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Dear Baron Global Advantage Fund Shareholder:
Baron Global Advantage Fund® (the Fund) gained 3.4% (Institutional Shares) during the second quarter, compared to the 2.9% gain for the MSCI ACWI Index (the Index), and the 6.2% gain for the MSCI ACWI Growth Index, the Fund’s benchmarks.
| Baron Global Advantage Fund Retail Shares1,2 | Baron Global Advantage Fund Institutional Shares1,2 | MSCI ACWI Index1 | MSCI ACWI Growth Index1 | |
|---|---|---|---|---|
| Three Months3 | 3.30% | 3.37% | 2.87% | 6.20% |
| Six Months3 | 6.94% | 7.08% | 11.30% | 16.30% |
| One Year | 15.19% | 15.48% | 19.38% | 24.70% |
| Three Years | (15.96)% | (15.75)% | 5.43% | 5.50% |
| Five Years | 4.67% | 4.93% | 10.76% | 13.85% |
| Ten Years | 8.87% | 9.12% | 8.43% | 11.15% |
| Since Inception (April 30, 2012) | 10.46% | 10.71% | 9.68% | 11.76% |
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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 December 31, 2023 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, 2034, 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 5- and 10-year historical performance was impacted by gains from IPOs. 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 Developed Markets (DM) countries and 24 Emerging Markets (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. |
Global equity indexes continued to move higher as the calendar turned to the second quarter of 2024. If this sentence seems familiar… it is because we have used it, or one like it, in the last four shareholder letters. The TL;DR for the second quarter – is really more of the same. The gains were far from uniform and were narrowly concentrated in the Magnificent Seven, yet again.
Index returns continue to be driven by the largest market cap stocks, with giant caps4 up 7.9% in the second quarter, while large caps, mid-caps and small caps were down 0.9%, 2.8%, and 8.7%, respectively. For the time being, the center of gravity for returns continues to be the large domestic platforms. NVIDIA, Alphabet, Microsoft, Tesla, Apple, Amazon, and Meta were responsible for 105% of the Index’s return in the second quarter. We trust the reader can do the math to calculate the combined return of all other stocks in the Index.
Bernstein calculated that while technology stocks outperformed the market by 1,470bps year-to-date (YTD), an equal weighted technology index underperformed the market by 470bps, with the worst breadth of technology outperformance since 2002.5
Once again, this quarter was not a favorable investing environment for the Fund, considering it was, on average, 17.9% underweight the U.S. and 15.3% overweight micro-, small-, and mid-caps, not to mention lack of ownership of Apple, Microsoft, Amazon, Alphabet, or Meta. In that context, the Fund’s 3.4% gain and 50bps of outperformance compared to the Index in the quarter, once again felt like a small win to us.
From a sector attribution perspective, stock selection was strong in Consumer Discretionary and Industrials contributing 471bps to relative returns. Unfortunately, it appears we “lost” our ability to “pick” technology stocks as stock selection in Information Technology detracted 452bps (and a staggering 638bps YTD). Fortunately, we have remained significantly overweight in IT, by far the best sector during the quarter and YTD, which contributed 214bps for the quarter, and 344bps YTD, respectively, to relative returns.
From a company-specific perspective, we had 17 gainers against 18 decliners with a significant dispersion of returns between contributors and detractors. Once again, the Fund’s returns were led by NVIDIA (NVDA), which continued its remarkable run, up another 36.8% during the quarter, and 150.7% YTD. NVIDIA, CrowdStrike (CRWD), Coupang (CPNG), SpaceX (SPACE), MercadoLibre (MELI), and Wix (WIX) contributed over 50bps each to absolute returns while the share prices of Tesla (TSLA), InPost (OTCPK:INPOY), Codere (CDRO), Rivian (RIVN), Fiverr (FVRR), and Innovid (CTV) each posted double-digit gains during the quarter. Of course, Tesla and Rivian were two of our largest detractors just last quarter, owing to complex macro environment and challenging near-term business fundamentals.
Tesla’s shareholders approved, or rather once again re-approved Elon Musk’s compensation plan, which helped assuage concerns of Elon’s commitment to the EV leader. The company continues to show progress in its quest for full-self-driving, which could unlock a much larger opportunity in the longer term. There are over 3 trillion miles driven annually in the U.S. alone. Since robo-Teslas won’t need a driver, imagine if Tesla started by charging $1 per mile, which is significantly lower than what the ridesharing companies charge today, the opportunity in the U.S. alone could be in the hundreds of billions of dollars, at very high incremental margins. It seems that other market participants are starting to underwrite this possibility.
Rivian announced a deal with Volkswagen to license its software-defined electronic architecture, which shores up the company’s future capital needs through the R2 model introduction via a $5 billion investment, in several tranches over the next few years. At the same time, the company is significantly expanding its scale, driving better component prices from suppliers, sharing future ongoing R&D costs, and increasing the likelihood of reaching sustainable profitability levels sooner than previously expected. We think the Volkswagen deal serves as validation of the value of Rivian’s vertically integrated, software-defined architecture, and opens the opportunity for additional future IP licensing deals.
These strong results and positive outcomes were partially offset by poor stock performance by several of our software and internet holdings – Shopify (SHOP), Cloudflare (NET) and Snowflake (SNOW), which detracted 293bps combined from the Fund’s absolute returns, due to multiple contraction as investors continue to be hyper-focused on short-term profitability and both Shopify and Snowflake announced near-term investment cycles, while Cloudflare’s guidance for the year disappointed amid a more uncertain macro environment. Unlike the stocks of Tesla and Rivian which reversed most of last quarter declines, our digital IT consulting companies, Endava (DAVA) and Globant (GLOB), continued to struggle, detracting 116bps from the Fund’s results, due to the ongoing headwinds to large digitization projects. Discretionary IT budgets are strained by accelerating investments into generative AI (GenAI) which seem to be crowding out everything else. Investors continue to penalize these stocks, which, in our opinion, now trade at trough (mid-teen EPS) multiples on what we believe to be cyclically depressed earnings.
To better understand stock performance, we deconstructed returns into two components – the change in multiples, and the change in fundamentals. We analyzed the change in the weighted average multiple of the Fund and the weighted average change in consensus expectations for 2024, for revenues, operating income, and operating margins. The weighted average multiple for the Fund6 contracted by 1% during the quarter (or by 2.7% if we exclude NVIDIA). As relates to near-term fundamentals, during the second quarter, revenue expectations for 2024 increased by 1.7% (or by 0.9% excluding NVIDIA), operating income expectations decreased by 2.4% (declined by 3.9% excluding NVIDIA) and operating margin expectations declined by 58bps (down by 70bps excluding NVIDIA). These trends are broadly in line with what we have seen in the first quarter and are driven by a slow recovery in business fundamentals (compared to low expectations) which is being reinvested back by some of our companies, hurting short-term margins but expanding long-term opportunities. While short-term focused investors penalize these stocks as can be seen by multiple contraction for the companies that have entered investment cycles (such as Shopify or Snowflake), we believe their investments make sense, and, as long-term investors, we are willing to accept some short-term pain for the benefit of long-term gain.
Top Contributors to Performance
| Quarter End Market Cap (billions) | Percent Impact | |
|---|---|---|
| NVIDIA Corporation | $3,039.1 | 3.69% |
| CrowdStrike Holdings, Inc. | 93.3 | 1.00 |
| Coupang, Inc. | 37.5 | 0.97 |
| Space Exploration Technologies Corp. | 208.2 | 0.86 |
| MercadoLibre, Inc. | 83.3 | 0.85 |
NVIDIA Corporation sells semiconductors, systems, and software for accelerated computing, gaming, and GenAI. NVIDIA’s stock continued its run, rising 36.8% in the second quarter and finishing the first half of 2024 up 150.7%. NVIDIA continued to report unprecedented growth at scale, with quarterly revenues of $26 billion growing 262% year-over-year, datacenter segment revenues of $22.6 billion up 427% year-over-year, and operating margins of 69.3%. NVIDIA’s growth is even more impressive as it is approaching a new product cycle with Blackwell going into production in the third quarter and speaks to the urgency of demand for GPUs as customers are not waiting for the next generation architecture despite its improved performance to cost ratio. The Blackwell architecture, and in particular, the new GB200 NVL72/36 racks, which the company believes would become “the new unit of compute” (and will start shipping in 2025) would in our view: 1) increase the company’s content per server (for example an NVL72 rack would have 18 compute trays with 4 Blackwell GPUs and 2 Grace CPUs in each, and 9 switch trays with NVIDIA content); and 2) further strengthen its competitive advantages as the demand for datacenter-scale computing grows due to scaling laws (models become more capable with size and as they are trained on more data), new model types (such as Mixture of Experts that increase the demand on sharing of data between GPUs) and model optimization mechanisms (such as tensor parallelism, pipeline parallelism, and expert parallelism – which also increase the demands from the connectivity layer), and increase the relative importance of NVIDIA’s networking and full-system capabilities and in particular the capabilities enabled by the latest generation of NVLink – connecting up to 576 GPUs together, up from 8.
While the stock’s strong performance has pulled forward some of the longer-term upside (which we manage through position sizing), we remain early in the accelerated computing platform shift and in the adoption of AI across industries and therefore remain shareholders. NVIDIA’s CEO, Jensen Huang described the opportunity in his June COMPUTEX keynote:
“In the late 1890s, Nikola Tesla invented an AC generator. We invented an AI generator. The AC generator generated electrons. NVIDIA’s AI generator generates tokens. Both of these things have large market opportunities. It’s completely fungible in almost every industry, and that’s why it’s a new industrial revolution.
“We have now a new factory producing a new commodity for every industry that is of extraordinary value. And the methodology for doing this is quite scalable, and the methodology of doing this is quite repeatable. Notice how quickly so many different AI models, generative AI models are being invented literally daily. Every single industry is now piling on.
“For the very first time, the IT industry, which is $3 trillion, $3 trillion IT industry is about to create something that can directly serve $100 trillion of industry. No longer just an instrument for information storage or data processing but a factory for generating intelligence for every industry… What started with accelerated computing led to AI, led to generative AI and now an industrial revolution.”
CrowdStrike Holdings, Inc. is a cloud-architected SaaS cybersecurity vendor offering endpoint security, threat intelligence, and cyberattack response services. Shares continued their strong performance from the first quarter and were again a top contributor, rising 19.6% in the second quarter on better execution than peers in the broader security space. The company reported strong quarterly results with 33% year-over-year revenue growth, driven by customers standardizing their cyber-security spend on CrowdStrike with free cash flow margins reaching 35%. With accelerating share gains in its core endpoint detection and response market, emerging products including Cloud, Identity, and SIEM reaching material scale, and newer products in Data Protection and AI ramping quickly, net new annual recurring revenue and total revenue look to sustain a long duration of growth. With its leading competitive positioning in cybersecurity, the growing threat landscape (which is also driven by the advancements in AI, making hackers more dangerous), its unique lightweight, single-agent, architecture, and its platform approach, we retain conviction in CrowdStrike, which is emerging as the security platform to beat in terms of scale, profitability, and free cash flow conversion.
Shares of Coupang, Inc., Korea’s largest e-commerce marketplace, appreciated 17.8% in the second quarter on strong quarterly results with revenue growth of 33% year-over-year (in constant currency, excluding the impact of an accounting change for fulfillment services and the acquisition of Farfetch), showing continued acceleration from 20% growth in the first quarter of 2023, and 29% growth in the fourth quarter of 2023, driven by market share gains within Korean e-commerce and retail overall. EBITDA margins in its core Product Commerce segment also continued to surprise to the upside, reaching 7.2%, up 210bps year-over-year. We view Coupang as one of the most competitively advantaged e-commerce businesses globally, with significant runway for both revenue and earnings growth as the company continues to gain market share in the U.S. $500 billion-plus Korean retail market, while expanding its offerings into additional categories, expanding its ecosystem via a third-party marketplace, expanding internationally and continuing to invest in infrastructure density to further capture inefficiencies, enhancing the customer experience and improving profit margins.
Top Detractors from Performance
| Quarter End Market Cap (billions) | Percent Impact | |
|---|---|---|
| Shopify Inc. | $85.2 | -1.23% |
| Cloudflare, Inc. | 28.1 | -0.91 |
| Endava plc | 1.7 | -0.87 |
| Adyen N.V. | 36.9 | -0.80 |
| Snowflake Inc. | 45.2 | -0.79 |
Shopify Inc. is a cloud-based software provider for multi-channel commerce. Shares declined 14.4% in the second quarter despite reporting solid quarterly results with revenue growth of 23% year-over-year, which implies continued market share gains, after the company announced it is entering an investment cycle. Since the increased investment period comes after over a year of consistent margin expansion, it left short-term-focused investors disappointed. We, however, believe that this is the right course of action for several reasons. First, the company expects solid returns on the increased marketing spend with 18-month payback periods. Second, the investment should help solidify Shopify’s competitive position and drive further market share gains. Finally, the increased spend should contribute to the probability of success in newer areas of opportunity with large addressable markets, including offline commerce, international, and enterprise. Shopify shared several metrics showing early success, with gross merchandise value up 130%, 38%, and 32% year-over-year in B2B, EMEA, and offline, respectively. We remain shareholders due to Shopify’s strong competitive positioning, innovative culture, and long runway for growth, as it still holds less than a 2% share of the global commerce market.
Cloudflare, Inc. provides content delivery network services, cloud cybersecurity, denial-of-service mitigation, Domain Name Service, and ICANN-accredited domain registration services. Shares fell 14.5% during the quarter on remarks from the CEO about worsening macro conditions, citing the negative impact of geopolitical uncertainties on customer buying behavior. On the positive side, the company posted strong quarterly results with revenue growth of 30% year-over-year, showing evidence that the changes to the company’s go-to-market strategy were resonating with solid growth across its large customer cohorts (revenues from customers spending over $100,000 represented 67% of the total, up from 62% in the first quarter of 2023), double-digit improvement in sales productivity, and new pipeline attainment ahead of plan. Cloudflare reiterated revenue guidance for the year on resilience in cybersecurity spend. While we fine-tuned our model on the back of the company’s increased macro headwind commentary, pushing out revenue reacceleration estimates from the second quarter of 2024 to the first quarter of 2025, this is still ahead of guidance. We retain conviction in the long-term thesis: a strong founder-led business with a unique global network and significant pricing advantages powering a disruptive multi-product growth story with improving margins. We therefore remain shareholders.
Shares of IT services provider Endava plc fell 23.1% during the second quarter on continued soft demand trends. Revenue declined in the most recent reported quarter as customers pulled back on discretionary IT spending and delayed decisions on new projects to better incorporate recent advancements in GenAI. However, management believes demand is stabilizing as they are seeing a growing pipeline of new projects. While timing the cycle remains a challenge, we remain invested because we expect these near-term headwinds to abate over time, leading to better growth as clients embrace digital transformation, and as the current valuation offers a positively skewed risk/reward equation for long-term investors, in our view.
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 June 30, 2024, the top 10 positions represented 60.1% of the Fund’s net assets, and the top 20 represented 88.2%. We ended the second quarter with 36 investments compared to 34 at the end of 2023. Note that our top 25 investments represented over 96% of net assets.
Our investments in the IT, Consumer Discretionary, Industrials, Financials, and Health Care sectors, as classified by GICS, represented 99.9% of the Fund’s net assets. Our investments in non-U.S. companies represented 53.4%, and our investments in emerging markets and other non-developed countries (Argentina) totaled 27.6%.
| Quarter End Market Cap (billions) | Quarter End Investment Value (millions) | Percent of Net Assets | |
|---|---|---|---|
| NVIDIA Corporation | $3,039.1 | $57.5 | 9.6% |
| MercadoLibre, Inc. | 83.3 | 54.2 | 9.0 |
| Shopify Inc. | 85.2 | 42.2 | 7.0 |
| Coupang, Inc. | 37.5 | 37.2 | 6.2 |
| Space Exploration Technologies Corp. | 208.2 | 36.7 | 6.1 |
| CrowdStrike Holdings, Inc. | 93.3 | 32.5 | 5.4 |
| Cloudflare, Inc. | 28.1 | 29.6 | 4.9 |
| ASML Holding N.V. | 412.6 | 24.3 | 4.0 |
| argenx SE | 25.6 | 23.6 | 3.9 |
| Datadog, Inc. | 43.4 | 23.0 | 3.8 |
| Percent of Net Assets | |
|---|---|
| United States | 46.6% |
| Argentina | 11.0 |
| Netherlands | 9.7 |
| Canada | 7.0 |
| India | 6.2 |
| Korea | 6.2 |
| Israel | 4.6 |
| United Kingdom | 2.7 |
| Poland | 2.4 |
| Brazil | 1.8 |
| Spain | 1.7 |
Recent Activity
During the second quarter, we initiated one new investment: a health care diagnostics company, Tempus AI (TEM), and continued building our position in the automotive focused fabless semiconductor company indie Semiconductor (INDI).
We reduced 15 existing holdings and exited a small investment in the connectivity-focused fabless semiconductor company Astera Labs (ALAB), as the stock’s run up post its IPO led to better opportunities elsewhere.
| Quarter End Market Cap (billions) | Net Amount Purchased (millions) | |
|---|---|---|
| Tempus AI, Inc. | $5.8 | $3.2 |
| indie Semiconductor, Inc. | 1.2 | 1.7 |
During the quarter, we established a new position in Tempus AI, Inc., an intelligent diagnostics and health care data company. Founder/CEO Eric Lefkofsky says, “Tempus was designed to bring AI to diagnostics, because diagnostics sit at the epicenter of life and death decisions. Physicians rely on test results at each pivot point. When that data is connected to medical records for the patient for whom it was ordered, we have the necessary ingredients to contextualize the diagnostic and personalize it, resulting in more tailored and optimal therapies.” 7
Tempus has two synergistic business units: Genomics and Data & Other. Within the genomics business, Tempus provides diagnostic tests, particularly for cancer treatment selection. The company’s labs sequence the tumor’s genome and transcriptome (gene expression) and can help oncologists select the best treatment for their patients. Compared with other cancer diagnostics companies, Tempus has industry-leading tests in terms of breadth, accuracy, and turnaround time and it is the only lab that provides data on how other patients with similar clinical profiles have fared on different therapies. We think the cancer treatment selection sequencing market has a long runway for growth and Tempus is well positioned as a leader in the field. There are approximately 700,000 patients in the U.S. diagnosed with metastatic cancer each year and each patient could benefit from several therapy selection tests (solid and liquid biopsy, as well as testing upon recurrence). As access and reimbursement improves, we think cancer therapy selection diagnostics could address a $10 billion total addressable market (TAM) in the U.S. alone. We believe that Tempus’s diagnostic business could more than triple in size and exceed $1 billion in revenues by 2030.
The genomics testing data also feeds into Tempus’s value as a data company. Tempus has amassed a huge (over 200 petabytes) proprietary multimodal dataset that combines clinical patient data (which includes clinical records and imaging data from two-way collaborations with health systems) with genomic testing data from the Genomics business. Tempus’s dataset includes 7.7 million clinical records, over 1 million imaging records, over 910,000 matched clinical and molecular dataset profiles, and over 970,000 samples that were sequenced. In addition to using this data to empower more intelligent diagnostics, Tempus licenses this data to biopharmaceutical companies who use it to design smarter clinical trials and identify potential new drug targets. Tempus works with 19 of the top 20 pharmaceutical companies in this capacity and has disclosed 9-figure deals with three biopharmaceutical companies. In total, Tempus has $620 million in remaining contract value and an additional $300 million in opt-ins, compared to approximately $169 million in Data revenues in 2023. Based on our discussions with customers, they see immediate value using the data to better define biomarkers and stratify patient populations. We think this proprietary dataset is unique and would prove challenging for competitors to replicate. We also believe that it brings meaningful value to biopharmaceutical R&D and are therefore willing to underwrite a long runway for growth for Tempus as more customers take advantage of its data in their drug development programs.
We also continued adding to our position in indie Semiconductor, Inc., which we initiated last quarter. As a reminder, indie is a fabless designer, developer, and marketer of automotive semiconductors for applications including advanced driver assistance systems, car connectivity, user experience, and electrification. While indie is not immune from the cyclical slowdown that is currently impacting the automotive semiconductor market, we believe the company is well positioned over the long term, whereas the cyclical backdrop creates an opportunity for us to build our position at an attractive valuation.
| Quarter End Market Cap or Market Cap When Sold (billions) | Net Amount Sold (millions) | |
|---|---|---|
| NVIDIA Corporation | $3,039.1 | $33.6 |
| MercadoLibre, Inc. | 83.3 | 6.6 |
| Astera Labs, Inc. | 10.0 | 4.9 |
| InPost S.A. | 8.8 | 4.6 |
| Wix.com Ltd. | 8.9 | 2.5 |
During the quarter, we sold our small position in the fabless semiconductor company, Astera Labs, Inc., as the company’s stock shot up immediately post-IPO, which didn’t enable us to build it into a core position with a favorable enough risk/reward.
Additionally, we reduced 15 of our other existing positions in order to fund investor outflows and reallocate to the names we added. These included a reduction in our NVIDIA Corporation position. We would note that our conviction level in the company has not changed although the stock’s incredible recent performance pulled forward some of its future returns, which by definition, tilts the risk/reward equation, prompting us to slightly reduce our position. Nevertheless, NVIDIA remains our largest position in the Fund as we remain in the early innings of AI adoption across industries from health care to automotive, and as the race for Artificial General Intelligence continues. The demand growth curve for accelerated computing remains exponential as newer frontier models continue to get larger and are trained on more data.8 In addition, as we continue to go down the demand elasticity curve through innovation by NVIDIA and as AI algorithms become more compute-efficient and go up the level of intelligence generated per unit of compute curve, the demand for accelerated computing will continue to grow, benefiting NVIDIA, in our view.
Outlook
As in years past, we have little to offer in the way of a market outlook. Has inflation been tamed? Will the economy continue to slow down? Will we get the three interest rate cuts or none? Trump or Biden or someone else? While these questions are not new, the answers remain elusive, and once they will get answered, other, similar questions will arise. We practice a probabilistic approach to investing and for the time being we expect to continue to operate in an environment where the range of outcomes will remain unusually wide.
Importantly, we do not structure or position the portfolio to benefit from any particular market environment. Instead, we focus on investing in what we believe are high quality businesses – companies with sustainable competitive advantages, exceptional management teams with a proven track record of operational excellence and successful capital allocation, and importantly, businesses that we believe have a long runway for growth and an opportunity to become materially larger than they are today.
The rapid advancement of GenAI technology presents both clear risks and compelling opportunities. While the implications of AI on the global economy and on particular industries and businesses are not yet clear, we believe our portfolio includes many companies that are well positioned to benefit from this technological paradigm shift.
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 4Defined based on the Morningstar global breakpoints. As of the end of the second quarter, giant-cap stocks in the U.S. had market caps above $327.5 billion. 5Bernstein defined the universe as the largest 1,500 U.S. stocks. 6We calculate the change in PE multiple (based on FactSet consensus expectations for EPS for the next 12 months) for each holding between March 31, 2024 and June 30, 2024 as long as the starting PE is < 100x. If it is >100x (or negative), we use an EV/Revenues multiple. We then use the ending weights of each position in the Fund to calculate a weighted average change in multiple for the Fund. 8Training Compute of Frontier AI Models Grows by 4-5x per Year 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. 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. Free cash flow (FCF) represents the cash that a company generates after accounting for cash outflows to support operations and maintain its capital assets. BAMCO, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Baron Capital, Inc. is a broker-dealer registered with the SEC and member of the Financial Industry Regulatory Authority, Inc. (FINRA). |
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
