . . . . . . . . . . . . . . . . . . .
Fresenius Medical Care Ag & Co. . . . . . . . . . . . . . . .
Larsen & Toubro Ltd. . . . . . . . . . . . . . . . . . . . . . . . . .
Rakuten, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Steinhoff International Holdings Ltd. . . . . . . . . . . .
Axis Bank Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ryanair Holdings plc . . . . . . . . . . . . . . . . . . . . . . . . . .
Experian plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sumitomo Mitsui Trust Holdings, Inc. . . . . . . . . . . .
Aena SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Check Point Software Technologies Ltd. . . . . . . . . .
Agilent Technologies, Inc. . . . . . . . . . . . . . . . . . . . . .
Brambles Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Daiwa Securities Group, Inc. . . . . . . . . . . . . . . . . . . .
Grifols SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Burberry Group Plc . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wynn Macau Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Julius Baer Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . .
easyJet plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ProSiebenSat.1 Media AG . . . . . . . . . . . . . . . . . . . . .
Crescent Point Energy Corp. . . . . . . . . . . . . . . . . . . .
Brenntag AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Symrise AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Constellation Software, Inc. . . . . . . . . . . . . . . . . . . .
$205,187
177,970
100,133
69,356
52,171
51,883
46,265
42,273
37,778
34,206
32,369
32,112
31,513
29,437
25,906
25,543
22,866
21,625
21,213
18,374
17,114
16,159
15,082
15,066
13,953
13,754
13,669
13,540
11,433
11,245
11,230
11,089
10,692
10,037
9,291
8,194
7,710
7,325
% of
Net
Assets
1.0%
1.3
1.1
1.4
1.6
1.1
0.4
1.3
1.8
1.1
1.5
1.6
0.7
1.4
1.1
1.1
2.3
1.6
1.3
1.7
1.0
1.7
1.6
2.8
1.3
0.6
1.3
1.0
1.0
0.5
1.9
1.9
2.0
0.7
1.8
2.2
1.7
3.1
Company
Ingenico SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intertek Group plc . . . . . . . . . . . . . . . . . . . . . . . . . . .
Zee Entertainment Enterprises Ltd. . . . . . . . . . . . . .
Inchcape plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kroton Educacional SA . . . . . . . . . . . . . . . . . . . . . . . .
William Hill PLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PT Matahari Department Store Tbk . . . . . . . . . . . . .
Eurofins Scientific SE . . . . . . . . . . . . . . . . . . . . . . . . .
Azimut Holding S.p.A. . . . . . . . . . . . . . . . . . . . . . . . .
JUST EAT plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tower Bersama Infrastructure Tbk PT . . . . . . . . . . .
Golar LNG Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cetip SA - Mercados Organizados . . . . . . . . . . . . . .
TAL Education Group . . . . . . . . . . . . . . . . . . . . . . . . .
Domino’s Pizza Enterprises Ltd. . . . . . . . . . . . . . . . .
Sanrio Co. Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MonotaRO Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . .
Smiles SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Domino’s Pizza Group plc . . . . . . . . . . . . . . . . . . . . .
TOTVS SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lancashire Holdings Limited . . . . . . . . . . . . . . . . . . .
Luk Fook Holdings (International) Ltd. . . . . . . . . . .
Abcam Plc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dish TV India Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PATRIZIA Immobilien AG . . . . . . . . . . . . . . . . . . . . . .
AO World plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kingdee International Software Group Co. Ltd. . . .
Premier Oil plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Perfect World Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . .
GOL Linhas Aéreas Inteligentes SA . . . . . . . . . . . . .
Hathway Cable & Datacom Ltd . . . . . . . . . . . . . . . .
RIB Software AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nomad Holdings Ltd. . . . . . . . . . . . . . . . . . . . . . . . . .
GAEC Educação S.A. . . . . . . . . . . . . . . . . . . . . . . . . . .
DEN Networks Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity
Market Cap
(in millions)
$6,630
5,979
5,245
5,242
5,238
4,825
4,396
4,107
4,093
3,677
3,476
3,137
3,104
2,623
2,620
2,443
2,384
2,182
2,072
1,942
1,904
1,870
1,857
1,641
1,447
1,395
1,237
1,144
1,080
997
920
688
650
610
546
395
343
% of
Net
Assets
2.3%
0.7
0.4
1.3
0.2
1.4
1.2
1.9
1.5
2.0
1.2
0.4
1.3
0.3
1.1
2.0
1.4
1.5
2.7
0.6
2.0
1.0
0.7
0.9
1.4
1.0
0.9
0.7
1.4
0.4
0.5
0.2
0.3
2.0
0.8
0.3
0.2
94.6%
75
Baron Funds
Baron Real Estate Fund is a non-diversified fund that invests 80% of its net assets in equity securities of U.S. and non-U.S. real estate and real estate-related
companies of any size. The Fund’s investment in non-U.S. companies will not exceed 25%.
Company
Equity
Market Cap
(in millions)
Home Depot, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lowe’s Companies, Inc. . . . . . . . . . . . . . . . . . . . . . . .
Simon Property Group, Inc. . . . . . . . . . . . . . . . . . . . .
Las Vegas Sands Corp. . . . . . . . . . . . . . . . . . . . . . . . .
American Tower Corp. . . . . . . . . . . . . . . . . . . . . . . . .
Hilton Worldwide Holdings, Inc. . . . . . . . . . . . . . . . .
General Growth Properties, Inc. . . . . . . . . . . . . . . . .
AvalonBay Communities, Inc. . . . . . . . . . . . . . . . . . .
Prologis, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Boston Properties, Inc. . . . . . . . . . . . . . . . . . . . . . . . .
Vornado Realty Trust . . . . . . . . . . . . . . . . . . . . . . . . .
Starwood Hotels & Resorts Worldwide, Inc. . . . . .
Mohawk Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . .
Equinix, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CBRE Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SL Green Realty Corp. . . . . . . . . . . . . . . . . . . . . . . . .
Wynn Resorts Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Norwegian Cruise Line Holdings, Ltd. . . . . . . . . . . .
Wyndham Worldwide Corp. . . . . . . . . . . . . . . . . . . .
D.R. Horton, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MGM Resorts International . . . . . . . . . . . . . . . . . . . .
Global Logistic Properties Ltd. . . . . . . . . . . . . . . . . .
$148,533
70,797
61,507
43,950
39,563
33,811
29,248
26,165
23,010
22,702
21,520
21,043
15,151
14,336
13,562
13,150
12,891
12,822
12,780
12,343
10,907
10,407
10,332
9,346
8,782
76
% of
Net
Assets
2.8%
1.7
1.8
1.2
2.1
1.9
3.7
1.4
1.1
1.1
1.2
1.2
1.7
1.7
3.0
2.9
3.6
1.3
1.5
3.1
3.0
0.3
3.0
1.8
3.3
Company
Jones Lang LaSalle, Inc. . . . . . . . . . . . . . . . . . . . . . . .
Alexandria Real Estate Equities, Inc. . . . . . . . . . . . .
Toll Brothers, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brookfield Infrastructure Partners L.P. . . . . . . . . . . .
Howard Hughes Corp. . . . . . . . . . . . . . . . . . . . . . . . .
Forest City Enterprises, Inc. . . . . . . . . . . . . . . . . . . . .
American Campus Communities, Inc. . . . . . . . . . . .
Douglas Emmett, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
Sunstone Hotel Investors, Inc. . . . . . . . . . . . . . . . . .
Strategic Hotels & Resorts, Inc. . . . . . . . . . . . . . . . .
Kennedy-Wilson Holdings, Inc. . . . . . . . . . . . . . . . . .
Marriott Vacations Worldwide Corp. . . . . . . . . . . . .
Diamond Resorts International, Inc. . . . . . . . . . . . .
Kennedy Wilson Europe Real Estate PLC . . . . . . . .
Masonite International Corp. . . . . . . . . . . . . . . . . . .
Education Realty Trust, Inc. . . . . . . . . . . . . . . . . . . . .
Capital Senior Living Corp. . . . . . . . . . . . . . . . . . . . .
Builders FirstSource, Inc. . . . . . . . . . . . . . . . . . . . . . .
Equity
Market Cap
(in millions)
$7,640
7,062
6,929
6,909
6,845
6,156
5,809
5,469
4,814
4,387
4,331
3,479
3,476
3,422
3,137
2,706
2,605
2,454
2,208
2,131
2,025
1,700
755
655
% of
Net
Assets
2.9%
1.3
7.7
2.7
2.8
2.3
0.8
2.1
1.2
0.4
1.5
1.5
1.3
1.4
0.9
1.7
0.2
3.0
1.8
1.7
1.8
0.5
3.2
1.0
97.1%
Baron Funds
Baron Emerging Markets Fund is a diversified fund that invests 80% of its net assets in non-U.S. companies of all sizes domiciled, headquartered or whose
primary business activities or principal trading markets are in developing countries. The Fund may invest up to 20% in companies in developed market
countries and in Frontier Countries.
Company
PetroChina Co. Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . .
China Mobile Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Samsung Electronics Co., Ltd. . . . . . . . . . . . . . . . . . .
Tencent Holdings, Ltd. . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan Semiconductor Manufacturing
Company Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China Petroleum & Chemical
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China Telecom Corp. Ltd. . . . . . . . . . . . . . . . . . . . . . .
Wal-Mart de Mexico SAB de CV . . . . . . . . . . . . . . .
Coal India Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China Unicom (Hong Kong) Ltd. . . . . . . . . . . . . . . .
Haitong Securities Co., Ltd. . . . . . . . . . . . . . . . . . . . .
Fomento Económico Mexicano, S.A.B. de C.V. . . . .
Larsen & Toubro Ltd. . . . . . . . . . . . . . . . . . . . . . . . . .
Bank Rakyat Indonesia (Persero) Tbk PT . . . . . . . . .
Sasol Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Steinhoff International Holdings Ltd. . . . . . . . . . . .
MediaTek Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Axis Bank Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Samsung Life Insurance Co. Ltd. . . . . . . . . . . . . . . . .
Aspen Pharmacare Holdings Ltd. . . . . . . . . . . . . . . .
Lupin Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ayala Land, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LG Household & Health Care Ltd. . . . . . . . . . . . . . .
Sinopharm Group Co. Ltd. . . . . . . . . . . . . . . . . . . . . .
Wynn Macau Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Universal Robina Corp. . . . . . . . . . . . . . . . . . . . . . . . .
Bangkok Bank Public Co. Ltd. . . . . . . . . . . . . . . . . . .
China Mengniu Dairy Co. Ltd. . . . . . . . . . . . . . . . . . .
BDO Unibank, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Logistic Properties Ltd. . . . . . . . . . . . . . . . . .
Bidvest Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Far EasTone Telecommunications Co., Ltd. . . . . . . .
Motherson Sumi Systems Ltd. . . . . . . . . . . . . . . . . .
Shenzhou International Group Holdings Ltd. . . . . .
Infraestructura Energetica Nova S.A.B. de C.V. . . .
Sihuan Pharmaceutical Holdings Group Ltd. . . . . .
Sociedad Química y Minera de Chile SA . . . . . . . .
Mr Price Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . .
Zee Entertainment Enterprises Ltd. . . . . . . . . . . . . .
Kroton Educacional SA . . . . . . . . . . . . . . . . . . . . . . . .
Equity
Market Cap
(in millions)
$329,860
267,266
205,187
189,194
177,970
% of
Net
Assets
1.4%
1.5
1.4
2.5
1.6
121,766
1.7
119,152
51,883
43,621
36,628
36,449
34,206
33,449
25,543
25,047
22,119
21,625
21,269
21,213
17,432
14,448
14,425
12,640
12,177
11,297
11,245
11,030
10,823
10,414
9,910
9,346
9,083
7,932
7,863
7,256
6,316
6,298
5,922
5,922
5,716
5,245
5,238
0.3
1.5
0.8
1.2
0.9
2.5
1.7
1.4
1.2
1.3
1.9
1.0
1.7
1.4
1.6
1.8
1.4
1.1
2.1
0.6
1.4
1.0
1.4
1.1
1.3
1.3
0.7
1.5
0.2
0.9
1.1
0.6
0.3
1.0
0.8
0.2
Company
Grupo Lala . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PT Matahari Department Store Tbk . . . . . . . . . . . . .
Divi’s Laboratories Ltd. . . . . . . . . . . . . . . . . . . . . . . . .
Eclat Textile Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . .
Glenmark Pharmaceuticals Ltd. . . . . . . . . . . . . . . . .
Novatek Microelectronics Corp. . . . . . . . . . . . . . . . .
Torrent Pharmaceuticals Ltd. . . . . . . . . . . . . . . . . . .
M. Dias Branco SA . . . . . . . . . . . . . . . . . . . . . . . . . . .
Metro Pacific Investments Corp. . . . . . . . . . . . . . . .
Sun TV Network Ltd. . . . . . . . . . . . . . . . . . . . . . . . . .
WuXi PharmaTech (Cayman) Inc. . . . . . . . . . . . . . .
Melco International Development Ltd. . . . . . . . . . .
Biostime International Holdings Ltd. . . . . . . . . . . . .
Exide Industries Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . .
Amara Raja Batteries Ltd. . . . . . . . . . . . . . . . . . . . . .
Grand Korea Leisure Co., Ltd. . . . . . . . . . . . . . . . . . .
Smiles SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HIWIN Technologies Corp. . . . . . . . . . . . . . . . . . . . .
Man Wah Holdings Ltd. . . . . . . . . . . . . . . . . . . . . . . .
TOTVS SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multiplus SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Luk Fook Holdings (International) Ltd. . . . . . . . . . .
Dish TV India Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Makalot Industrial Co., Ltd. . . . . . . . . . . . . . . . . . . . .
CJ O Shopping Co. Ltd. . . . . . . . . . . . . . . . . . . . . . . .
Kingdee International Software Group Co. Ltd. . . .
Ginko International Co., Ltd. . . . . . . . . . . . . . . . . . . .
Perfect World Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . .
L.P.N. Development PCL . . . . . . . . . . . . . . . . . . . . . .
GOL Linhas Aéreas Inteligentes SA . . . . . . . . . . . . .
Linx SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hathway Cable & Datacom Ltd . . . . . . . . . . . . . . . .
WeMade Entertainment Co., Ltd. . . . . . . . . . . . . . . .
PVR Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I-Sens, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GAEC Educação S.A. . . . . . . . . . . . . . . . . . . . . . . . . . .
DEN Networks Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . .
SHUAA Capital psc . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lekoil, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity
Market Cap
(in millions)
$5,021
4,396
3,787
3,476
3,432
3,408
3,151
3,137
3,133
3,061
3,011
2,782
2,774
2,623
2,620
2,605
2,544
2,414
2,274
2,116
1,942
1,934
1,870
1,870
1,663
1,641
1,395
1,373
1,294
1,080
1,067
920
762
688
684
650
597
440
404
395
343
176
127
% of
Net
Assets
0.9%
1.4
1.4
1.5
1.1
0.8
1.3
0.6
1.8
0.5
0.9
1.0
0.9
1.0
1.5
0.3
0.4
1.2
1.3
0.9
1.2
1.0
1.0
0.9
0.5
0.8
1.6
1.5
1.1
1.2
1.2
0.8
0.5
0.4
0.4
0.3
0.6
1.0
0.8
0.4
0.5
0.2
0.2
91.1%
77
Baron Funds
Baron Energy and Resources Fund is a non-diversified fund that invests 80% of its net assets in equity securities of U.S. and non-U.S. energy and resources
companies and related companies of any size.
Company
EOG Resources, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
Anadarko Petroleum Corporation . . . . . . . . . . . . . . .
Halliburton Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy Transfer Equity, L.P. . . . . . . . . . . . . . . . . . . . .
Marathon Petroleum Corp. . . . . . . . . . . . . . . . . . . . .
Noble Energy, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Western Gas Equity Partners LP . . . . . . . . . . . . . . . .
Cabot Oil & Gas Corp. . . . . . . . . . . . . . . . . . . . . . . . .
Antero Resources Corporation . . . . . . . . . . . . . . . . .
Western Gas Partners, LP . . . . . . . . . . . . . . . . . . . . .
Flowserve Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SunEdison, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Whiting Petroleum Corp. . . . . . . . . . . . . . . . . . . . . . .
Newfield Exploration Co. . . . . . . . . . . . . . . . . . . . . . .
Methanex Corporation . . . . . . . . . . . . . . . . . . . . . . . .
Tesoro Logistics LP . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gulfport Energy Corp. . . . . . . . . . . . . . . . . . . . . . . . .
SemGroup Corporation . . . . . . . . . . . . . . . . . . . . . . .
SM Energy Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Superior Energy Services, Inc. . . . . . . . . . . . . . . . . . .
Golar LNG Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78
Equity
Market Cap
(in millions)
$50,289
42,687
37,284
34,137
27,951
18,966
13,911
13,135
12,214
9,719
8,569
7,610
7,327
6,537
6,319
5,709
5,674
5,365
5,262
4,918
4,549
4,506
4,312
3,934
3,565
3,487
3,346
3,104
% of
Net
Assets
1.7%
1.9
3.1
2.0
1.7
1.8
4.2
0.9
2.4
0.7
0.8
0.8
1.5
3.2
0.5
3.6
1.3
3.0
1.7
1.2
2.1
1.2
0.8
2.9
2.5
3.4
2.5
1.3
Company
Tallgrass Energy Partners, LP . . . . . . . . . . . . . . . . . . .
Laredo Petroleum Inc. . . . . . . . . . . . . . . . . . . . . . . . .
Abengoa Yield plc . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dominion Midstream Partners, L.P. . . . . . . . . . . . . .
Parsley Energy, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSP Permian, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oil States International, Inc. . . . . . . . . . . . . . . . . . . .
Oasis Petroleum, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
Forum Energy Technologies, Inc. . . . . . . . . . . . . . . .
Rose Rock Midstream, L.P. . . . . . . . . . . . . . . . . . . . . .
Scorpio Tankers Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
Globe Specialty Metals, Inc. . . . . . . . . . . . . . . . . . . .
Western Refining Logistics, LP . . . . . . . . . . . . . . . . .
C & J Energy Services, Ltd. . . . . . . . . . . . . . . . . . . . .
Bonanza Creek Energy, Inc. . . . . . . . . . . . . . . . . . . . .
MRC Global, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Primoris Services Corp. . . . . . . . . . . . . . . . . . . . . . . . .
PBF Logistics LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RigNet, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tesco Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Atlas Energy Group, LLC . . . . . . . . . . . . . . . . . . . . . .
Lekoil, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity
Market Cap
(in millions)
$3,046
2,789
2,787
2,787
2,702
2,655
2,252
2,098
2,043
1,980
1,762
1,748
1,622
1,395
1,358
1,310
1,217
1,213
887
805
746
726
505
443
156
127
% of
Net
Assets
2.5%
2.5
1.0
1.8
1.8
1.5
3.5
2.2
0.8
1.3
1.8
1.0
1.5
1.7
1.9
1.4
2.9
0.7
0.7
2.5
0.1
1.9
0.7
0.8
0.4
0.5
94.1%
Baron Funds
Baron Global Advantage Fund is a diversified fund that invests primarily in established and emerging markets companies located throughout the world, with
capitalizations within the range of companies included in the MSCI ACWI Growth Index Net.
Company
Equity
Market Cap
(in millions)
Google, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Facebook Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amazon.com, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Baidu, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SoftBank Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Naspers Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ASML Holding N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . .
ICICI Bank Limited . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illumina, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARM Holdings plc . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Axis Bank Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Check Point Software Technologies Ltd. . . . . . . . . .
Grifols SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mobileye N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Constellation Software, Inc. . . . . . . . . . . . . . . . . . . .
Brookfield Infrastructure Partners L.P. . . . . . . . . . . .
SunEdison, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$375,081
230,938
205,187
172,797
73,093
69,356
64,740
60,465
44,274
33,811
30,029
26,695
23,136
21,213
15,066
13,540
9,108
7,932
7,325
6,845
6,537
5,365
5,262
% of
Net
Assets
4.2%
4.6
3.4
6.3
2.6
1.9
2.2
2.7
1.6
1.3
1.7
3.8
1.4
1.0
1.4
1.9
0.9
1.1
2.5
1.8
4.8
1.7
1.3
Company
Qunar Cayman Islands Ltd. . . . . . . . . . . . . . . . . . . . .
JUST EAT plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tallgrass Energy Partners, LP . . . . . . . . . . . . . . . . . . .
Medidata Solutions, Inc. . . . . . . . . . . . . . . . . . . . . . .
Smiles SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Just Dial Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acxiom Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Seadrill Partners, LLC . . . . . . . . . . . . . . . . . . . . . . . . .
MakeMyTrip Limited . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity
Market Cap
(in millions)
$4,905
4,549
3,677
3,476
3,220
3,137
3,046
2,787
2,707
2,623
2,620
2,072
1,942
1,491
1,429
1,079
1,047
915
754
726
517
156
% of
Net
Assets
2.4%
2.8
4.7
3.0
1.7
4.1
2.3
1.0
2.3
2.2
2.1
3.7
2.4
0.8
1.5
0.7
1.9
0.8
0.5
2.0
0.4
0.3
99.7%
79
Baron Funds
Baron Discovery Fund invests in small sized growth companies with market capitalizations up to the weighted median market capitalization of the Russell
2000 Growth Index at reconstitution, or companies with market capitalizations up to $1.5 billion, whichever is larger.
Company
JUST EAT plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic Hotels & Resorts, Inc. . . . . . . . . . . . . . . . .
Mattress Firm Holding Corp. . . . . . . . . . . . . . . . . . . .
Pinnacle Entertainment, Inc. . . . . . . . . . . . . . . . . . . .
Esperion Therapeutics, Inc. . . . . . . . . . . . . . . . . . . . .
INC Research Holdings, Inc. . . . . . . . . . . . . . . . . . . .
Barracuda Networks, Inc. . . . . . . . . . . . . . . . . . . . . . .
MA-COM Technology Solutions Holdings, Inc. . . .
Envestnet, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
American Assets Trust, Inc. . . . . . . . . . . . . . . . . . . . .
Trex Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
ExamWorks Group, Inc. . . . . . . . . . . . . . . . . . . . . . . .
Tumi Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiesta Restaurant Group, Inc. . . . . . . . . . . . . . . . . . .
Coherent, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualys, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fidelity National Financial Inc. - FNFV Group . . . .
ClubCorp Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . .
TherapeuticsMD, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
Coupons.com Incorporated . . . . . . . . . . . . . . . . . . . .
80
Equity
Market Cap
(in millions)
$3,677
3,422
3,220
2,787
2,472
2,439
2,174
2,131
2,054
2,020
2,020
1,948
1,937
1,886
1,749
1,713
1,660
1,636
1,607
1,576
1,466
1,402
1,376
1,311
1,251
1,047
1,039
971
914
% of
Net
Assets
2.9%
2.9
1.4
1.2
3.1
1.7
2.0
2.6
2.4
1.9
2.1
1.3
2.0
0.8
0.5
2.9
0.5
2.3
1.6
2.0
3.6
4.1
1.8
2.2
1.2
1.4
1.5
0.9
0.5
Company
Novadaq Technologies Inc. . . . . . . . . . . . . . . . . . . . .
Genfit SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rexford Industrial Realty, Inc. . . . . . . . . . . . . . . . . . .
AAC Holings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unifi, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Zoe’s Kitchen, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Varonis Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
Boot Barn Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . .
Intersect ENT, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inogen, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mercury Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . .
Revance Therapeutics, Inc. . . . . . . . . . . . . . . . . . . . . .
NN, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Del Frisco’s Restaurant Group, Inc. . . . . . . . . . . . . .
Cerus Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chuy’s Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
The KEYW Holding Corp. . . . . . . . . . . . . . . . . . . . . . .
BioScrip, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sientra, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amber Road, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventure Foods, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
Barfresh Food Group, Inc. . . . . . . . . . . . . . . . . . . . . .
Equity
Market Cap
(in millions)
$907
886
875
805
754
726
666
656
642
635
615
607
596
531
517
496
476
472
397
370
309
304
286
241
219
156
47
% of
Net
Assets
1.0%
0.5
2.5
1.6
1.5
2.4
1.1
1.3
0.8
2.0
1.5
2.4
2.2
1.5
1.0
0.7
1.4
0.5
0.6
2.0
1.4
1.7
1.6
3.0
1.0
0.5
0.5
93.5%
Baron Funds
Baron Asset Fund — PORTFOLIO HOLDINGS
March 31, 2015 (Unaudited)
Shares
Cost
Value
Shares
Common Stocks (98.63%)
Common Stocks (continued)
Consumer Discretionary (16.02%)
Financials (continued)
Apparel, Accessories &
Luxury Goods (0.85%)
185,000 Ralph Lauren Corp.
Office REITs (1.34%)
84,200 Alexander’s, Inc.4
$
3,279,792 $
Automotive Retail (1.80%)
750,000 CarMax, Inc.1
14,772,082
Casinos & Gaming (0.88%)
200,000 Wynn Resorts Ltd.
0
Hotels, Resorts & Cruise
Lines (3.90%)
800,000 Choice Hotels International, Inc.
1,025,000 Hyatt Hotels Corp., Cl A1
Internet Retail (1.38%)
34,000 The Priceline Group, Inc.1
Leisure Facilities (3.61%)
1,000,000 Vail Resorts, Inc.
Specialty Stores (3.60%)
550,000 Dick’s Sporting Goods, Inc.
350,000 Tiffany & Co.
485,000 Tractor Supply Co.
Total Consumer Discretionary
3,577,372
30,808,659
34,386,031
5,449,298
24,327,500
Food Distributors (0.74%)
275,000 United Natural Foods, Inc.1
Total Consumer Staples
80,080,000
25,176,000
Real Estate Services (2.70%)
2,000,000 CBRE Group, Inc., Cl A1
26,527,399
77,420,000
10,477,932
65,554,751
22,836,000
324,242,536
10,408,132
13,850,760
Health Care Distributors (1.71%)
350,000 Henry Schein, Inc.1
9,382,832
48,867,000
Health Care Equipment (4.39%)
815,000 IDEXX Laboratories, Inc.1
32,146,764
125,901,200
Health Care Facilities (1.54%)
375,000 Universal Health Services, Inc., Cl B
23,304,910
44,141,250
34,262,522
32,733,319
66,995,841
49,666,300
43,652,250
93,318,550
5,777,893
33,609,506
39,387,399
19,413,900
34,741,500
54,155,400
23,556,410
17,214,469
100,245,600
90,378,750
20,659,909
61,430,788
243,056,666
29,466,800
220,091,150
600,325,310
13,390,421
14,131,200
30,445,772
43,836,193
42,754,500
56,885,700
7,016,768
35,107,500
Human Resource &
Employment Services (1.91%)
415,000 Towers Watson & Co., Cl A
46,333,570
54,856,775
Industrial Conglomerates (1.62%)
270,000 Roper Industries, Inc.
22,869,631
46,440,000
51,256,000
60,700,500
111,956,500
39,581,100
103,420,000
14,773,685
10,826,180
15,846,066
41,445,931
118,824,559
31,344,500
30,803,500
41,254,100
103,402,100
459,620,700
6,508,072
6,685,000
Oil & Gas Equipment &
Services (0.39%)
108,000 Core Laboratories N.V.2
Oil & Gas Exploration &
Production (1.01%)
249,500 Concho Resources, Inc.1
Oil & Gas Storage &
Transportation (2.21%)
390,000 Phillips 66 Partners LP
650,000 Shell Midstream Partners, L.P.
174,934 Western Gas Equity Partners LP
Total Energy
2,494,869
7,365,191
21,186,000
27,871,000
6,807,000
Investment Banking &
Brokerage (2.76%)
2,600,000 The Charles Schwab Corp.
Regional Banks (0.79%)
400,000 First Republic Bank
Total Financials
Health Care (20.93%)
Biotechnology (0.48%)
84,000 Receptos, Inc.1
Health Care Supplies (3.25%)
265,000 The Cooper Companies, Inc.
725,000 West Pharmaceutical Services, Inc.
Health Care Technology (1.89%)
265,000 Cerner Corp.1
1,150,000 Inovalon Holdings, Inc., CI A1
Life Sciences Tools &
Services (7.67%)
540,000 Illumina, Inc.1
275,000 Mettler-Toledo International, Inc.1
440,000 Quintiles Transnational
Holdings, Inc.1
11,284,920
Total Health Care
Industrials (19.22%)
10,983,600
10,966,273
14,950,000
3,848,548
29,764,821
50,608,481
28,922,040
27,561,300
25,350,000
10,496,040
63,407,340
110,421,300
Financials (11.30%)
Asset Management &
Custody Banks (0.92%)
325,000 T. Rowe Price Group, Inc.
38,444,036
14,150,604
Energy (3.85%)
Oil & Gas Drilling (0.24%)
100,000 Helmerich & Payne, Inc.
3,957,397 $
51,757,500
19,491,425
14,611,786
21,119,858
$
Value
Property & Casualty
Insurance (2.79%)
1,300,000 Arch Capital Group Ltd.1,2
Consumer Staples (0.97%)
Brewers (0.23%)
25,000 The Boston Beer Co., Inc., Cl A1
Cost
7,848,785
2,592,634
26,318,500
Construction Machinery &
Heavy Trucks (1.98%)
115,000 WABCO Holdings, Inc.1
450,000 Westinghouse Air Brake
Technologies Corporation
Environmental & Facilities
Services (1.23%)
250,000 Stericycle, Inc.1
79,144,000
81
Baron Funds
Baron Asset Fund — PORTFOLIO HOLDINGS (Continued)
Shares
Cost
Value
Shares
Industrials (continued)
Telecommunication Services (3.00%)
635,000
450,000
450,000
390,000
Industrial Machinery (5.22%)
Colfax Corp.1
IDEX Corp.
The Middleby Corp.1
Pall Corp.
Research & Consulting
Services (5.34%)
1,275,000 Nielsen N.V.2
1,350,000 Verisk Analytics, Inc., Cl A1
Trading Companies &
Distributors (1.92%)
1,175,000 Fastenal Co.
545,000 MRC Global, Inc.1
Total Industrials
$
19,376,285 $
32,880,129
23,539,575
25,331,030
101,127,019
31,314,364
34,838,770
66,153,134
30,308,550
34,123,500
46,192,500
39,152,100
149,776,650
56,826,750
96,390,000
153,216,750
Cost
Wireless Telecommunication
Services (3.00%)
735,000 SBA Communications Corp., Cl A1 $
Value
21,480,602 $
86,068,500
Utilities (1.21%)
Renewable Electricity (1.21%)
333,334 TerraForm Power, Inc., Cl A3
616,980 TerraForm Power, Inc., Cl A
Total Utilities
TOTAL COMMON STOCKS
10,000,020
17,861,480
27,861,500
1,152,630,525
12,120,024
22,525,940
34,645,964
2,829,239,006
0
6,209,476
22,984,895
$1,175,615,420
22,984,895
2,858,433,377
Private Equity Investments (0.22%)
21,409,224
11,990,000
33,399,224
320,735,539
48,686,125
6,458,250
55,144,375
551,427,750
Financials (0.22%)
14,771,000
27,948,821
43,250,976
12,486,735
35,161,545
133,619,077
48,504,500
81,192,000
49,190,350
17,862,750
39,062,100
235,811,700
Principal Amount
21,892,482
90,552,000
Asset Management & Custody
Banks (0.22%)
7,056,223 Windy City Investments
Holdings, L.L.C.1,3,4
Information Technology (21.48%)
550,000
510,000
935,000
425,000
627,000
Application Software (8.22%)
ANSYS, Inc.1
Guidewire Software, Inc.1
Mobileye N.V.1,2
SS&C Technologies Holdings, Inc.
Data Processing & Outsourced
Services (3.16%)
600,000 FleetCor Technologies, Inc.1
800,000
155,000
226,197
600,000
Internet Software &
Services (4.13%)
HomeAway, Inc.1
LinkedIn Corp., Cl A1
Shutterstock, Inc.1
Verisign, Inc.1
IT Consulting & Other
Services (5.97%)
158,659 Equinix, Inc.4
1,600,000 Gartner, Inc.1
Total Information Technology
19,792,142
8,240,401
14,348,414
27,498,020
69,878,977
24,136,000
38,728,300
15,532,948
40,182,000
118,579,248
11,589,780
34,958,418
46,548,198
271,938,734
36,943,748
134,160,000
171,103,748
616,046,696
Short Term Investments (0.80%)
$22,984,895 Repurchase Agreement with
Fixed Income Clearing Corp.,
dated 3/31/2015, 0.00%
due 4/1/2015; Proceeds at
maturity - $22,984,895;
(Fully collateralized by
$23,420,000 U.S. Treasury
Note, 1.75% due 3/31/2022;
Market value - $23,449,275)
TOTAL INVESTMENTS (99.65%)
CASH AND OTHER ASSETS LESS
LIABILITIES (0.35%)
NET ASSETS
9,936,696
$2,868,370,073
RETAIL SHARES (Equivalent to $65.95
per share based on 31,753,258
shares outstanding)
$2,094,000,274
INSTITUTIONAL SHARES (Equivalent to
$67.27 per share based on 11,510,989
shares outstanding)
$ 774,369,799
%
1
Materials (0.65%)
Industrial Gases (0.65%)
175,000 Airgas, Inc.
2
3
11,449,835
18,569,250
4
82
Represents percentage of net assets.
Non-income producing securities.
Foreign corporation.
At March 31, 2015, the market value of restricted and fair valued securities
amounted to $18,329,500 or 0.64% of net assets. $12,120,024 or 0.42% of
net assets are deemed liquid.
The Adviser has reclassified/classified certain securities in or out of this subindustry. Such reclassifications/classifications are not supported by S&P or
MSCI.
Baron Funds
Baron Growth Fund — PORTFOLIO HOLDINGS
Shares
Cost
Value
Shares
Consumer Staples (continued)
3,850,000 Under Armour, Inc., Cl A1
2,290,237 United Natural Foods, Inc.1
$
750,000 Penske Automotive Group, Inc.
3,870,620 Penn National Gaming, Inc.1
2,502,267 Pinnacle Entertainment, Inc.1
2,000,000 LKQ Corp.1
Education Services (2.04%)
2,257,170 Bright Horizons Family
Solutions, Inc.1
2,350,000 Nord Anglia Education, Inc.1,2
3,007,500
271,739
Lines (4.69%)
Choice Hotels International, Inc.4
Diamond Resorts
International, Inc.1
Interval Leisure Group, Inc.
Marriott Vacations
Worldwide Corp.
30,351,345 $
310,887,500
13,032,059
38,617,500
33,038,240
39,163,343
60,613,909
90,306,816
72,201,583
150,920,725
11,441,173
51,120,000
135,535,661
93,213,297
16,618,824
59,870,980
17,908,000
213,541,616
15,542,103
19,384,713
92,031,907
250,834,329
16,294,480
15,317,200
Movies & Entertainment (1.04%)
5,422,299 Manchester United plc, Cl A1,2
76,721,822
86,268,777
Publishing (1.06%)
1,175,000 Morningstar, Inc.
25,213,450
88,019,250
15,602,751
71,997,750
9,427,096
67,565,602
9,118,454
227,960,000
76,992,698
237,078,454
889,508,894
1,951,848,217
Leisure Products (0.19%)
800,000 BRP, Inc. (Canada)1,2
Restaurants (0.87%)
450,000 Panera Bread Co., Cl A1
478,659 The Container Store Group, Inc.1
4,000,000 Dick’s Sporting Goods, Inc.
Brewers (0.65%)
201,400 The Boston Beer Co., Inc., Cl A1
29,104,380
53,854,360
Drug Retail (0.38%)
924,763 Diplomat Pharmacy, Inc.1
27,474,161
31,978,305
8,771,720
9,849,594
27,340,827
128,130,000
153,036,000
9,112,260
28,589,400
6,459,994
29,779,650
Energy (1.75%)
192,690,525
388,456,329
176,439,858
553,288,117
Oil & Gas Storage &
900,000 Targa Resources Corp.
204,937,314
98,857,949 $
85,049,691
169,117,106
117,522,500
Value
276,598,728
119,152,651
78,402,845
925,000 ClubCorp Holdings, Inc.
2,064,800 Vail Resorts, Inc.4
1,358,700 Whistler Blackcomb
Holdings, Inc. (Canada)2
Packaged Foods & Meats (1.85%)
1,800,000 TreeHouse Foods, Inc.1
Services (0.36%)
9,084,235
69,159,069
34,300,000 AO World plc
(United Kingdom)1,2,4
Household Products (1.55%)
1,500,000 Church & Dwight Co., Inc.
115,725,106
53,392,000
3,804,346
49,668,667
2,638,652
1,450,000
Food Retail (0.12%)
559,636 Smart & Final Stores, Inc.1
74,787,601
44,365,050
73,061,456
$
Cost
24,720,322
86,211,000
40,292,576
144,580,050
46,651,360
57,433,262
66,477,436
64,458,848
56,910,000
89,066,250
96,326,877
73,883,874
235,020,906
316,187,001
13,782,555
30,815,360
Hotel & Resort REITs (0.77%)
1,650,000 LaSalle Hotel Properties
38,657,293
64,119,000
Life & Health
Insurance (1.66%)
2,700,000 Primerica, Inc.4
65,591,464
137,430,000
135,000 Alexander’s, Inc.5
3,400,000 Douglas Emmett, Inc.
28,435,048
42,596,064
61,638,300
101,354,000
71,031,112
162,992,300
38,581,866
243,320,000
Residential REITs (0.31%)
600,000 American Campus
Communities, Inc.
15,009,212
25,722,000
Specialized Finance (1.59%)
2,150,000 MSCI, Inc.
42,521,078
131,816,500
29,095,131
75,981,000
89,454,329
128,900,248
Total Energy
Financials (15.91%)
2,100,000
2,175,000
2,302,818
1,430,195
Asset Management &
The Carlyle Group
Cohen & Steers, Inc.
Oaktree Capital Group, LLC
Diversified REITs (0.37%)
712,000 American Assets Trust, Inc.
Property & Casualty
Insurance (2.94%)
Specialized REITs (2.48%)
775,000 Alexandria Real Estate
Equities, Inc.5
3,496,074 Gaming and Leisure
Properties, Inc.
Total Financials
118,549,460
204,881,248
638,744,946
1,317,283,409
83
Baron Funds
Baron Growth Fund — PORTFOLIO HOLDINGS (Continued)
Shares
Cost
Value
Shares
Cost
Health Care (9.31%)
Industrials (continued)
575,000 Acadia Pharmaceuticals, Inc.1
525,000 Foundation Medicine, Inc.1
$
300,000 Edwards Lifesciences Corp.1
275,000 Brookdale Senior Living, Inc.1
3,250,000 Community Health
Systems, Inc.1
Health Care Services (0.10%)
170,000 IPC Healthcare, Inc. (formerly,
IPC The Hospitalist Co., Inc.)1
365,038 Neogen Corp.1
1,077,686 West Pharmaceutical
Services, Inc.
200,000 Inovalon Holdings, Inc., CI A1
Services (3.25%)
880,943 Bio-Techne Corporation
550,000 Mettler-Toledo International, Inc.1
Total Health Care
18,739,250
25,257,750
40,074,902
43,997,000
4,002,410
28,558,026
42,738,000
139,032,000
32,560,436
181,770,000
5,469,421
10,384,000
59,187,483
169,910,000
Total Industrials
64,656,904
180,294,000
3,899,438
7,928,800
8,075,677
17,058,226
37,684,652
64,887,474
45,760,329
81,945,700
6,102,922
6,042,000
46,631,249
27,486,940
88,349,773
180,757,500
74,118,189
269,107,273
267,173,120
771,084,773
Building Products (3.54%)
1,725,000 CaesarStone Sdot Yam Ltd.1,2
1,448,500 Masonite International Corp.1,2
1,670,000 Trex Company, Inc.1,4
Construction &
Engineering (0.48%)
1,850,000 Badger Daylighting Ltd. (Canada)2
Diversified Support
Services (1.23%)
2,700,000 Copart, Inc.1
84
31,551,799
80,959,738
62,696,594
104,724,750
97,426,110
91,065,100
175,208,131
293,215,960
58,732,816
39,496,269
32,090,834
$
Trading Companies &
2,000,000 Air Lease Corp.
485,000 MSC Industrial Direct
Co., Inc., Cl A
Trucking (0.38%)
475,000 Landstar System, Inc.
2,000,000
1,850,000
800,000
1,600,000
1,173,796
2,309,838
3,087,713
ANSYS, Inc.1
Bottomline Technologies (de), Inc.1
Pegasystems, Inc.
SS&C Technologies
Holdings, Inc.
Services (2.42%)
3,000,000 MAXIMUS, Inc.
Electronic Equipment &
Instruments (0.60%)
650,000 FEI Company
Internet Software &
Services (3.70%)
2,309,223 Benefitfocus, Inc.1,4
999,653 CoStar Group, Inc.1
341,096 Shutterstock, Inc.1
Services (4.19%)
3,800,000 Booz Allen Hamilton
Holding Corp.
10,136,469 $
28,440,000
47,523,423
75,480,000
17,282,737
35,017,000
64,806,160
110,497,000
11,073,375
31,492,500
557,574,518
1,353,287,979
27,793,289
44,326,673
21,533,616
80,624,740
37,834,851
34,773,982
88,220,000
163,151,500
21,896,000
254,720,000
61,753,408
50,238,976
52,369,848
192,364,520
299,256,999
832,344,404
57,528,621
200,280,000
24,367,636
49,621,000
86,028,591
44,116,616
22,641,080
84,956,314
197,761,353
23,423,063
152,786,287
306,140,730
48,057,122
45,240,023
109,972,000
236,876,250
93,297,145
346,848,250
627,236,688
1,735,234,384
45,709,971
72,761,273
101,439,000
Electrical Components &
Equipment (1.65%)
2,800,000 Generac Holdings, Inc.1
13,836,546
136,332,000
2,275,000 Colfax Corp.1
2,550,000 The Middleby Corp.1
400,000 Valmont Industries, Inc.
52,423,266
74,456,718
32,589,034
108,585,750
261,757,500
49,152,000
159,469,018
419,495,250
32,221,169
192,880,000
Railroads (2.33%)
2,000,000 Genesee & Wyoming, Inc., Cl A1
Services (0.34%)
250,000 IHS, Inc., Cl A1
14,591,763 $
25,483,139
Value
Alternative Carriers (0.88%)
7,493,437 Iridium Communications, Inc.1,4
Utilities (2.97%)
Electric Utilities (2.97%)
6,575,000 ITC Holdings Corp.
TOTAL COMMON STOCKS
67,008,983
246,102,250
3,409,848,424
8,145,470,452
Baron Funds
Baron Growth Fund — PORTFOLIO HOLDINGS (Continued)
Shares
Cost
Value
Principal Amount
Cost
Value
Preferred Stocks (0.18%)
dated 3/31/2015, 0.00%
maturity - $111,009,043;
$113,090,000 U.S. Treasury
Note, 1.75% due 3/31/2022;
Market value - $113,231,363) $ 111,009,043 $ 111,009,043
41,074 Iridium Communications,
$
Inc., Series B, 6.75%4
10,268,500 $
14,603,861
Financials (0.03%)
Asset Management &
LIABILITIES (0.06%)
0
2,090,153
Rights (0.00%)
Materials (0.00%)
Fertilizers & Agricultural
Chemicals (0.00%)
393,349 Agrinos AS (Mexico)
Exp 7/15/20151,2,3
0
41,504
$3,531,125,967
8,273,215,013
5,215,649
NET ASSETS
$8,278,430,662
RETAIL SHARES (Equivalent to $75.65 per
share based on 55,771,481
shares outstanding)
$4,219,164,112
shares outstanding)
$4,059,266,550
%
1
2
3
4
5
amounted to $2,131,657 or 0.03% of net assets. None of these securities are
deemed liquid.
An “Affiliated” investment may include any company in which the Fund owns
5% or more of its outstanding shares.
MSCI.
85
Baron Funds
Baron Small Cap Fund — PORTFOLIO HOLDINGS
Shares
Cost
Value
Shares
Energy (6.27%)
Advertising (0.14%)
500,000 National CineMedia, Inc.
$
425,000 Fossil Group, Inc.1
2,000,000 Iconix Brand Group, Inc.1
1,800,000 Tumi Holdings, Inc.1
450,000 Monro Muffler Brake, Inc.
Broadcasting (1.12%)
400,000 Liberty Media Corp., Cl A1
1,200,000 Liberty Media Corp., Cl C1
Cable & Satellite (0.46%)
150,000 Liberty Broadband Corp., Cl A1
300,000 Liberty Broadband Corp., Cl C1
3,000,000 Penn National Gaming, Inc.1
Education Services (3.28%)
2,347,847 Bright Horizons Family
Solutions, Inc.1
2,625,300 Nord Anglia Education, Inc.1,2
Home Improvement
Retail (0.22%)
400,000 Lumber Liquidators
Holdings, Inc.1
Homefurnishing Retail (1.77%)
1,400,000 Mattress Firm Holding Corp.1
1,000,000 The Madison Square
Garden Co., Cl A1
3,750,000 SFX Entertainment, Inc.1
Restaurants (2.69%)
950,000 BJ’s Restaurants, Inc.1
1,100,000 The Cheesecake Factory, Inc.
2,250,000 Del Frisco’s Restaurant
Group, Inc.1,4
1,826,978 The Container Store Group, Inc.1
4,676,259 $
7,550,000
8,545,247
29,279,689
35,164,871
35,041,250
67,340,000
44,028,000
72,989,807
146,409,250
23,776,386
29,272,500
1,166,055
3,543,461
15,420,000
45,840,000
4,709,516
61,260,000
621,054
1,184,602
8,472,000
16,980,000
1,805,656
25,452,000
17,926,778
46,980,000
80,059,684
45,918,256
120,374,116
59,646,816
125,977,940
180,020,932
7,633,393
35,360,733
12,312,000
97,496,000
25,000,417
26,066,093
84,650,000
15,337,500
51,066,510
99,987,500
34,185,457
22,660,571
47,927,500
54,263,000
46,652,836
45,337,500
103,498,864
147,528,000
56,982,232
34,803,931
506,404,074
889,072,113
Food Retail (0.15%)
1,250,000 Fairway Group Holdings Corp.1
86
$
Value
9,239,508 $
26,122,500
15,934,618
15,680,000
25,174,126
41,802,500
17,592,985
13,563,000
14,299,024
10,628,771
20,465,744
19,469,513
42,287,906
17,965,719
28,748,548
17,041,593
16,614,000
20,755,000
18,208,000
49,469,000
47,100,000
71,842,500
43,560,000
21,772,500
170,906,818
289,321,000
213,673,929
344,686,500
28,955,338
48,440,910
34,095,000
89,934,500
77,396,248
124,029,500
21,068,223
28,316,573
42,287,500
48,575,000
49,384,796
90,862,500
Brokerage (0.69%)
1,250,000 Moelis & Co., Cl A
35,022,101
37,650,000
250,000 SL Green Realty Corp.
5,347,806
32,095,000
5,154,322
42,581,000
54,474,530
101,392,500
Production (0.25%)
550,000 Bonanza Creek Energy, Inc.1
600,000
500,000
800,000
700,000
5,000,000
750,000
900,000
750,000
Oil & Gas Storage &
Columbia Pipeline Partners LP1
Dominion Midstream Partners, L.P.
PBF Logistics LP
Phillips 66 Partners LP
Scorpio Tankers Inc.2
Valero Energy Partners LP
Western Refining Logistics, LP
Total Energy
Financials (8.44%)
Asset Management &
750,000 Artisan Partners Asset
Management, Inc., Cl A
2,150,000 Financial Engines, Inc.
1,250,000 Chesapeake Lodging Trust
1,250,000 LaSalle Hotel Properties
2,750,000 Gaming and Leisure
Properties, Inc.
Thrifts & Mortgage
Finance (0.64%)
1,480,950 Essent Group, Ltd.1,2
Total Financials
30,375,123
35,409,514
257,154,926
464,020,014
16,694,355
24,504,440
25,067,500
42,675,000
41,198,795
67,742,500
29,626,774
17,100,776
21,699,129
33,250,000
77,925,000
103,644,031
68,426,679
214,819,031
Drug Retail (0.54%)
850,000 Diplomat Pharmacy, Inc.1
2,093,960 The Chefs’ Warehouse, Inc.1,4
1,450,000 United Natural Foods, Inc.1
Services (0.76%)
800,000 Forum Energy
Technologies, Inc.1
Cost
25,099,444
29,393,000
33,488,530
62,683,145
46,967,523
111,708,000
96,171,675
158,675,523
16,404,046
8,462,500
137,675,165
196,531,023
250,000 Auspex Pharmaceuticals, Inc.1
750,000 Cepheid1
Health Care Equipment
(3.91%)
700,000 Cantel Medical Corp.
1,250,000 DexCom, Inc.1
Baron Funds
Baron Small Cap Fund — PORTFOLIO HOLDINGS (Continued)
Shares
Cost
Value
Shares
Health Care (continued)
3,497,500 Brookdale Senior Living, Inc.1
$
600,000 ExamWorks Group, Inc.1
600,000 The Spectranetics Corporation1
1,350,000
675,372
250,000
965,200
Services (4.14%)
ICON plc1,2
INC Research Holdings, Inc., Cl A1
Mettler-Toledo International, Inc.1
PRA Health Sciences, Inc.1
65,756,572 $
22,136,386
20,955,560
132,065,600
24,972,000
95,215,500
22,104,925
82,162,500
27,836,368
88,171,838
227,319,293
Managed Health Care (0.59%)
1,304,271 HealthEquity, Inc.1
22,938,140
32,593,732
Pharmaceuticals (1.05%)
1,850,000 Catalent, Inc.1
45,616,818
57,627,500
375,200,788
777,995,656
Aerospace & Defense (5.25%)
2,400,000 DigitalGlobe, Inc.1
1,881,863 The KEYW Holding Corp.1,4
875,000 TransDigm Group, Inc.1
70,905,306
19,864,378
0
81,768,000
15,487,732
191,380,000
90,769,684
288,635,732
Diversified Support
Services (0.41%)
700,000 Healthcare Services Group, Inc.
21,356,511
22,491,000
Electrical Components &
Equipment (2.77%)
825,000 Acuity Brands, Inc.
350,000 Franklin Electric Co., Inc.
44,094,137
13,080,427
138,732,000
13,349,000
57,174,564
152,081,000
26,906,827
44,418,371
59,619,000
120,350,000
71,325,198
179,969,000
Environmental & Facilities
Services (3.28%)
1,050,000 Clean Harbors, Inc.1
2,500,000 Waste Connections, Inc.
Human Resource &
Employment Services (1.40%)
2,000,000 On Assignment, Inc.1
350,000
684,082
350,000
1,500,000
Graco, Inc.
Nordson Corp.
RBC Bearings, Inc.1
Rexnord Corp.1
Office Services &
Supplies (0.38%)
1,000,000 Interface, Inc.
Railroads (1.40%)
800,000 Genesee & Wyoming, Inc., Cl A1
Total Industrials
ACI Worldwide, Inc.1
$
The Ultimate Software
Group, Inc.1
Value
42,795,006 $
28,707,573
40,880,643
75,810,000
88,220,000
78,915,000
17,611,027
118,968,500
129,994,249
361,913,500
18,319,250
35,700,494
113,190,000
75,152,000
54,019,744
188,342,000
Electronic Components (0.44%)
1,250,000 Knowles Corp.1
34,587,744
24,087,500
Instruments (2.44%)
1,400,000 Cognex Corp.1
850,000 FEI Company
22,631,628
33,259,652
69,426,000
64,889,000
55,891,280
134,315,000
16,111,094
7,800,000
41,500,997
25,600,000
13,617,000
52,797,500
65,412,091
92,014,500
28,143,704
20,292,435
36,351,618
23,112,500
81,497,500
167,700,000
84,787,757
272,310,000
51,687,216
36,087,000
20,075,413
20,875,000
496,455,494
1,129,944,500
Commodity Chemicals (0.37%)
750,000 Westlake Chemical Partners LP
20,498,030
20,115,000
Construction Materials (0.50%)
1,250,000 Summit Materials, Inc., Cl A1
23,129,740
27,687,500
54,964,615
85,140,000
75,853,854
162,855,000
20,856,000
43,388,030
12,681,467
14,245,818
17,856,523
Total Health Care
3,500,000
2,000,000
1,500,000
700,000
Cost
Data Processing &
Outsourced Services (3.43%)
750,000 FleetCor Technologies, Inc.1
700,000 WEX Inc.1
Internet Software &
Services (1.67%)
500,000 comScore, Inc.1
300,000 GrubHub, Inc.1
1,750,000 HomeAway, Inc.1
Services (4.96%)
1,250,000 Acxiom Corp.1
350,000 Equinix, Inc. 5
Systems Software (0.66%)
2,300,000 Rally Software
Development Corp.1,4
Technology Hardware, Storage
& Peripherals (0.38%)
500,000 Electronics For Imaging, Inc.1
Materials (7.04%)
50,117,846
76,740,000
7,828,497
20,666,134
22,431,698
26,737,428
25,256,000
53,590,984
26,789,000
40,035,000
77,663,757
145,670,984
13,433,618
20,780,000
21,723,581
77,152,000
403,564,759
963,519,716
Diversified Metals &
Mining (1.55%)
4,500,000 Globe Specialty Metals, Inc.4
Metal & Glass
Containers (2.96%)
4,500,000 Berry Plastics Group, Inc.1
87
Baron Funds
Baron Small Cap Fund — PORTFOLIO HOLDINGS (Continued)
Shares
Cost
Value
Principal Amount
Steel (0.12%)
300,000 SunCoke Energy Partners LP
Total Materials
43,328,996 $
33,165,000
32,710,834
51,320,000
76,039,830
84,485,000
6,563,612
6,387,000
257,049,681
386,669,500
Services (4.35%)
148,323,290 Sarana Menara Nusantara
Tbk PT (Indonesia)1,2
1,650,000 SBA Communications Corp., Cl A1
Total Telecommunication Services
30,976,387
7,557,006
38,533,393
45,603,031
193,215,000
238,818,031
Utilities (0.67%)
675,000 ITC Holdings Corp.
350,000 Abengoa Yield plc 2
Total Utilities
TOTAL COMMON STOCKS
dated 3/31/2015, 0.00%
maturity - $75,316,477;
Note, 1.75% due 3/31/2022;
Market value - $76,825,913) $
9,427,959
25,265,250
10,150,000
11,823,000
19,577,959
37,088,250
2,705,290,168
5,428,345,303
LIABILITIES LESS CASH AND
OTHER ASSETS (-0.17%)
88
0
0
75,316,477
5,503,661,780
(9,571,677)
$5,494,090,103
share based on 92,425,497 shares
outstanding)
$3,252,356,054
shares outstanding)
$2,241,734,049
%
1
2
Warrants (0.00%)
75,316,477 $
$2,780,606,645
NET ASSETS
3
4
5
Internet Software &
Services (0.00%)
6,818 Viggle, Inc. Warrants, Non-Callable
Exp 4/27/20151,3
Value
Materials (continued)
Specialty Chemicals (1.54%)
2,250,000 Flotek Industries, Inc.1
$
2,000,000 Platform Specialty
Products Corp.1
Cost
amounted to $0 or 0.00% of net assets. This security is not deemed liquid.
An “Affiliated” investment may include any company in which the Fund owns
5% or more of its outstanding shares.
MSCI.
Baron Funds
Baron Opportunity Fund — PORTFOLIO HOLDINGS
Shares
Cost
Value
Shares
Cost
Health Care (continued)
50,000 Under Armour, Inc., Cl A1
157,454 HealthEquity, Inc.1
$
1,253,818
Automobile Manufacturers (2.27%)
46,500 Tesla Motors Inc.1
9,832,821
8,777,805
4,128,942
10,894,609
56,500 Restoration Hardware
Holdings, Inc.1
17,900
1,433,560
184,000
20,500
5,676
Amazon.com, Inc.1
AO World plc (United Kingdom)1,2
Liberty TripAdvisor
Holdings, Inc., Cl A1
Netflix, Inc.1
The Priceline Group, Inc.1
513,740 Manchester United plc, Cl A1,2
$
4,037,500
3,345,648
5,604,235
5,744,617
6,653,971
6,660,590
3,895,827
5,635,805
5,810,107
908,996
5,849,360
8,542,145
6,607,715
24,753,496
31,555,637
8,574,757
8,173,603
51,889,482
69,043,389
Production (2.68%)
8,869,279
10,345,860
Oil & Gas Storage &
118,700 Golar LNG Ltd.2
3,885,338
3,950,336
12,754,617
14,296,196
Financials (0.89%)
Brokerage (0.89%)
112,500 The Charles Schwab Corp.
3,373,445
138,000 The Spectranetics Corporation1
450,000 Unilife Corp.1
44,500 athenahealth, Inc.1
62,000 Inovalon Holdings, Inc., CI A1
116,500 Medidata Solutions, Inc.1
Services (3.00%)
3,396,401
3,795,220
$
3,934,775
3,478,740
4,900,078
7,191,621
8,378,818
39,907,003
53,375,149
6,254,678
7,496,967
87,069 CaesarStone Sdot-Yam Ltd.1,2
2,013,981
5,285,959
49,200 The Middleby Corp.1
2,386,656
5,050,380
Total Health Care
2,994,372
3,053,257
1,941,132
2,772,800
5,229,110
1,972,510
7,988,761
9,974,420
3,957,532
1,715,674
4,796,880
1,804,500
5,673,206
6,601,380
6,074,243
1,716,596
5,750,177
5,312,855
1,873,020
5,713,160
13,541,016
12,899,035
2,610,825
220,046 DigitalGlobe, Inc.1
Services (2.99%)
161,800 Verisk Analytics, Inc., Cl A1
Total Industrials
11,586,721
7,642,449
11,552,520
18,297,764
29,385,826
3,705,083
11,033,689
3,593,317
5,921,361
5,080,472
10,648,943
19,255,260
3,530,520
6,480,570
5,317,830
29,333,922
45,233,123
3,954,156
3,830,681
4,146,720
4,079,680
7,784,837
8,226,400
7,034,916
13,755,816
4,087,879
8,126,822
4,819,149
3,888,165
3,957,496
7,315,368
4,448,809
6,988,497
11,118,453
13,452,440
9,824,692
5,633,403
5,872,603
5,546,892
11,295,666
5,704,112
120,750
366,000
84,000
97,000
63,000
ANSYS, Inc.1
Mobileye N.V.1,2
salesforce.com, Inc.1
Workday, Inc., Cl A1
Services (2.13%)
48,000 MasterCard, Inc., Cl A
38,000 WEX, Inc.1
3,424,500
16,000 Alexion Pharmaceuticals, Inc.1
91,900 Cepheid1
2,901,574
Industrials (7.60%)
Energy (3.70%)
Total Energy
111,000 Aerie Pharmaceuticals, Inc.1
55,150 Pacira Pharmaceuticals, Inc.1
$
Value
83,956
302,214
68,000
119,500
186,722
908,000
22,200
164,492
113,900
56,000
Internet Software &
Services (20.97%)
Alibaba Group Holding Ltd., ADR1,2
Benefitfocus, Inc.1
CoStar Group, Inc.1
Facebook Inc., Cl A1
HomeAway, Inc.1
JUST EAT plc (United Kingdom)1,2
Shutterstock, Inc.1
Twitter, Inc.1
Zillow Group, Inc., Cl A
(formerly, Zillow, Inc., Cl A)1
Services (8.56%)
351,000 Acxiom Corp.1
185,144 Gartner, Inc.1
Semiconductor Equipment
(1.99%)
321,000 SunEdison, Inc.1
4,642,221
5,616,800
62,076,641
81,053,558
5,576,885
1,337,269
2,841,915
6,489,990
11,068,292
15,524,324
9,756,069
33,082,606
6,243,317
7,704,000
89
Baron Funds
Baron Opportunity Fund — PORTFOLIO HOLDINGS (Continued)
Shares
Cost
Value
Principal Amount
128,500 FireEye, Inc.1
150,400 Red Hat, Inc.1
$
5,010,112
4,688,963
7,366,587
$
$981,506 Repurchase Agreement with
dated 3/31/2015, 0.00%
maturity - $981,506;
Note, 1.75% due 3/31/2022;
5,540,548
5,043,625
11,392,800
12,055,550
16,436,425
132,260,448
197,276,660
6,917,811
3,825,030
Services (2.52%)
83,300 SBA Communications Corp., Cl A1
555,914
9,754,430
Utilities (1.29%)
Total Utilities
TOTAL COMMON STOCKS
CASH AND OTHER
ASSETS LESS LIABILITIES (0.05%)
Materials (0.99%)
259,500 Flotek Industries, Inc.1
1,160,706
2,994,990
1,350,870
3,629,928
4,155,696
4,980,798
270,112,180
385,361,978
$
981,506
$271,093,686
$
981,506
386,343,484
198,438
NET ASSETS
$386,541,922
outstanding)
$280,701,726
shares outstanding)
$105,840,196
%
1
2
3
4
ADR
90
Value
Information Technology (continued)
Semiconductors (1.44%)
122,200 Mellanox Technologies Ltd.1,2
Cost
amounted to $3,629,928 or 0.94% of net assets. This security is deemed liquid.
MSCI.
American Depositary Receipt.
Baron Funds
Baron Partners Fund — PORTFOLIO HOLDINGS
Shares
Cost
Value
Shares
Apparel, Accessories & Luxury
Goods (0.10%)
25,000 Under Armour, Inc., Cl A1
$
1,909,317 $
2,018,750
Automobile Manufacturers
(7.70%)
177,823,619
155,735,250
2,000,000 CarMax, Inc.1
69,489,756
138,020,000
Lines (7.66%)
2,500,000 Hyatt Hotels Corp., Cl A1
129,208 Norwegian Cruise Line
Holdings Ltd.1,2
925,800 Vail Resorts, Inc.
5,374,321 Manchester United plc, Cl A1,2
2,100,000 Dick’s Sporting Goods, Inc.
67,148,542
775,000 FactSet Research Systems, Inc.
722,490 Mobileye N.V.1,2
Internet Software &
Services (12.74%)
1,100,000 CoStar Group, Inc.1
400,000 Zillow Group, Inc., Cl A (formerly,
Zillow, Inc., Cl A)1
148,050,000
4,338,221
6,978,524
71,486,763
155,028,524
27,801,851
95,746,236
91,547,645
85,505,447
58,896,964
119,679,000
498,955,915
751,733,207
Services (2.69%)
649,000 Gartner, Inc.1
89,375,354
90,663,050
Brokerage (5.71%)
3,800,000 The Charles Schwab Corp.
49,157,674
115,672,000
33,071,317
150,920,000
2,200,000 Gaming and Leisure Properties, Inc.
71,909,656
81,114,000
243,514,001
438,369,050
Health Care (9.72%)
2,475,000 Inovalon Holdings, Inc., CI A1
Services (2.02%)
Total Health Care
45,812,786
71,448,142
81,102,000
74,769,750
11,979,764
40,840,800
129,240,692
196,712,550
21,507,177
28,401,921
276,687 The Middleby Corp.1
Services (5.29%)
1,500,000 Verisk Analytics, Inc., Cl A1
Trading Companies &
2,750,000 Air Lease Corp.
1,800,000 Fastenal Co.
Total Industrials
50,806,618 $
24,708,483
123,380,000
30,366,255
75,515,101
153,746,255
112,737,432
217,613,000
42,142,149
40,120,000
154,879,581
257,733,000
41,264,138
54,418,650
271,658,820
465,897,905
4,000,000 ITC Holdings Corp.
TOTAL COMMON STOCKS
40,461,269
149,720,000
1,365,915,857
2,316,302,633
1,832,926
6,669,634
196,659
$1,367,945,442
196,659
2,323,168,926
Financials (0.33%)
Asset Management &
Principal Amount
Property & Casualty
Insurance (7.46%)
Total Financials
$
Value
Utilities (7.40%)
Financials (21.66%)
Asset Management &
3,345,500 The Carlyle Group
Cost
dated 3/31/2015, 0.00%
maturity - $196,659;
$205,000 U.S. Treasury
Note, 1.75% due 3/31/2022;
Market value - $205,256)
NET ASSETS
(299,629,613)
$2,023,539,313
per share based on 33,825,372 shares
outstanding)
$1,274,482,774
shares outstanding)
$ 749,056,539
%
1
2
40,826,578
107,100,000
88,234,844
31,516,561
103,785,000
74,583,000
119,751,405
178,368,000
182,085,160
313,869,921
3
4
amounted to $6,669,634 or 0.33% of net assets. This security is not deemed
liquid.
The Adviser has reclassified/classified certain securities in or out of this subindustry. Such reclassifications/classifications are not supported by S&P or MSCI.
91
Baron Funds
Baron Fifth Avenue Growth Fund — PORTFOLIO HOLDINGS
Shares
Cost
Value
Shares
Cost
Industrials (3.24%)
Broadcasting (0.86%)
30,882 Liberty Media Corp., Cl C1
Cable & Satellite (0.48%)
3,860 Liberty Broadband Corp., Cl A1
7,720 Liberty Broadband Corp., Cl C1
30,677 Las Vegas Sands Corp.
29,201 Amazon.com, Inc.1
25,618 Ctrip.com International Ltd., ADR1,2
4,337 The Priceline Group, Inc.1
Restaurants (5.30%)
51,782 Starbucks Corp.
30,502 YUM! Brands, Inc.
$
418,090 $
1,179,692
73,264
139,744
218,013
436,952
213,008
654,965
Oil & Gas Storage &
41,776 Shell Midstream Partners, L.P.
Total Energy
Specialized Finance (2.01%)
29,240 CME Group, Inc.
Total Financials
Life Sciences Tools & Services (5.76%)
Total Health Care
92
1,630,676
2,074,568
3,023,517
4,468,324
4,318,726
4,605,731
32,569 Mobileye N.V.1,2
1,088,173
1,368,875
7,658,239
1,230,150
2,941,040
10,865,692
1,501,727
5,048,919
Services (7.55%)
65,205 MasterCard, Inc., Cl A
72,920 Visa, Inc., Cl A
3,418,562
1,816,915
5,633,060
4,769,697
11,829,429
17,416,338
5,235,477
10,402,757
3,152,385
1,761,594
4,903,755
2,401,118
4,913,979
7,304,873
21,693,232
31,161,599
5,117,019
2,333,912
1,256,798
2,508,471
693,965
3,872,406
4,879,945
7,511,409
2,784,039
4,017,388
1,715,539
5,447,853
15,782,571
26,356,173
835,362
1,764,614
Services (2.43%)
1,696,794
3,341,630
Semiconductor Equipment (2.14%)
29,187 ASML Holding N.V.2
1,960,743
2,948,763
3,733,353
2,166,568
2,459,713
4,400,318
3,233,919
2,151,040
8,359,634
9,785,277
2,328,143
2,411,020
960,848
1,629,264
3,288,991
4,040,284
2,641,495
4,107,866
58,625
91,363
5,019
7,331
6,866
108,783
Internet Software &
Services (19.14%)
Alibaba Group Holding Ltd., ADR1,2
Google, Inc., Cl A1
Google, Inc., Cl C1
Twitter, Inc.1
112,110 FireEye, Inc.1
42,692 Red Hat, Inc.1
26,229 VMware, Inc., Cl A1
Technology Hardware, Storage &
Peripherals (5.02%)
55,573 Apple, Inc.
1,498,740
2,769,321
4,140,235
6,877,187
Materials (2.01%)
17,020 Alexion Pharmaceuticals, Inc.1
6,985 Biogen, Inc. (formerly, Biogen Idec, Inc.)1
5,616 Regeneron Pharmaceuticals, Inc.1
2,393,756
1,688,462
2,917,269
Financials (4.99%)
Diversified Real Estate Activities (2.98%)
76,625 Brookfield Asset Management, Inc., Cl A2
$ 1,392,841 $
1,573,315
2,745,411
Energy (2.93%)
Production (1.75%)
Trading Companies &
50,068 Fastenal Co.
Total Industrials
Hypermarkets & Super
Centers (1.28%)
11,648 Costco Wholesale Corp.
Services (1.74%)
Value
2,740,373
2,103,571
1,686,704
2,949,566
2,949,346
2,535,512
6,530,648
8,434,424
1,663,348
7,925,343
8,193,996
16,359,767
Fertilizers & Agricultural
Chemicals (2.01%)
24,552 Monsanto Co.
2,186,665
6,914,948
36,310,057
61,118,423
1,879,080
2,763,082
2,955,677
2,211,531
Services (1.61%)
38,000 SoftBank Corp. (Japan)2
TOTAL COMMON STOCKS
82,320,147 130,764,811
Baron Funds
Baron Fifth Avenue Growth Fund — PORTFOLIO HOLDINGS (Continued)
Principal Amount
Cost
Value
dated 3/31/2015, 0.00%
maturity - $7,454,601;
Note, 1.75% due 3/31/2022;
$ 7,454,601 $
$89,774,748 138,219,412
7,454,601
(500,023)
NET ASSETS
$137,719,389
outstanding)
$ 70,370,178
shares outstanding)
$ 67,349,211
%
1
2
3
ADR
The Adviser has reclassified/classified certain securities in or out of this subindustry. Such reclassifications/classifications are not supported by S&P or MSCI.
93
Baron Funds
Baron Focused Growth Fund — PORTFOLIO HOLDINGS
Shares
Cost
Value
Shares
Information Technology (continued)
Internet Software &
Services (11.01%)
225,000 Benefitfocus, Inc.1
70,000 CoStar Group, Inc.1
Automobile Manufacturers (7.70%)
$ 19,145,973 $ 15,479,140
Hotels, Resorts &
Cruise Lines (11.85%)
150,000 Choice Hotels International, Inc.
240,000 Hyatt Hotels Corp., Cl A1
136,230 Vail Resorts, Inc.
550,000 Manchester United plc, Cl A1,2
145,000 Dick’s Sporting Goods, Inc.
4,242,382
10,351,500
5,080,139
7,807,007
9,610,500
14,212,800
12,887,146
23,823,300
8,272,836
14,088,906
8,719,506
3,839,505
8,263,550
57,107,348
80,756,896
1,274,171
1,800,056
6,160,000
15,160,573
21,572,000
5,406,710
7,285,200
100,000 Colfax Corp.1
2,610,782
4,773,000
Total Industrials
2,481,307
7,715,200
Total Utilities
22,300 Iridium Communications Inc.,
Series B, 6.75%
4,273,076
7,486,000
766,334
2,499,990
912,750
3,029,988
3,266,324
3,942,738
7,539,400
11,428,738
128,695,749
191,982,315
5,814,082
7,928,765
788,918
788,918
$135,298,749
200,699,998
Fixed Income Clearing Corp., dated
3/31/2015, 0.00% due 4/1/2015;
Proceeds at maturity - $788,918;
(Fully collateralized by $805,000
U.S. Treasury Note, 1.75% due
3/31/2022; Market value - $806,006)
LIABILITIES (0.19%)
376,118
$201,076,116
6,069,000
RETAIL SHARES (Equivalent to $14.69 per share
based on 3,174,993 shares outstanding)
$ 46,639,226
3,138,161
4,972,200
INSTITUTIONAL SHARES (Equivalent to $14.87
shares outstanding)
$154,436,890
16,042,687
30,814,600
2,405,727
%
94
3,713,850
NET ASSETS
1
75,000 FactSet Research Systems, Inc.
101,870 Guidewire Software, Inc.1
2,176,188
Principal Amount
Trading Companies &
120,000 Fastenal Co.
39,425,231
15,412,000
Services (3.02%)
22,125,850
29,395,382
13,360,517
Railroads (3.84%)
80,000 Genesee & Wyoming, Inc., Cl A1
18,750,409
4,271,000
7,046,000
8,366,000
Total Financials
Industrial Gases (1.85%)
35,000 Airgas, Inc.
TOTAL COMMON STOCKS
6,556,081
6,804,436
Property & Casualty
Insurance (3.06%)
100,000 Arch Capital Group Ltd.1,2
5,980,202 $ 8,277,750
12,770,207
13,848,100
Materials (1.85%)
8,750,500
Financials (10.73%)
Asset Management &
260,000 The Carlyle Group
200,000 Financial Engines, Inc.
$
Value
Utilities (5.68%)
Household Products (2.12%)
50,000 Church & Dwight Co., Inc.
Cost
2
5,828,282
4,816,691
11,940,000
5,359,381
10,644,973
17,299,381
3
amounted to $3,029,988 or 1.51% of net assets. This security is deemed liquid.
All securities are Level 1, unless otherwise noted.
Baron Funds
Baron International Growth Fund — PORTFOLIO HOLDINGS
Shares
Cost
Value
Total Australia
Cetip SA - Mercados Organizados
GAEC Educação SA
GOL Linhas Aéreas Inteligentes SA, ADR1
Smiles SA
TOTVS SA
Total Brazil
647,331 $
1,019,935
655,434
2,128,074
1,667,266
2,783,508
390,623
784,373
343,263
127,530
486,258
974,040
350,789
327,724
171,629
209,569
632,921
1,063,590
Total Canada
3,106,087
2,756,222
1,744,606
1,246,942
1,633,185
3,318,065
780,388
1,345,500
40,000
180,000
7,700
50,000
43,000
125,000
135,000
55,800
25,000
430,400
4,624,733
5,443,953
Total Japan
1,082,325
1,178,909
742,452
1,082,120
1,218,035
1,158,643
621,454
627,457
1,101,101
368,377
1,430,420
557,400
1,162,700
1,424,997
5,722,075
8,034,315
803,359
1,061,193
2,022,143
2,463,957
1,864,552
4,486,100
1,627,034
1,457,555
1,169,002
259,399
1,870,958
1,182,652
958,117
1,918,591
1,877,064
1,166,044
902,806
2,111,535
2,111,048
2,340,906
8,524,717
12,427,994
1,079,640
374,656
949,239
541,961
1,454,296
1,491,200
802,945
261,197
793,336
238,716
872,063
380,330
1,368,694
222,687
1,019,572
304,451
1,115,634
409,568
Total United States
3,348,587
4,440,606
TOTAL COMMON STOCKS
1,064,961
260,297
899,297
1,279,744
384,321
1,305,412
Warrants (0.03%)
2,224,555
2,969,477
China (7.59%)
13,000
1,900,000
475,771
3,401,700
Alibaba Group Holding Ltd., ADR1
China Telecom Corp. Ltd., Cl H
Haitong Securities Co., Ltd., Cl H
Kingdee International Software
Group Co. Ltd.1
30,000 Perfect World Co. Ltd., ADR
35,000 TAL Education Group, ADR1
75,000 Tencent Holdings Ltd.
Total China
Total France
Germany (11.74%)
32,000
60,000
14,000
50,307
42,966
150,100
37,000
Brenntag AG
Deutsche Post AG
Fresenius Medical Care AG & Co.
PATRIZIA Immobilien AG1
ProSiebenSat.1 Media AG
RIB Software AG
Symrise AG
Total Germany
Hong Kong (1.41%)
340,700 Luk Fook Holdings International Ltd.
249,800 Wynn Macau Ltd.
Total Hong Kong
Axis Bank Ltd.
DEN Networks Ltd.1
Dish TV India Ltd.1
Hathway Cable and Datacom Ltd.1
Larsen & Toubro Ltd.
Zee Entertainment Enterprises Ltd.
Total India
54,000 Azimut Holding SpA
2,950,920
2,901,760
4,716,787
5,852,680
1,277,478
1,542,748
984,974
1,498,068
715,566
1,142,215
1,001,454
1,532,855
1,807,893
1,664,590
894,735
1,840,637
1,606,203
1,419,769
1,685,288
1,471,422
1,563,180
1,643,599
2,384,604
1,495,785
1,454,955
1,778,157
13,082,987
16,502,962
1,761,204
1,397,760
1,288,445
1,740,259
1,573,524
488,751
1,067,201
1,709,293
1,082,730
1,192,127
3,129,476
3,984,150
91,755
1,399,262
567,792
418,975
2,010,359
786,596
2,058,809
3,215,930
1,384,254
1,062,838
1,094,425
1,688,526
1,633,319
623,019
1,062,155
463,691
1,403,535
733,732
913,132
1,591,434
1,461,987
722,166
1,028,293
2,128,197
1,959,815
1,073,709
1,359,736
763,340
2,074,348
695,344
371,300
1,516,332
13,654,060
15,154,567
833,457
1,149,524
749,250
1,408,545
1,848,000
843,750
2,732,231
4,100,295
Japan (15.58%)
Bridgestone Corp.
Daiwa Securities Group, Inc.
FANUC Corp.
Mitsui Fudosan Co. Ltd.
MonotaRO Co. Ltd.
Panasonic Corp.
Rakuten, Inc.
Sanrio Co. Ltd.
SoftBank Corp.
Sumitomo Mitsui Trust Holdings, Inc.
Norway (1.32%)
42,000 Golar LNG Ltd.
South Africa (1.64%)
277,622 Steinhoff International Holdings Ltd.
Spain (3.76%)
17,000 Aena SA, 144A1
33,000 Grifols SA, ADR
37,105 Inditex SA
Switzerland (3.04%)
5,200 Compagnie Financiére Richemont SA
40,067 Julius Baer Group Ltd.
11,600 Syngenta AG, ADR
Total Switzerland
United Kingdom (14.31%)
203,000
265,738
40,000
185,000
70,200
64,800
115,300
20,600
320,728
75,000
190,200
275,600
Abcam plc
AO World plc1
Burberry Group plc
Domino’s Pizza Group plc
easyJet plc
Experian plc
Inchcape plc
Intertek Group plc
JUST EAT plc1
Lancashire Holdings Ltd.
Premier Oil plc
William Hill plc
Total United Kingdom
India (4.19%)
152,900
115,700
778,598
388,835
40,600
75,000
Total Israel
Total Spain
France (4.24%)
7,500 Eurofins Scientific SE
22,400 Ingenico SA
36,000 Check Point Software Technologies Ltd.1 $ 2,051,140 $
64,000 Mellanox Technologies Ltd.1
2,665,647
Italy (1.46%)
Canada (5.14%)
9,600 Constellation Software, Inc.
35,000 Crescent Point Energy Corp.
46,000 Suncor Energy, Inc.
Value
Israel (5.53%)
$
Brazil (2.60%)
35,151
68,722
70,629
65,000
40,000
93,000
Cost
Australia (2.63%)
74,700 Brambles Ltd.
75,169 Domino’s Pizza Enterprises Ltd.
Shares
United States (3.87%)
33,900 Agilent Technologies, Inc.
30,000 Arch Capital Group Ltd.1
75,000 Nomad Holdings Ltd.1
77,224,451 100,127,516
Indonesia (2.80%)
849,373 Matahari Department Store Tbk PT
1,250,000 Sarana Menara Nusantara Tbk PT1
1,801,400 Tower Bersama Infrastructure Tbk PT
Total Indonesia
Ireland (1.70%)
27,000 Ryanair Holdings plc, ADR
986,106
75,000 Nomad Holdings Ltd.
Warrants Exp 4/10/20171
750
30,750
1,802,790
95
Baron Funds
Baron International Growth Fund — PORTFOLIO HOLDINGS (Continued)
Principal Amount
Cost
Value
$6,287,836
Repurchase Agreement with
Fixed Income Clearing Corp., dated
3/31/2015, 0.00% due 4/1/2015;
Proceeds at maturity - $6,287,836;
(Fully collateralized by $6,410,000
U.S. Treasury Note, 1.75%
due 3/31/2022 Market
value - $6,418,013)
$ 6,287,836 $ 6,287,836
$83,513,037
106,446,102
(553,389)
NET ASSETS
$105,892,713
shares outstanding)
$ 51,693,794
outstanding)
$ 54,198,919
%
1
ADR
144A
96
Summary of Investments by
Sector as of March 31, 2015
Consumer Discretionary
Information Technology
Industrials
Financials
Health Care
Telecommunication Services
Energy
Materials
Unclassified
Cash and Cash Equivalents*
27.0%
20.2
15.4
13.7
6.7
4.1
3.7
3.0
0.8
5.4
100.0%
*
Security is exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers. This security has been
deemed liquid pursuant to policies and procedures approved by the Board of
Trustees, unless otherwise noted. At March 31, 2015, the market value of
Rule 144A securities amounted to $1,709,293 or 1.61% of net assets.
Percentage of
Net Assets
Includes short term investments.
Baron Funds
Baron Real Estate Fund — PORTFOLIO HOLDINGS
Shares
Cost
Value
Shares
Financials (continued)
426,000 Las Vegas Sands Corp.
2,706,550 MGM Resorts International1
$
25,185,331 $
56,682,241
34,434,745
23,447,040
56,918,747
28,801,344
116,302,317
109,167,131
Home Furnishings (3.00%)
307,307 Mohawk Industries, Inc.1
40,464,123
57,082,275
Home Improvement
Retail (4.54%)
471,007 Home Depot, Inc.
442,700 Lowe’s Companies, Inc.
38,028,564
18,595,706
53,511,105
32,932,453
56,624,270
86,443,558
3,773,387
44,499,463
5,291,584
50,563,702
48,272,850
55,855,286
30,130,661
62,190,299
47,904,434
2,598,112
56,250,989
70,990,432
62,139,901
4,404,176
37,846,448
59,354,560
23,357,109
38,868,395
32,239,350
56,860,395
242,895,458
342,239,803
504,559,018
650,788,053
Homebuilding (2.94%)
185,800 D.R. Horton, Inc.
1,285,300 Toll Brothers, Inc.1
1,682,650
2,396,706
1,049,306
54,339
1,098,955
386,100
628,500
Lines (17.98%)
Diamond Resorts International, Inc.1
Hilton Worldwide Holdings, Inc.1
Hyatt Hotels Corp., Cl A1
Marriott Vacations Worldwide Corp.
Norwegian Cruise Line
Holdings Ltd.1,2
Starwood Hotels & Resorts
Worldwide, Inc.
Wyndham Worldwide Corp.
Financials (37.14%)
Diversified Real Estate
Activities (1.95%)
693,900 Brookfield Asset
Management, Inc., Cl A2
213,150 LaSalle Hotel Properties
2,165,850 Strategic Hotels & Resorts, Inc.1
1,661,407 Sunstone Hotel Investors, Inc.
Industrial REITs (1.11%)
482,850 Prologis, Inc.
166,250
951,610
190,600
199,300
Boston Properties, Inc.
Douglas Emmett, Inc.
SL Green Realty Corp.
Vornado Realty Trust
Real Estate Development (2.35%)
288,800 The Howard Hughes Corp.1
Real Estate Operating
Companies (5.73%)
1,582,130 Forest City Enterprises, Inc., Cl A1
17,390,085 Global Logistic Properties Ltd.
(Singapore)2
2,149,514 Kennedy Wilson Europe Real
Estate plc (United Kingdom)2,3
327,130 Jones Lang LaSalle, Inc.
1,273,717 Kennedy-Wilson Holdings, Inc.
Retail REITs (3.15%)
888,400 General Growth Properties, Inc.
172,200 Simon Property Group, Inc.
253,650 Alexandria Real Estate Equities, Inc.3
419,735 American Tower Corp.
Total Financials
3,873,200 Brookdale Senior Living, Inc.1
2,321,863 Capital Senior Living Corp.1,4
Total Health Care
2,810,116 Builders FirstSource, Inc.1
524,569 Masonite International Corp.1,2
5,761,709
19,009,527
20,483,391
8,283,009
26,921,515
27,695,655
45,254,627
62,900,179
20,291,690
21,032,946
21,661,133
23,582,211
19,212,569
16,739,442
23,354,800
28,367,494
24,469,228
22,321,600
81,195,355
98,513,122
38,503,260
44,769,776
Services (2.95%)
Services (3.88%)
57,211,650 Sarana Menara Nusantara Tbk
PT (Indonesia)1,2
269,800 SBA Communications Corp., Cl A1
34,047,909 Tower Bersama Infrastructure Tbk
PT (Indonesia)2
Total Telecommunication Services
1,157,872 Brookfield Infrastructure
Partners L.P.2
TOTAL COMMON STOCKS
36,608,515
35,042,594
101,725,937
108,998,707
68,507,023
55,742,952
33,294,962
95,983,847
157,544,937
18,819,707
19,892,550
6,891,636
22,002,342
20,683,475
8,723,894
45,603,893
51,409,711
24,601,460
27,227,683
26,252,220
33,689,208
51,829,143
59,941,428
18,623,442
37,082,222
24,867,846
39,518,050
55,705,664
64,385,896
566,623,306
706,696,681
104,024,285
50,866,135
146,252,032
60,229,126
154,890,420
206,481,158
18,787,408
16,302,007
31,039,673
18,743,474
32,546,631
35,282,511
66,129,088
86,572,616
47,357,121
56,121,274
15,144,114
21,583,639
17,590,121
31,593,580
17,742,224
24,673,341
54,469,977
73,857,042
47,725,789
11,965,190
52,729,491
14,646,359
59,690,979
67,375,850
1,453,719,909
1,847,892,674
Utilities (3.54%)
Total Utilities
33,580,155
44,090,289 $
30,634,723
21,258,835
Industrials (4.55%)
37,199,979
32,887,006
Value
30,529,890
40,375,958
$
Residential REITs (2.70%)
513,234 American Campus Communities, Inc.
118,700 AvalonBay Communities, Inc.
246,577 Education Realty Trust, Inc.
Total Industrials
32,230,416
Cost
97
Baron Funds
Baron Real Estate Fund — PORTFOLIO HOLDINGS (Continued)
Principal Amount
Cost
Value
dated 3/31/2015, 0.00%
maturity - $63,446,195; (Fully
collateralized by $64,635,000
U.S. Treasury Note, 1.75%
due 3/31/2022; Market
value - $64,715,794)
$
63,446,195 $
$1,517,166,104
63,446,195
1,911,338,869
(8,428,672)
NET ASSETS
$1,902,910,197
outstanding)
$ 897,814,764
outstanding)
$1,005,095,433
% Represents percentage of net assets.
1
2
3
The Adviser has reclassified/classified certain securities in or out of this sub-industry.
Such reclassifications/classifications are not supported by S&P or MSCI.
4
An “Affiliated” investment may include any company in which the Fund owns 5%
or more of its outstanding shares.
98
Baron Funds
Baron Emerging Markets Fund — PORTFOLIO HOLDINGS
Shares
Cost
Value
Total Brazil
15,979,887
5,487,402
14,320,468
4,668,972
8,591,358
12,152,922
8,919,765
18,172,971
18,732,036
6,487,969
3,868,967
6,438,251
8,094,186
7,734,163
19,009,792
13,733,094
116,984,417
86,833,711
6,427,045
4,562,500
22,119,322
18,068,979
22,467,822
20,810,000
21,154,057
22,798,656
37,000,000
8,750,000
175,300
16,001,000
45,000,000
700,000
19,000,000
3,000,000
15,000,600
7,750,000
675,515
1,300,000
341,500
China Mengniu Dairy Co. Ltd.
China Mobile Ltd.
China Petroleum &
Chemical Corp., Cl H
China Telecom Corp. Ltd., Cl H
China Unicom (Hong Kong) Ltd.
Ctrip.com International Ltd., ADR1
Haitong Securities Co., Ltd., Cl H
Kingdee International Software
Group Co. Ltd.1
Perfect World Co. Ltd., ADR
PetroChina Co. Ltd.
Shenzhou International Group
Holdings Ltd.
Sihuan Pharmaceutical Holdings
Group Ltd.
Sinopharm Group Co. Ltd., Cl H
TAL Education Group, ADR1
Tencent Holdings Ltd.
WuXi PharmaTech
(Cayman), Inc., ADR1
5,066,425
22,992,830
13,832,432
9,918,517
26,345,205
3,979,285
23,719,631
13,318,027
10,276,086
38,967,176
14,212,410
14,372,043
22,864,375
18,922,562
13,006,000
21,003,141
12,464,836
13,582,452
7,125,260
28,153,792
19,128,643
18,822,063
8,571,606
31,589,199
22,440,608
24,699,941
11,966,087
13,243,370
Total China
289,921,041
322,081,797
14,890,081
14,110,195
12,537,648
15,855,869
10,131,318
16,410,408
5,217,161
9,220,718
55,542,002
42,831,396
9,036,921
16,612,631
19,363,119
10,244,650
17,612,734
15,589,921
17,849,884
12,790,694
5,093,897
18,023,628
15,219,579
2,451,645
14,319,858
13,865,745
13,606,246
10,202,626
19,328,291
26,836,786
19,136,243
7,222,773
24,075,095
21,397,583
18,461,999
12,876,121
4,517,807
21,083,015
27,620,661
2,468,551
15,888,944
15,532,927
26,863,136
12,854,961
Total Taiwan, Province of China
211,883,778
276,164,893
20,062,000 SHUAA Capital psc1
Hong Kong (2.80%)
4,500,000 Luk Fook Holdings International Ltd.
16,500,000 Man Wah Holdings Ltd.
3,097,000 Melco International
Development Ltd.
4,250,000 Wynn Macau Ltd.
Total Hong Kong
India (18.04%)
1,452,000
2,998,000
3,300,000
3,752,679
18,384,985
750,000
6,500,000
1,025,000
5,770,000
767,250
860,653
300,000
1,500,000
2,200,000
1,451,000
2,354,000
Total India
Amara Raja Batteries Ltd.
Axis Bank Ltd.
Coal India Ltd.
DEN Networks Ltd.1
Dish TV India Ltd.1
Divi’s Laboratories Ltd.
Exide Industries Ltd.
Glenmark Pharmaceuticals Ltd.
Hathway Cable and Datacom Ltd.1
Larsen & Toubro Ltd.
Lupin Ltd.
Motherson Sumi Systems Ltd.
PVR Ltd.
Sun TV Network Ltd.
Torrent Pharmaceuticals Ltd.
Zee Entertainment Enterprises Ltd.
18,092,000 Bank Rakyat Indonesia (Persero)
Tbk PT
$
14,503,527 Matahari Department Store Tbk PT
1
27,631,350 Sarana Menara Nusantara Tbk PT
32,000,000 Tower Bersama Infrastructure Tbk PT
Total Indonesia
13,773,011 $
18,369,371
8,841,958
17,821,369
18,368,742
21,852,350
8,495,451
23,189,293
58,805,709
71,905,836
24,627,879
15,615,931
15,399,690
13,158,587
38,932,247
24,484,201
9,002,101
17,552,391
13,646,401
12,145,658
16,676,732
38,965,253
20,918,473
9,069,809
141,220,636
128,974,717
26,190,109
12,772,477
26,647,500
13,150,424
16,848,388
10,868,952
16,385,092
12,459,436
66,679,926
68,642,452
16,956,415
12,940,581
13,459,244
12,228,100
21,106,096
16,604,027
13,506,712
21,093,333
55,584,340
72,310,168
22,006,341
20,275,282
20,394,931
20,078,756
14,734,233
15,215,019
4,232,961
20,090,511
23,830,225
20,192,263
16,077,789
15,291,986
4,084,800
28,521,436
94,746,411
107,998,499
15,166,373
16,438,958
20,457,136
23,631,753
19,497,473
19,628,303
16,588,329
17,708,322
22,925,072
17,833,174
15,915,569
23,370,086
14,888,143
19,415,149
Korea, Republic of (8.43%)
85,000
400,000
275,000
22,000
30,000
240,000
250,000
CJ O Shopping Co., Ltd.
Grand Korea Leisure Co., Ltd.
i-SENS, Inc.1
LG Household & Health Care Ltd.
Samsung Electronics Co., Ltd.
Samsung Life Insurance Co. Ltd.
WeMade Entertainment Co., Ltd.1
Total Korea, Republic of
China (21.04%)
250,000
4,000,000
1,750,000
5,000,000
Value
Indonesia (4.70%)
18,775,021 $
12,650,904
Chile (0.30%)
250,000 Sociedad Química y
Minera de Chile SA, ADR
Cost
Brazil (5.67%)
1,601,275 Cetip SA - Mercados Organizados $
1,150,678 GAEC Educação SA
2,669,946 GOL Linhas Aéreas
Inteligentes SA, ADR1
1,200,000 Kroton Educacional SA
440,000 Linx SA
300,000 M. Dias Branco SA
754,400 Multiplus SA
1,201,400 Smiles SA
1,200,818 TOTVS SA
Shares
Mexico (4.48%)
285,000 Fomento Económico
Mexicano, S.A.B. de C.V., ADR1
6,500,000 Grupo Lala S.A.B. de C.V.
3,000,000 Infraestructura Energetica
Nova S.A.B. de C.V.
5,000,000 Wal-Mart de Mexico S.A.B. de C.V.
Total Mexico
Philippines (4.72%)
24,505,000
6,000,000
125,000,000
4,172,000
Ayala Land, Inc.
BDO Unibank, Inc.
Metro Pacific Investments Corp.
Universal Robina Corp.
Total Philippines
Singapore (1.32%)
10,499,918 Global Logistic Properties Ltd.
752,700
745,138
750,000
450,000
120,000
4,550,000
Aspen Pharmacare Holdings Ltd.
Bidvest Group Ltd.
Mr Price Group Ltd.
Sasol Ltd.
Sasol Ltd., ADR
Total South Africa
Taiwan, Province of China (10.23%)
1,250,000 Eclat Textile Co. Ltd.
9,501,000 Far EasTone
Telecommunications Co., Ltd.
1,550,000 Ginko International Co., Ltd.
2,151,180 HIWIN Technologies Corp.
3,250,000 Makalot Industrial Co. Ltd.
1,100,000 MediaTek Inc.
3,750,000 Novatek Microelectronics Corp.
1,100,000 Taiwan Semiconductor
Manufacturing Co. Ltd., ADR
21,971,996
25,828,000
154,649,685
156,614,151
629,574
15,031,542
8,506,867
570,067
14,747,526
7,744,315
24,167,983
23,061,908
6,684,893
3,315,537
Thailand (1.51%)
100,000 Bangkok Bank PCL, Cl F
2,601,000 Bangkok Bank Public Co., Ltd., NVDR
15,000,000 L.P.N. Development PCL, Cl F
Total Thailand
United Arab Emirates (0.22%)
8,637,363 Lekoil Ltd.1
TOTAL COMMON STOCKS
7,340,352
3,010,976
1,312,644,559
1,388,583,823
99
Baron Funds
Baron Emerging Markets Fund — PORTFOLIO HOLDINGS (Continued)
Shares
Cost
Value
India (0.03%)
30,983,400 Zee Entertainment Enterprises Ltd.,
6% due 3/5/2022
$
367,971 $
405,974
Principal Amount
Convertible Bonds (0.40%)
China (0.40%)
$50,000,000 Biostime International
Holdings Ltd.,
0.00% due 2/20/20191
6,590,207
6,070,505
205,541,394 Repurchase Agreement with
dated 3/31/2015, 0.00%
maturity - $205,541,394;
$209,395,000 U.S. Treasury
Note, 1.75% due 3/31/2022;
Market value - $209,656,744)
205,541,394
205,541,394
$1,525,144,131
1,600,601,696
(70,042,283)
NET ASSETS
$1,530,559,413
RETAIL SHARES (Equivalent to $11.86 per share
based on 63,863,305 shares outstanding)
$ 757,469,115
outstanding)
$ 773,090,298
%
NVDR Non-Voting Depositary Receipt.
1
ADR
100
Percentage of
Net Assets
23.8%
14.3
13.4
12.8
8.2
7.5
5.4
4.3
1.1
0.3
8.9
100.0%
*
Summary of Investments by Sector
as of March 31, 2015
Financials
Health Care
Consumer Staples
Industrials
Energy
Utilities
Materials
Cash and Cash Equivalents*
Includes short term investments.
Baron Funds
Baron Energy and Resources Fund — PORTFOLIO HOLDINGS
Shares
Cost
Value
Shares
Energy (77.44%)
Industrials (2.21%)
100,200
9,150
73,142
58,296
16,931
20,490
90,457
55,400
18,839
17,100
57,925
95,348
66,200
29,299
14,968
51,736
157,200
1,095,600
84,100
30,749
72,438
179,200
72,900
53,048
12,958
Services (12.21%)
C&J Energy Services Ltd.1,2
Core Laboratories N.V.2
Forum Energy Technologies, Inc.1
Halliburton Co.
Oil States International, Inc.1
RigNet, Inc.1
Superior Energy Services, Inc.
Tesco Corp.2
Production (36.40%)
Anadarko Petroleum Corporation
Antero Resources Corp.1
Atlas Energy Group LLC1
Bonanza Creek Energy, Inc.1
Cabot Oil & Gas Corp.
Concho Resources, Inc.1
EOG Resources, Inc.
Gulfport Energy Corp.1
Laredo Petroleum, Inc.1
Lekoil Ltd. (United Kingdom)1,2
Newfield Exploration Co.1
Noble Energy, Inc.
Oasis Petroleum, Inc.1
Parsley Energy, Inc., Cl A1
RSP Permian, Inc.1
SM Energy Co.
Whiting Petroleum Corp.1
Oil & Gas Refining &
Marketing (1.69%)
13,478 Marathon Petroleum Corp.
52,875
29,311
26,300
30,735
3,800
15,240
17,142
127,004
25,600
34,961
40,540
25,763
11,728
17,500
12,376
9,537
54,839
Oil & Gas Storage &
Dominion Midstream Partners, L.P.
Energy Transfer Equity LP
Golar LNG Ltd.2
PBF Logistics LP
Phillips 66 Partners LP
Rose Rock Midstream, L.P.
Scorpio Tankers Inc.2
SemGroup Corp., Cl A
Shell Midstream Partners, L.P.
Tesoro Logistics LP
Valero Energy Partners LP
Western Gas Equity Partners LP
Western Gas Partners, LP
Western Refining Logistics, LP
Total Energy
Construction & Engineering (0.75%)
35,702 Primoris Services Corp.
$ 1,381,757 $ 1,214,777
1,316,650
1,369,946
2,020,408
3,041,850
910,773
777,504
2,352,962
968,310
1,115,226
956,084
1,433,583
2,558,029
673,346
585,809
2,020,809
629,898
12,758,403
9,972,784
Cost
$
11,500 Flowserve Corp.
Trading Companies &
45,400 MRC Global, Inc.1
Total Industrials
Value
767,414 $
613,717
809,342
649,635
1,120,221
537,990
2,696,977
1,801,342
2,190,895
2,601,600
1,018,269
1,630,290
1,007,116
1,588,602
2,648,559
2,595,718
1,180,213
1,392,512
2,976,834
2,064,367
6,805,606
6,052,597
1,303,724
1,306,458
1,440,650
1,679,825
Semiconductor Equipment (3.19%)
108,400 SunEdison, Inc.1
Materials (7.41%)
1,698,643
803,246
688,547
3,534,997
2,158,528
3,100,774
1,331,462
2,832,442
1,746,912
829,128
2,490,309
1,706,406
2,456,516
3,241,121
1,666,802
3,086,160
685,862
1,560,058
603,972
348,129
2,351,282
1,954,886
3,396,340
1,372,416
2,375,200
2,049,888
381,925
2,951,069
1,503,626
1,030,068
2,863,616
1,836,351
2,741,521
400,402
34,057,855
29,720,749
1,136,125
1,380,012
18,800 Methanex Corp.2
Diversified Metals & Mining (1.70%)
73,600 Globe Specialty Metals, Inc.
Total Materials
Utilities (3.82%)
42,648 Abengoa Yield plc2
Total Utilities
TOTAL COMMON STOCKS
2,610,182
3,120,475
80,575,586
76,812,737
Principal Amount
1,343,642
674,762
1,502,177
1,089,834
87,400
604,969
626,997
1,168,004
1,887,973
871,238
1,020,336
2,301,321
625,785
578,051
525,536
577,625
1,452,136
1,464,109
1,216,699
1,666,368
1,022,861
86,488
1,077,011
814,245
1,196,378
2,082,304
1,363,479
2,050,108
2,467,838
630,966
847,000
742,560
628,011
1,591,976
16,937,786
20,948,401
66,271,926
63,236,723
dated 3/31/2015, 0.00%
maturity - $5,094,440;
Note, 1.75% due 3/31/2022;
5,094,440
5,094,440
$85,670,026
81,907,177
(250,121)
NET ASSETS
$81,657,056
share based on 4,245,617 shares outstanding)
$44,599,025
per share based on 3,498,784 shares outstanding)
$37,058,031
%
1
2
101
Baron Funds
Baron Global Advantage Fund — PORTFOLIO HOLDINGS
Shares
Cost
Value
Shares
18,367 Cetip SA - Mercados Organizados
12,663 Smiles SA
Total Brazil
$
196,454
202,747
$
183,293
200,367
6,784
1,327
1,424
4,151
4,399
3,379
2,886
4,702
636
1,710
3,830
1,596
197
2,867
16,788
3,735
1,501
6,507
8,477
6,143
2,056 Brookfield Asset
Management, Inc., Cl A
604 Constellation Software, Inc.
Total Canada
Total China
207,391
318,984
292,688
143,994
73,573
79,379
119,563
282,433
216,111
89,689
196,762
174,372
709,197
959,367
85,163
95,316
49,160
62,630
84,144
139,808
69,613
66,012
359,577
NET ASSETS
$ 8,343,888
share based on 274,733 shares
outstanding)
$ 4,000,827
$14.64 per share based on 296,595
shares outstanding)
$ 4,343,061
292,269
Indonesia (7.10%)
PT1
1,116,770 Sarana Menara Nusantara Tbk
343,836 Tower Bersama Infrastructure Tbk PT
Total Indonesia
321,392
157,981
343,359
249,166
479,373
592,525
Israel (6.04%)
1,424 Check Point Software
Technologies Ltd.1
6,843 Mellanox Technologies Ltd.1
1,825 Mobileye N.V.1
Total Israel
116,725
310,262
76,705
426,742
503,692
203,364
154,574
91,106
134,131
113,321
57,023
167,226
180,386
192,456
157,488
113,571
263,150
113,659
394,764
376,721
508,423
Netherlands (1.61%)
1,316 ASML Holding N.V.
Norway (0.68%)
4,853 Seadrill Partners, LLC
1,170 Naspers Ltd., Class N
Spain (1.89%)
4,800 Grifols SA, ADR
6,934 ARM Holdings plc
61,037 JUST EAT plc1
Total United Kingdom
102
CASH AND OTHER ASSETS
LESS LIABILITIES (0.26%)
%
97,496
271,326
57,920
Japan (1.85%)
2,656 SoftBank Corp.
125,436
41,588
529,870
24,948
161,839
153,880
79,913
386,575
348,528
317,444
187,823
141,805
229,338
111,813
402,912
188,879
143,781
237,571
33,993
164,755
110,222
208,762
Total United States
Total India
$
67,930
139,461
India (4.31%)
Axis Bank Ltd.
ICICI Bank Limited, ADR
Just Dial Ltd.
MakeMyTrip, Limited1
139,334
41,382
420,699
50,949
117,819
151,109
74,568
126,568
322,674
74,766
172,852
124,433
167,416
65,941
292,762
84,294
147,954
178,527
37,136
164,852
383,660
China (11.50%)
Baidu, Inc., ADR1
Ctrip.com International Ltd., ADR1
Qunar Cayman Islands Ltd., ADR1
TAL Education Group, ADR1
Acxiom Corp.1
$
Aerie Pharmaceuticals, Inc.1
1
Amazon.com, Inc.
Atlas Energy Group LLC1
Benefitfocus, Inc.1
Google, Inc., Cl C1
Illumina, Inc.1
Medidata Solutions, Inc.1
Pacira Pharmaceuticals, Inc.1
The Priceline Group, Inc.1
Shell Midstream Partners, L.P.
SunEdison, Inc.1
TerraForm Power, Inc., Cl A
Unilife Corp.1
Westlake Chemical Partners LP
399,201
Canada (3.82%)
9,400
13,495
3,291
3,006
Value
Brazil (4.60%)
3,393
1,037
1,530
4,770
5,249
Cost
1
ADR
2,956,035
4,012,691
$6,614,402
8,322,521
21,367
Summary of Investments by Sector
as of March 31, 2015
Health Care
Energy
Financials
Utilities
Materials
Cash and Cash Equivalents
Percentage of
Net Assets
40.1%
20.0
10.5
8.9
7.3
6.2
4.7
2.0
0.3
100.0%
Baron Funds
Baron Discovery Fund — PORTFOLIO HOLDINGS
Shares
Cost
Value
Shares
Cost
Apparel Retail (1.53%)
60,000 Boot Barn Holdings, Inc.1
20,000 Tumi Holdings, Inc.1
$ 1,083,124
$
1,435,200
413,266
489,200
53,000 Pinnacle Entertainment, Inc.1
1,164,999
1,912,770
23,000 Mattress Firm Holding Corp.1
1,401,053
1,601,720
58,000 ClubCorp Holdings, Inc.
1,054,741
1,122,880
1,821,452
455,699
1,574,514
552,003
1,915,050
463,450
2,135,000
765,670
4,403,668
5,279,170
544,153
476,250
1,113,020
1,190,970
11,178,024
13,508,160
85,000
23,000
35,000
23,000
Restaurants (5.61%)
Chuy’s Holdings, Inc.1
Del Frisco’s Restaurant Group, Inc.1
Fiesta Restaurant Group, Inc.1
Zoe’s Kitchen, Inc.1
25,000 The Container Store Group, Inc.1
Textiles (1.27%)
33,000 Unifi, Inc.1
24,500 Esperion Therapeutics, Inc.1
300,000
1,071,158
336,000
951,150
1,371,158
1,287,150
Energy (1.66%)
Production (0.48%)
75,000 Atlas Energy Group LLC1
Oil & Gas Storage &
23,000 Valero Energy Partners LP
Total Energy
682,756
450,750
1,171,705
1,113,200
1,854,461
1,563,950
Financials (8.50%)
Diversified REITs (0.83%)
18,000 American Assets Trust, Inc.
609,617
2,539,008
2,734,600
Industrial REITs (2.52%)
150,000 Rexford Industrial Realty, Inc.
2,376,373
2,371,500
Multi-Sector Holdings (2.25%)
150,000 Fidelity National
Financial, Inc. - FNFV Group1
Total Financials
2,115,000
7,753,348
8,000,140
2,268,700
3,901,721
1,246,158
751,430
2,098,544
935,424
1,997,588
3,033,968
35,000 AAC Holdings, Inc.1
525,000
1,070,300
372,500 BioScrip, Inc.1
66,000 ExamWorks Group, Inc.1
2,694,676
2,285,792
1,650,175
2,746,920
4,980,468
4,397,095
746,330
1,243,823
2,507,708
844,698
556,278
1,544,795
3,389,100
976,090
5,342,559
6,466,263
594,847
1,067,259
462,022
1,801,066
1,662,106
2,263,088
1,270,234
1,686,825
1,009,757
1,219,390
1,144,701
650,509
1,222,414
1,404,032
2,286,885
1,338,081
621,900
1,418,725
133,400
80,500
97,500
243,414
Cerus Corp.1
Sientra, Inc.1
The Spectranetics Corporation1
Unilife Corp.1
Services (2.41%)
12,500 Genfit (France)1,2
55,028 INC Research Holdings, Inc., Cl A1
67,500 HealthEquity, Inc.1
44,800
88,536
15,060
30,000
234,500
Aerie Pharmaceuticals, Inc.1
Intersect ENT, Inc.1
Pacira Pharmaceuticals, Inc.1
Revance Therapeutics, Inc.1
TherapeuticsMD, Inc.1
Total Health Care
5,246,771
7,069,623
23,330,150
32,157,583
2,399,264
1,688,348
2,930,020
1,278,275
4,087,612
4,208,295
2,204,573
452,773
2,428,400
463,505
2,657,346
2,891,905
1,279,981
1,291,620
8,024,939
8,391,820
Industrials (8.92%)
86,000 DigitalGlobe, Inc.1
155,319 The KEYW Holding Corp.1
8,500 Trex Company, Inc.1
51,500 NN, Inc.
2,228,350
$
6,170,421
779,040
220,000 Strategic Hotels & Resorts, Inc.1
464,977
1,840,447
2,305,424
65,600 Inogen, Inc.1
57,600 Novadaq Technologies, Inc.1,2
600,000 Barfresh Food Group, Inc.1,3
85,000 Inventure Foods, Inc.1
$
Value
Total Industrials
103
Baron Funds
Baron Discovery Fund — PORTFOLIO HOLDINGS (Continued)
Shares
Cost
Value
Shares
Warrants (0.07%)
Instruments (1.56%)
22,660 Coherent, Inc.1
Electronic Manufacturing
Services (1.45%)
88,000 Mercury Systems, Inc.1
304,300
35,500
70,000
33,000
425,000
Internet Software &
Services (10.14%)
Amber Road, Inc.1
Benefitfocus, Inc.1
Coupons.com, Inc.1
Envestnet, Inc.1
JUST EAT plc (United Kingdom)1,2
$ 1,400,255
1,486,080
$
Value
0
$
66,000
Principal Amount
3,171,872
1,098,113
1,003,227
1,465,000
2,003,559
2,814,775
1,306,045
821,800
1,850,640
2,748,740
8,741,771
9,542,000
dated 3/31/2015, 0.00%
maturity - $6,742,659;
Note, 1.75% due 3/31/2022;
6,742,659
6,742,659
$81,163,940
94,758,427
Semiconductors (1.29%)
32,500 MA-COM Technology Solutions
Holdings, Inc.1
1,106,051
1,210,950
52,100 Barracuda Networks, Inc.1
40,400 Qualys, Inc.1
72,700 Varonis Systems, Inc.1
1,372,006
953,913
1,643,264
2,004,287
1,877,792
1,865,482
NET ASSETS
$94,103,348
3,969,183
5,747,561
outstanding)
$23,630,837
16,703,340
19,340,905
outstanding)
$70,472,511
Materials (3.93%)
Total Materials
TOTAL COMMON STOCKS
104
300,000 Barfresh Food Group, Inc.
Warrants Exp 2/23/20203
$
1,471,994
1,368,400
Cost
2,313,255
2,226,060
%
1
1,892,606
1,474,000
4,205,861
3,700,060
74,421,281
87,949,768
2
3
(655,079)
amounted to $402,000 or 0.43% of net assets. These securities are not deemed
liquid.
Notes
105
Notes
106
Notes
107
Notes
108
Notes
109
Notes
110
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March 31

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