Baron Funds® September 30, 2019 Quarterly Report
Total Page：16
File Type：pdf, Size：1020Kb
Baron Funds® September 30, 2019 Quarterly Report “Did you burn down your after the assassinations of home?” Jerome Guillen. Dr. Martin Luther King and President, Tesla. November Senator Robert F. Kennedy. 2018. Asbury Park is the city made famous by Bruce Springsteen’s That is the question Jerome asks 1973 debut album, “Greetings youthful engineers to help him from Asbury Park.” decide whether to hire them. “I want them to have burned down Asbury Park’s economy has since their house, not mine, before I experienced a strong recovery. hire them. I want them to have We think this is in part because learned what not to do through Asbury’s beaches are among the experimentation.” “Did you ever best in New Jersey; its boardwalk burn down your home?” I asked is iconic; its music scene is him. “Yes. My family lives in a legendary…the Stone Pony is small farmhouse in the South of where “Bruuuuuce” and bar France. It is where my father was bands like the E Street Band born and still lives and where he Ron and friends who “don’t stop thinking about tomorrow” played all those years ago…and Backstage at the 28th Annual Baron Investment Conference – October 25, 2019 will die. Just like my grandfather. prices for architecturally When my brother and I were important Victorian homes by young, we were experimenting the ocean were depressed with chemical mixtures when one compound thought Tesla would not likely be successful. following the turmoil of the ‘60s and attracted exploded and our home burned to the ground.” Elon and Jerome didn’t agree with that bargain-seeking buyers. That downtrodden assessment. After we met the exceptional people seaside community 50 years ago now receives Our strategy at Baron is fundamentally similar who work at Tesla, we agreed with Elon and about one million visitors every summer and to Jerome’s. We want our analysts to have Jerome. USA Today recently called my hometown “the learned what not to do before they are given coolest small town in America!!!” Yay!!! responsibility to invest other people’s money. While few active mutual fund managers Mistakes are part of the learning process for our outperform their “benchmark” indexes, as of TABLE OF CONTENTS researchers. That is why before we decide to 9/30/2019, 12 funds, representing 98.3% of Letter from Ron 1 start a new mutual fund, our tenured analysts Baron Funds’ assets under management Letter from Linda 5 first manage a “paper” portfolio and then a small (“AUM”) have outperformed their benchmarks Baron Funds Performance 12 portfolio we fund. As analysts, they learn to ask from their inceptions; 10 funds, representing Baron Asset Fund 18 Baron Growth Fund 22 the right questions to see what can go wrong in 97.8% of Baron Funds’ AUM are in the top 17% of their respective Morningstar categories; and, 6 Baron Small Cap Fund 27 a business…and, as investors, they learn to judge Baron Opportunity Fund 32 funds, representing 62.0% of Baron Funds’ AUM risk and appropriately size positions. There are no Baron Partners Fund 38 shortcuts to learning these lessons. Further, we are in the top 7% of their respective Morningstar Baron Fifth Avenue Growth Fund 43 incur substantial startup expenses for each new categories. So, our employee selection and Baron Focused Growth Fund 49 fund. It takes about five years for a fund to reach training obviously work for us… just like Baron International Growth Fund 54 Jerome’s work for Tesla. critical mass. When you review the tenures of Baron Real Estate Fund 59 Baron Emerging Markets Fund 67 our analysts and portfolio managers at “The Fall and Rise of the Town Springsteen Baron Global Advantage Fund 72 www.baronfunds.com you will see that we have made Famous.” The New York Times. Baron Discovery Fund 78 been successful at hiring and training talented September 2019. Baron Durable Advantage Fund 83 employees…and, in keeping them. Baron Real Estate Income Fund 88 I grew up in Wanamassa, N.J., a village of 4,500 Baron WealthBuilder Fund 94 Jerome focuses on the backgrounds of engineers people three blocks outside Asbury Park. Asbury Baron Health Care Fund 101 that suggest whether or not they will be is a small beach town of 16,000 on the Jersey Portfolio Holdings 118 successful. We do the same with our youthful Shore. It is about an hour south of New York MBAs. We recruit from top business schools. City. Asbury Park is where I attended high Jerome believes “kids who come from privileged school. Asbury’s gritty and diverse community, backgrounds may not succeed at Tesla because comprised of 48% blacks and 32% Hispanics, they don’t realize how hard you have to work succumbed to severe economic decline following BARON when you are trying to do very difficult the riots and burning of its commercial FUNDS things…against all the odds.” Most investors establishments in 1968. That was immediately Letter from Ron Why am I writing about Asbury Park other than I graduated from Wanamassa Grammar School savings seem inconsequential, don’t be tempted because its return to “Glory Days” is so personal to in 1957 and from Asbury Park High School in to spend those savings. In year one, the amount me? It’s to illustrate what we call “competitive 1961. Two years ago, I attended my 60th you earn on your investments will not be a lot. advantage.” My dad was an engineer for the Army. Wanamassa eighth grade class reunion. I arrived In year 10…or 20…or 30… you will not believe When I was young, my good friend Marc’s dad early that summer weekend morning and first the impact of the “power of compounding”. If owned a real estate brokerage business (capital walked the Asbury Park boardwalk for about an you earn 6.5%, the approximate historic annual light) and amusement rides on the Asbury Park hour, which brought back so many memories. growth rate of the United States’ economy and boardwalk…and a much more expensive, glass Then to the gym at Wanamassa Grammar stock market for the past 60 years, by investing walled house than my family’s ($50,000 vs. School to see my childhood friends. When I in a low cost passive index fund, the growth of $20,000) on Deal Lake (not in the middle of a arrived at the gym, 57 of my 70 grammar school your savings over a lifetime will be exponential. block). One lesson? There is a limited amount of classmates were already there! I was You will have nearly 7 times your starting real estate on water. Seaside property retains its immediately greeted by Cheryl Gibbons, one of amount in 30 years, 12 times in 40 years, and value and almost always becomes more valuable my best friends in 1957. I hadn’t seen her since. more than 23 times in 50 years! And this doesn’t overtime.Thisisincomparisontoalandlocked Cheryl was captain of both the Wanamassa even factor in dividends! Which approximate residential lot in the middle of a block which we cheerleaders and the safety patrol and sat next over 2.5% per year. to me in home room for three years. “Ronnie, regard as a commodity. We think waterfront land Baron has historically done a lot better than Ronnie,” she called excitedly, “June, June is competitively advantaged… and oceanfront passive benchmark indexes although we cannot DiSarno, come over here.” June had also been a property is really, really competitively advantaged. assure you that will continue to be the case. Competitively advantaged properties…just like cheerleader for our grammar school. “Ronnie, competitively advantaged businesses…are limited June and I read all about you on the Lesson two. Don’t forget where you came in quantity, are more desirable, and, although are internet…that you took $1,000 you had saved from…and don’t forget who are your real friends. from your summer jobs and Bar Mitzvah, often premium-priced, grow in value faster! Thank you for joining us as fellow shareholders invested it and grew it to $4,000 by the time in Baron Funds. We will continue to work hard to Wanamassa Grammar School Reunion for my you graduated Asbury Park High School and justify your confidence in us. 1957 eighth grade graduating class. needed it for college. June and I came to your Bar Mitzvah. We are your seed money!!!” One more story. John Cougar Mellencamp sang, Respectfully, “I was born in a small town” at our annual Lesson one. Compounding. Capital gains from conference several years ago. That song is one of investing what I had earned summers as a my favorites. Not just because I like how it lifeguard, ice cream truck driver, cabana boy, sounds…but because I was also born in a small caddy, waiter, water ski instructor, hospital town and Mellencamp’s values resonate with emergency room orderly, umbrella rental boy, me. Another of my favorite songs is Journey’s and dishwasher initially did not seem like much. Ronald Baron “Don’t Stop Believing.” I suppose this is because However, that wasn’t the case over the long CEO and Chief Investment Officer that song also has small town focused lyrics. term. So, if the returns you earn on initially small November 1, 2019 P.S. While they last…if you’re a shareholder and We also have been getting lots of compliments P.P.S One more thing. Tesla wants to be sure you would like a complimentary Baron Funds’ “What’s about our T-shirt designs.