Dear Baron Global Advantage Fund Shareholder:
Baron Global Advantage Fund® (the Fund) declined 9.4% (Institutional Shares) during the first quarter, compared to the 1.3% decline for the MSCI ACWI Index (the Index), and the 6.8% decline for the MSCI ACWI Growth Index, the Fund’s benchmarks.
Table I. – Performance† – Annualized for periods ended March 31, 2025
| Baron Global Advantage Fund Retail Shares1,2 | Baron Global Advantage Fund Institutional Shares1,2 | MSCI ACWI Index1 | MSCI ACWI Growth Index1 | |
|---|---|---|---|---|
| Three Months3 | (9.46)% | (9.39)% | (1.32)% | (6.82)% |
| One Year | 10.29% | 10.58% | 7.15% | 5.70% |
| Three Years | (3.63)% | (3.38)% | 6.91% | 6.83% |
| Five Years | 6.16% | 6.42% | 15.18% | 15.36% |
| Ten Years | 9.42% | 9.68% | 8.84% | 10.62% |
| Since Inception(April 30, 2012) | 10.38% | 10.64% | 9.44% | 11.00% |
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Performance listed in the table above is net of annual operating expenses. The gross annual expense ratio for the Retail Shares and Institutional Shares as of April 26, 2024 was 1.21% and 0.95%, respectively, but the net annual expense ratio was 1.16% and 0.91% (net of the Adviser’s fee waivers, comprised of operating expenses of 1.15% and 0.90%, respectively, and interest expense of 0.01% and 0.01%, respectively), respectively. 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 waives and/or reimburses certain Fund expenses pursuant to a contract expiring on August 29, 2035, unless renewed for another 11-year term 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 BaronCapitalGroup.com or call 1-800-99-BARON. †The Fund’s historical performance was impacted by gains from IPOs and there is no guarantee that these results can be repeated or that the Fund’s level of participation in IPOs will be the same in the future. (1)The MSCI ACWI Index Net (USD) is designed to measure the equity market performance of large and midcap securities across 23 Developed Markets (DM) and 24 Emerging Markets (EM) countries. The MSCI ACWI Growth Index Net (USD) is designed to measure the equity market performance of large and mid cap securities exhibiting overall growth style characteristics across 23 DM countries and 24 EM countries. MSCI is the source and owner of the trademarks, service marks and copyrights related to the MSCI Indexes. The indexes and the Fund include reinvestment of dividends, net of foreign withholding taxes, which positively impact the performance results. The indexes are unmanaged. Index performance is not Fund performance. Investors cannot invest directly in an index. (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. (3)Not annualized. |
After two consecutive years of 25%-plus gains, we were off to an excellent start in 2025. On February 19, more than halfway through the first quarter, the Fund was up 10.4%, comfortably ahead of the Index, which was up 5.5%. Even with the benefit of hindsight, there was no way to know exactly when the music would stop, but stop it did because above all else, financial markets dislike uncertainty. It’s not like DOGE and tariffs were new. We, and more importantly, the current administration, have been talking about it for the past six months. On March 1, 2018, President Trump announced his intention to impose a 25% tariff on steel and a 10% tariff on aluminum imports. In a tweet the next day, Trump asserted, “Trade wars are good, and easy to win.” One week later, on March 8, he signed an order to impose the tariffs effective after 15 days. So, businesses and investors alike should have been well-prepared for what was to come, right? Except…
We see no benefit in litigating whether tariffs are a good or a bad idea, and we do not know how the trade war will end. The trade deficit problem and why it must be fixed was brilliantly articulated by Warren Buffett in a Fortune article penned in November 2003 titled: “America’s Growing Trade Deficit Is Selling the Nation Out From Under Us. Here’s a Way to Fix the Problem – And We Need to Do It Now.”1 (a highly recommended read, if you have time). Mr. Buffett proposed a clever and nuanced solution involving Import Certificates that would be implemented carefully and with ample notice to all trading partners so they could properly plan, prepare for, and adapt to it. Businesses and financial markets depend on stability and predictability, and changing the rules too abruptly or too drastically could cause disruption and result in significant negative economic consequences. Well… while we can debate the administration’s strategy, communication, and intent – stable and predictable, it is clearly not. This administration is a disruptive force. While things may or may not work out as they want and expect, in the meantime, it creates a lot of instability and chaos. And so, a broad market sell-off ensued.
The Fund is focused on investing in Big Ideas, which often trade and can be thought of as long duration assets. As such, we are often subject to significant stock price fluctuations, especially over the short term during extreme market volatility, while the intrinsic values of our businesses are far more stable. Nevertheless, it was a tough first quarter. From a performance attribution perspective, most of our underperformance (65%) was driven by sector allocation, where we were hurt by being overweight in Information Technology (IT), underweight in Financials, and having minimal exposure to Consumer Staples, Energy, Materials, Utilities, and Real Estate. The rest was poor stock selection in IT, Health Care, Industrials, and Financials, partially offset by favorable stock selection in Consumer Discretionary. From a stock-specific perspective, the anticipation of tariffs turned most of our winners into losers and we ended the quarter with just 8 contributors against 25 detractors. Bajaj Finance and MercadoLibre (MELI) contributed over 50bps each to absolute returns while 10 of our investments cost the Fund 50bps or more, with NVIDIA (NVDA) and Datadog (DDOG) accounting for 150bps and 101bps, respectively. The entirety of the Fund’s quarterly loss can be attributed to multiple contraction as opposed to a decline or even a slowdown in company fundamentals. This suggests that the market expectations have decidedly shifted towards higher inflation, lower growth, and higher probability of a global recession.
At this point, we would normally explain that we are not Macro investors and have neither the skill nor the ability to allocate capital based on a “Macro view.” We would then proceed to regurgitate the pillars of our investment process (long-term ownership mindset, competitively advantaged, well-managed, high-quality businesses), and every time we have done that – it got worse, before it got better. We have invested a considerable amount of time and brain power in doing the post-mortem and analyzing lessons learned in an effort to if not completely avoid then at least meaningfully reduce the impact of big, sudden drawdowns. Our conclusion is that there is no way around it or over it, but through it! Because of who we are (long-term owners of businesses) and because of what we do (invest for the long term) we simply have to go through the steps. With this realization comes a newfound contentment. This, too, shall pass! The real challenge is having the wherewithal, having the confidence, to admit, to say, it’s going to take a minute. We know that along the way, there will be great opportunities to come.
To be clear, this is NOT to suggest that we simply “let it ride.” We are constantly re-underwriting the key assumptions that form the investment thesis for every company that we own, stress-testing them against our entire range of possible outcomes. The goal is to reduce investments in businesses where our conviction level has lessened and increase investments where our conviction level has increased or remains the same while the stock price volatility has given us a renewed/attractive opportunity to add. Importantly, we refuse to give up long-term alpha for a chance to reduce short-term beta. The analysis is conducted entirely on a company-by-company basis.
Most of our decisions fall into one of three categories:
- Easy – there is no change in the business’ fundamentals, in the KPIs that really matter. The decline in the stock can be attributed entirely to multiple contraction due to minor changes in macro conditions and investor psychology. These decisions are easy because over the long term, stock prices will reflect the business’ intrinsic value, and if the former is unchanged, we can now get that same great business at a discount.
- Medium – there is clear impact on fundamentals, but we have high conviction that the impact is cyclical and hence temporary. If the slowdown is caused by macro and is industry-wide, as opposed to deteriorating competitive dynamics and company specifics, everyone’s fundamentals (revenues, earnings, cash flows) will decline. This is what is known as a cyclical downturn. Stocks can move violently during cyclical downturns because multiples contract at the same time as the fundamentals. These decisions are more difficult because timing trough multiples on trough earnings is notoriously tricky and being too early can be painful, but there is meaningful upside here when the cycle turns, and both multiples and fundamentals return to normalized/trendline levels.
- Hard – there is a negative impact on fundamentals but it’s not clear if it is cyclical or secular. Management teams will never admit a secular deterioration – it’s not very common to hear a CEO admit that the competition is beating us or that advancements in AI might put all of us out of business. What we would hear instead is – it’s the economy, the tariffs, or our favorite – the weather.
We have been pretty good at making decisions that fall into the first two categories. We have struggled with the third.
We believe our companies are well positioned to weather the storm, though like all businesses they will be impacted if the economy slows down or goes into recession.
- Our companies have limited or no direct exposure to the U.S. government.
- Most of our companies do not sell goods but instead provide critical services to their customers.
- Most of our non-U.S. companies sell to customers outside the U.S – hence we do not expect any direct impact from tariffs. Think MercadoLibre, the e-commerce and fintech platform in Latin America, or Coupang (CPNG), which does the same in South Korea.
- Even the remaining companies are not significant importers and should have limited direct exposure to tariffs.
- We own businesses that sell critical products or services to their customers that are not easily turned off or replaced. Shopify (SHOP) as an example, is the platform on which its merchants run their sales operations, or Cloudflare (NET) that modernizes their customers’ networks, run applications efficiently, securely and reliably and has a development platform (Workers) that is used by over 3 million developers.
- Many of our companies are platform businesses and leaders in their industries. These types of companies tend to become stronger during more challenging times, as customers consolidate their spending on the most important vendors to save costs.
- Most of our companies are asset light and have net cash positions. They do not need to access capital markets when they may not be available.
In the meantime, we continue to be all bulled up about AI. Once again, we spent the better part of a week attending NVIDIA’s developer conference in San Jose, California. Once again, we came out with greater conviction that AI is the biggest disruptive change we have seen in our careers. As models continue to move up and to the right on the intelligence curve, and down on the cost curve, new markets and opportunities open up. We attended a discussion with Noam Brown from OpenAI, who described the progress and opportunity: “The pace of progress has exceeded everyone’s expectations in the last 5 years… we need to look at the trajectory. Have very good reasons to be optimistic. Need to think about it as intelligence per token… the intelligence versus the cost curve… as even the most expensive models are much cheaper than humans… and the top human expert in a field is paid a lot.” Jensen Huang, NVIDIA’s founder and CEO, similarly described how the opportunity is in the trillions of dollars for NVIDIA, calling the DeepSeek development (which led to investor concerns that AI would require less compute than previously expected) “profoundly misunderstood… as reasoning models require over 100x more compute than previously thought.” NVIDIA’s progress in AI across the stack, in hardware and software, and across industry domains remains unmatched. We have seen up close the upcoming Kyber server with 576 Rubin Ultra (next-next gen) GPUs with compute trays stacked like books on one side, with Nvlink-based networking trays on the other side, and PCB boards connecting them without any cabling in between. We are just getting started!
Top Contributors to Performance
Table II. – Top contributors to performance for the quarter ended March 31, 2025
| Quarter End Market Cap ($ billions) | Contribution to Return(%) | |
|---|---|---|
| Bajaj Finance Limited | 64.9 | 0.78 |
| MercadoLibre, Inc. | 98.9 | 0.66 |
| Cloudflare, Inc. | 38.9 | 0.35 |
| Zscaler, Inc. (ZS) | 30.7 | 0.17 |
| Afya Limited (AFYA) | 1.7 | 0.17 |
Shares of Bajaj Finance Limited contributed to performance during the quarter. Bajaj is a leading non-bank financial company in India. Shares were up 31.0% this quarter driven by strong quarterly earnings and signs of improving asset quality. Assets under management grew 28% year-over-year, driven by a record 12 million new loans in the quarter, while adding 5 million new customers to the franchise. The recently announced leadership transition of longtime Managing Director, Rajeev Jain, to an Executive Vice Chairman role was also welcomed by investors, as the move ensures continuity in the company’s growth strategy. We retain conviction in Bajaj due to its best-in-class management team, robust long-term growth outlook, and conservative risk management frameworks. We think the company is well positioned to benefit from growing demand for consumer financial services such as mortgages, personal and credit card loans, among other related products.
MercadoLibre, Inc., the leading e-commerce marketplace across Latin America, contributed to performance as shares rose 14.7%. The company reported solid fourth quarter results, with better-than- expected revenue growth of 37% year-on-year and a significant beat on operating earnings which reached $820 million, 33% above expectations. The company’s 10.5% EBIT margin rebounded sharply, reversing the decline seen in the previous quarter and alleviating concerns about reinvestments impacting near-term profitability. MercadoLibre continues to post strong growth in volume indicators, with a 56% year-on-year growth in Gross Merchandise Value (GMV) in constant currency and a 49% growth in Total Payments Volume in constant currency, which gives us confidence in its ability to continue capturing a leading share of the structural growth opportunity for e-commerce and fintech in Latin America. We remain shareholders.
Cloudflare, Inc. offers enhanced security and performance for websites, applications, and software-as-a-service (SaaS), and is increasingly well positioned to help power AI-enabled applications at the edge (via mobile device or local server). Its network spans over 100 countries and connects with over 10,000 enterprises and providers of internet services, cloud, and SaaS. Its edge network operates within 100 milliseconds of 99% of the developed world. Shares increased 5.4% after Cloudflare reported solid quarterly results, with 27% year-on-year revenue growth and 14.6% operating margins, and reiterated expectations of accelerated growth as the recently hired sales representatives become more productive over time. We maintain conviction as we see a bright future ahead for Cloudflare, characterized by durable top-line growth of 25% year-over-year underpinned by the growing set of products it offers customers via its expanding platform that leverages the core network. We also believe that Cloudflare’s unique ability to run all of its cloud products on every server in every datacenter will enable it to expand margins and free cash flow as the incremental cost of additional product adoption once a customer already uses Cloudflare for some of its offering is near zero.
Top Detractors from Performance
Table III. – Top detractors from performance for the quarter ended March 31, 2025
| Quarter End Market Cap($ billions) | Contribution to Return(%) | |
|---|---|---|
| NVIDIA Corporation | 2,644.5 | -1.50 |
| Datadog, Inc. | 34.0 | -1.01 |
| Shopify Inc. | 123.6 | -0.91 |
| Zomato Limited | 22.8 | -0.91 |
| Globant S.A. (GLOB) | 5.2 | -0.85 |
NVIDIA Corporation sells semiconductors, networking, systems, and software for accelerated computing, gaming, and AI. During the quarter, the stock corrected 19.3% as narratives shifted towards skepticism, ranging from concerns over a slower-than-expected AI adoption to fear that future AI training and inference workloads may become more compute-efficient, reducing demand for NVIDIA’s systems. We believe these concerns are premature. Training cluster buildouts are progressing in line with expectations, while inference will scale gradually as enterprises integrate AI into real-world workflows. Against this market narrative, NVIDIA delivered another strong quarter, exceeding expectations with 78% year-on-year revenue growth at a massive scale (revenue run rate is $160 billion), driven by record datacenter performance, with datacenter revenues up 94% from last year. The company’s end-to-end platform approach continues to be differentiated and near-term concerns around the Blackwell ramp and supply chain proved overstated, and all GPU configurations are in full production. Longer term, our conviction remains high. All the industries bottlenecked by intelligence will leverage AI, unlocking trillions of dollars in value. Most of these AI workloads will be supported by large language models running in the datacenters. NVIDIA is uniquely positioned to power this transformation through its full-stack approach, spanning silicon, systems, software, and developer ecosystem, and hence its competitive moat continues to widen.
Shares of Datadog, Inc. underperformed during the quarter, declining 30.6%. The company delivered strong fourth quarter results, ending the year with over $3 billion in Annual Recurring Revenue, sales growth of 26% and FCF margins of 29%. In 2024, growth was driven by large enterprises consolidating their observability stacks onto Datadog and by AI native start-ups using Datadog to monitor their rapidly growing AI applications. However, shares declined for two reasons. First, Datadog guided to 2025 sales growth of 19%, a couple of points below Street expectations, primarily due to the AI customers optimizing contracts for better pricing in 2025 (after a period of exponential spend growth). Second, Datadog plans to accelerate investments in engineering and sales professionals throughout the year, leading to lower incremental margins over the next few quarters. We view the contract optimization issue as short term and believe the larger volume commitments AI-natives are signing will fuel growth beyond 2025 as those customers scale. We are also supportive of the management’s decision to invest in product development and sales capacity that will position the company to continue taking share in the $50 billion-plus observability market longer term. We remain shareholders.
Shopify Inc. is a cloud-based software provider for multi-channel commerce. Shares declined 10.2% in the first quarter as investors took profits following two strong years of performance and as growth stocks sold off in the last six weeks of the quarter due to increased uncertainty and declining consumer confidence. We remain shareholders. Shopify reported strong quarterly results, with year-over-year GMV, revenue, and free-cash-flow growth of 26%, 31%, and 37%, respectively. Operating margins also ran ahead of expectations, reaching 16.5% for the fourth quarter and 12.1% for 2024. While the company continues gaining share in its core domestic e-commerce market (we estimate that Shopify achieved 12% market share), we are increasingly seeing data pointing to a successful expansion to new opportunities including international, business-to-business, and offline. While Shopify will not be immune to a cyclical downturn if it occurs, we like its longer-term prospects given its strong competitive positioning, innovative culture, and long runway for growth, as it still holds less than a 2% share of the global commerce market.
Portfolio Structure
The portfolio is constructed on a bottom-up basis with the quality of ideas and conviction level having the most significant roles in determining the size of each individual investment. Sector and country weights are an outcome of the stock selection process and are not meant to indicate a positive or a negative “view.”
As of March 31, 2025, the top 10 positions represented 63.4% of the Fund’s net assets, and the top 20 represented 86.4%. We ended the first quarter with 38 investments. Note that our top 25 investments represented over 93% of the Fund.
Our investments in the IT, Consumer Discretionary, Industrials, Financials, and Health Care sectors, as classified by GICS, represented 99.5% of the Fund’s net assets. Our investments in non-U.S. companies represented 56.6% of net assets, and our investments in emerging markets and other non-developed countries (Argentina) totaled 30.5% of net assets.
Table IV. – Top 10 holdings as of March 31, 2025
| Quarter End Market Cap($ billions) | Quarter End Investment Value($ millions) | Percent of Net Assets(%) | |
|---|---|---|---|
| Space Exploration Technologies Corp. | 349.1 | 60.6 | 11.9 |
| MercadoLibre, Inc. | 98.9 | 45.4 | 8.9 |
| Shopify Inc. | 123.6 | 45.2 | 8.9 |
| NVIDIA Corporation | 2,644.5 | 39.1 | 7.7 |
| Cloudflare, Inc. | 38.9 | 31.7 | 6.2 |
| Coupang, Inc. | 39.6 | 25.3 | 5.0 |
| argenx SE (ARGX) | 36.0 | 22.3 | 4.4 |
| Bajaj Finance Limited | 64.9 | 21.2 | 4.2 |
| Snowflake Inc. (SNOW) | 48.8 | 17.1 | 3.4 |
| Zomato Limited | 22.8 | 15.5 | 3.0 |
Table V. – Percentage of securities by country as of March 31, 2025
| Percent of Net Assets (%) | |
|---|---|
| United States | 43.0 |
| Argentina | 10.3 |
| Netherlands | 10.0 |
| Canada | 8.9 |
| India | 7.2 |
| Korea | 5.0 |
| Israel | 3.7 |
| China | 2.9 |
| Poland | 2.1 |
| United Kingdom | 1.9 |
| Spain | 1.8 |
| Brazil | 1.5 |
| Taiwan | 1.5 |
Recent Activity
During the first quarter, we initiated an investment in the cyber-security software provider, SailPoint (SAIL).
We also added to our positions in the leading semiconductor manufacturer, Taiwan Semiconductor (TSM), the fintech company, Block (XYZ), the electric vehicle manufacturer, Tesla (TSLA), and the Chinese e-commerce platform, PDD. We reduced 14 existing positions to fund the purchases above.
Table VI. – Top net purchases for the quarter ended March 31, 2025
| Quarter End Market Cap($ billions) | Net Amount Purchased($ millions) | |
|---|---|---|
| Taiwan Semiconductor Manufacturing Company Limited (TSM) | 861.0 | 2.5 |
| SailPoint, Inc. (SAIL) | 10.4 | 1.8 |
| Block, Inc. | 33.7 | 1.0 |
| Tesla, Inc. (TSLA) | 833.6 | 0.4 |
| PDD Holdings Inc. (PDD) | 164.4 | 0.2 |
During the first quarter, we initiated a new position in SailPoint, Inc., a leading identity governance and administration (IGA) software security vendor. SailPoint is led by its Founder and CEO, Mark McClain, who created the IGA space around 20 years ago before selling his first company to Sun Microsystems (now part of Oracle). SailPoint was taken private approximately three years ago by Thoma Bravo to further innovate on its cloud platform and accelerate the model transition to SaaS, which now accounts for 60% of the total business. Over this time, the company has also improved its operating margins by around 1,200 bps and has emerged as a larger, faster growing, and a more profitable business.
The company has a very sticky customer base as evidenced with best-in-class gross retention rates of over 97%, a durable competitive moat thanks to its deep domain expertise with complex policy management, and multiple growth levers, including: i) continued migration of the large legacy installed base to the cloud (estimated to be a $2.5 billion opportunity); ii) cross-sell and upsell to the existing installed base as customers renew and adopt additional solutions such as non-employee risk management; iii) good net new customer growth (expected to drive roughly 50% of net new annualized recurring revenue growth); iv) migrations (only about 10% of on-premises customers have migrated to the cloud thus far); and v) new machine identity products that can act as mid-term incremental growth levers. We expect the company to compound annual recurring revenue or ARR by at least 20% for several years and with the company recently paying off its debt, for non-GAAP operating income and free-cash-flow margins to converge over the next two to three years as the company pushes toward Rule of 40 over time.
Our largest add during the quarter was Taiwan Semiconductor Manufacturing Company Limited (TSMC) as we continued to build our position. We believe that while there is near-term uncertainty due to tariffs, zooming out, TSMC’s competitive positioning in leading-edge semiconductor manufacturing remains unmatched. We further believe that TSMC will benefit from a long duration of growth as the adoption of AI proliferates across industries. We also modestly added to our positions in Block, Inc. and PDD Holdings Inc., as we believe both stocks offer a positively skewed risk versus reward equation at an attractive valuation with Block trading at a 12% current free-cash-flow yield and PDD trading at an 8x P/E (based on FactSet consensus next-12 months EPS). We also slightly added to our Tesla, Inc. position looking past the near-term uncertainty due to tariffs, since we believe the company is making significant progress in physical AI from autonomous driving to Humanoid robots.
Table VII. – Top net sales for the quarter ended March 31, 2025
| Quarter End Market Cap($ billions) | Net Amount Sold($ millions) | |
|---|---|---|
| Cloudflare, Inc. (NET) | 38.9 | 9.5 |
| Shopify Inc. (SHOP) | 123.6 | 6.0 |
| argenx SE (ARGX) | 36.0 | 4.5 |
| Wix.com Ltd. (WIX) | 9.1 | 4.1 |
| Coupang, Inc. (CPNG) | 39.6 | 2.5 |
Outlook
“Buy when there is blood in the streets, even if the blood is your own.” – Baron Rothschild, the famous 19th century banker2
Despite the gory imagery, this quote resonates with us two centuries later. Here is more contemporary wisdom from Ron Baron sent to all of our portfolio managers and research analysts after our most recent meeting:
“I don’t expect anyone to have answers about tariffs, dollar weakness, recession, etc. We do expect all analysts and portfolio managers to be completely knowledgeable and up-to-date on current and most importantly long-term growth prospects for the businesses we own. Note long term. No one knows what will happen short term… and we should not be trying to take advantage of short-term volatility. Not what we do. The reason we have outperformed forever is because of our long- term focus on people and business fundamentals. MACRO had zero impact on our 43-year record. You got to remember John Lennon premise: ‘in the end, everything will work out. And if it doesn’t. It’s not the end.’ Nothing truer.”
We could not agree more or say it better ourselves. Markets are always, ALWAYS driven by fear. It is fear of missing out (FOMO) that drives markets higher, and it is fear of losing money that drives markets lower. It is always fear that drives markets over the short term, but it is the fundamentals that drive wealth creation over time. Real big opportunities come when you are willing to invest when other people are not!
As we do every quarter, we analyzed the change in the weighted average multiple of the Fund and the weighted average change in consensus expectations for 2025 (for revenues, operating income, and operating margins). The Fund’s weighted average multiple contracted by 10.2% during the first quarter. Since the Fund was down 9.4%, fundamentals improved slightly. Revenue expectations for 2025 increased by 0.6%, operating income expectations declined by 2.2% (if we exclude Zomato, which was an outlier with a 62% decline due to small numbers, operating income expectations declined by 0.1%) and operating margin expectations declined by 22bps (down by 9bps excluding Zomato). While fundamentals remained broadly stable during the first quarter, we do expect some cyclical deterioration starting with the second quarter due to the impact of the tariff announcements. That said, we continue to believe that we own the highest quality platform businesses that will likely emerge from this challenging and uncertain economic environment stronger than they were going into it.
Every day, we live and invest in an uncertain world. Well-known conditions and widely anticipated events, such as Federal Reserve rate changes, ongoing trade disputes, government shutdowns, and the unpredictable behavior of important politicians the world over, are shrugged off by the financial markets one day and seem to drive them up or down the next. We often find it difficult to know why market participants do what they do over the short term. The constant challenges we face are real and serious, with clearly uncertain outcomes. History would suggest that most will prove passing or manageable. The business of capital allocation (or investing) is the business of taking risk, managing the uncertainty, and taking advantage of the long-term opportunities that those risks and uncertainties create.
We are optimistic about the long-term prospects of the companies in which we are invested and continue to search for new ideas and investment opportunities while remaining patient and investing only when we believe the target companies are trading at attractive prices relative to their intrinsic values.
Sincerely,
Alex Umansky, Portfolio Manager
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Footnotes 1https://berkshirehathaway.com/letters/growing.pdf 2Buy When There’s Blood In The Streets Investors should consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectus and summary prospectus contain this and other information about the Funds. You may obtain them from the Funds’ distributor, Baron Capital, Inc., by calling 1-800-99-BARON or visiting BaronCapitalGroup.com. Please read them carefully before investing. Risks: 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. 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 Global Advantage Fund by anyone in any jurisdiction where it would be unlawful under the laws of that jurisdiction to make such offer or solicitation. Alpha measures the difference between a fund’s actual returns and its expected performance, given its level of risk as measured by beta. Beta explains common variation in stock returns due to different stock sensitivities to market or systematic risk that cannot be explained by the US Country factor. Positive exposure indicates high beta stock. Negative exposure indicates low beta stock. Free cash flow (FCF) represents the cash that a company generates after accounting for cash outflows to support operations and maintain its capital assets. EPS Growth Rate (3-5-year forecast) indicates the long term forecasted EPS growth of the companies in the portfolio, calculated using the weighted average of the available 3-to-5 year forecasted growth rates for each of the stocks in the portfolio provided by FactSet Estimates. The EPS Growth rate does not forecast the Fund’s performance. Price/Earnings Ratio or P/E (next 12-months) is a valuation ratio of a company’s current share price compared to its mean forecasted 4 quarter sum earnings per share over the next twelve months. If a company’s EPS estimate is negative, it is excluded from the portfolio-level calculation. |
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