BROE - Baron International Growth Fund Q4 2023 Shareholder Letter

2024-01-28 20:15:00 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 International Growth Fund® (the Fund) gained 7.78% (Institutional Shares) during the final quarter of 2023, while its primary benchmark index, the MSCI ACWI ex USA Index (the Benchmark), rallied 9.75%.
• For the full-year 2023, the Fund appreciated 7.60% while the Benchmark rallied 15.62% and the all-cap growth Proxy Benchmark gained 14.04%.
• we believe EM in general, and particularly those economies and companiesgeared toward the improvement in domestic growth, consumption, and investmentthat we expect to result from declining interest rates and appreciatingcurrencies, will likely benefit the most from this inflection point infinancial conditions and capital flows.

Dear Baron International Growth Fund Shareholder:

Performance

Baron International Growth Fund® ( BIGFX , BINIX, BWBFX , the Fund) gained 7.78% (Institutional Shares) during the final quarter of 2023, while its primary benchmark index, the MSCI ACWI ex USA Index (the Benchmark), rallied 9.75%. The MSCI ACWI ex USA IMI Growth Index (the Proxy Benchmark) added 10.99% for the quarter. For the full-year 2023, the Fund appreciated 7.60% while the Benchmark rallied 15.62% and the all-cap growth Proxy Benchmark gained 14.04%. The Fund underperformed the Benchmark and the Proxy Benchmark during the final quarter and the full-year periods. In recent quarters, we have highlighted that we were likely passing through peak hawkishness , with better days ahead for the relative performance of non-U.S. equities. Early in the fourth quarter, an increasingly restrictive rise in real yields and slowing U.S. employment and inflation momentum, triggered a re-evaluation of likely U.S. Federal Reserve (the Fed) policy, which the Fed soon confirmed by suggesting its hiking cycle was complete. The Fed also surprised markets by communicating that rate cuts would likely occur sooner and in greater magnitude than investors expected. While we previously believed that the Fed would be too backward-looking and too patient to meaningfully pivot, thereby raising the likelihood of global recession, we were impressed with its more flexible and forward-looking reaction. In short, bond yields and financial conditions reacted swiftly, pricing in rate cuts and easing liquidity conditions. While markets cheered the pivot, evidenced by the largest quarterly gain in global equities in the past 3 years, we believe this event also likely foreshadows the end of the 14-year U.S. dollar bull market, and will usher in a cycle of relative outperformance by non-U.S. equities. While we suspect financial markets may have moved a bit too far, too fast, and some consolidation of gains and market volatility will follow, we believe the time has come for investors to rebalance portfolios in favor of international and emerging market ('EM') equities. Of course, we remain confident that our diversified portfolio of well-positioned and well-managed companies will capitalize on their attractive growth potential over the coming years....

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