ATOXF - Baron Focused Growth Fund Q1 2024 Shareholder Letter

2024-04-24 11:25:00 ET

Summary

• Baron is an asset management firm focused on delivering growth equity investment solutions known for a long-term, fundamental, active approach to growth investing.
• Baron Focused Growth Fund increased 1.68% in the first quarter.
• The Fund underperformed the Russell 2500 Growth Index (the Benchmark), which increased 8.51%.
• The Fund has continued to generate strong returns with less than market risk.

Dear Baron Focused Growth Fund Shareholder: Performance

Baron Focused Growth Fund®(the Fund) increased 1.68% (Institutional Shares) in the first quarter. The Fund underperformed the Russell 2500 Growth Index (the Benchmark), which increased 8.51%. During the quarter, the U.S. economy generated strong growth with continued job gains and strong employment. This economic growth combined with a slower-than- expected reduction of inflation led investors to price a smaller number of Federal Reserve (the Fed) interest rate cuts this year. Yields also increased significantly in the period. That led to losses in our Disruptive Growth investments whose valuations were negatively impacted by higher interest rates. Included in this category of investments were Tesla, Inc. ( TSLA ) , FIGS, Inc. ( FIGS ) , and Iridium Communications Inc. ( IRDM ). In the near term, we believe that inflation will likely remain at historic 3% to 4% annualized levels and interest rates will start approximating the rate of inflation. This has generally been the case since World War II. We believe that is a favorable environment for businesses that are growing significantly faster than the rate of inflation and the 7% nominal annualized growth rate of our economy.

The above stock price declines were partially offset by gains in our Financials investments, Interactive Brokers Group, Inc. ( IBKR ) and Arch Capital Group Ltd. ( ACGL ) , that benefit from higher interest rates. Our Real/Irreplaceable Asset investments, which include Hyatt Hotels Corporation ( H ) , Red Rock Resorts, Inc. ( RRR ) , and Choice Hotels International, Inc. ( CHH ) , also performed well in the quarter. Those businesses benefit from significant daily pricing power in an inflationary environment. They are also benefiting from consumers' continued preference for experiences over goods....

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