The Baron Growth Fund has experienced a positive performance for the quarter and year ended December 31, 2023, gaining 7.70% and 14.97%, respectively. However, despite these gains, the Fund was not able to outperform its primary benchmark, the Russell 2000 Growth Index, during this time period. This can be attributed to the Fund’s focus on high-quality growth assets, which put it at a relative disadvantage in December due to short-term developments in some of its largest investments. Nonetheless, the Fund remains optimistic about its long-term strategy and expects positive results over cycles. The recent quarter saw a market rally, driven by declining interest rates and a dovish tone from the Federal Reserve. However, the Fund’s focus on higher-quality and less volatile stocks affected its performance in December. Specifically, investments in Vail Resorts, Choice Hotels International, and Iridium Communications were impacted by short-term developments. On the other hand, the Fund’s investment in CoStar Group may potentially benefit from changes in the residential real estate market. Overall, the Fund maintains its optimism and confidence in its long-term investment strategy.

Performance Overview

Quarterly performance of Baron Growth Fund

In the fourth quarter of 2023, Baron Growth Fund experienced a gain of 7.70%. Although this is a positive performance, it is important to note that the fund trailed its primary benchmark, the Russell 2000 Growth Index, which posted higher returns for the same period.

Yearly performance of Baron Growth Fund

For the year ended December 31, 2023, Baron Growth Fund achieved a stronger performance with a gain of 14.97%. However, even though the fund delivered positive returns, it still fell short of the Russell 2000 Growth Index’s performance over the same period.

Comparison with primary benchmark, Russell 2000 Growth Index

Baron Growth Fund’s quarterly and yearly performances were both lower than the returns of its primary benchmark, the Russell 2000 Growth Index. This indicates that the fund did not outperform the broader market during these timeframes.

Relative disadvantage in December due to focus on high-quality growth assets

During the month of December, Baron Growth Fund faced a relative disadvantage due to its focus on high-quality growth assets. While these assets generally offer stability and long-term growth potential, they tend to be less responsive to short-term market fluctuations. As a result, the fund’s performance lagged behind during this specific period.

Factors Affecting Performance

Negative impact of short-term developments in largest investments

The performance of Baron Growth Fund was affected by negative developments in some of its largest investments. These short-term factors had a detrimental impact on the fund’s overall performance, highlighting the importance of closely monitoring individual holdings and their potential influence on the fund’s returns.

Rally in stocks driven by declining interest rates and Federal Reserve’s tone

The overall rally in stocks during the quarter was largely driven by two factors: declining interest rates and the dovish stance adopted by the Federal Reserve. Lower interest rates tend to stimulate economic growth and increase investor confidence, leading to higher stock prices. Additionally, the Federal Reserve’s reassuring tone regarding its monetary policy contributed to the upward momentum in the stock market.

Underperformance in December due to focus on higher-quality, less volatile stocks

Baron Growth Fund’s focus on higher-quality, less volatile stocks resulted in underperformance during the month of December. While this investment strategy is geared towards delivering consistent, long-term growth, it may lag behind during periods of heightened market volatility. In December, the stock market experienced increased turbulence, causing the fund’s holdings to underperform in comparison to more aggressive, but riskier, investment options.

Short-term developments in Vail Resorts, Choice Hotels International, and Iridium Communications

Some of Baron Growth Fund’s largest investments, such as Vail Resorts, Choice Hotels International, and Iridium Communications, were impacted by short-term developments. These developments could include negative news, economic indicators, or factors specific to the respective companies that impacted their stock prices. Such events can have a significant influence on the fund’s overall performance.

Potential benefit of investment in CoStar Group

Baron Growth Fund’s investment in CoStar Group holds the potential for benefit in the future. As the residential real estate market undergoes potential changes, CoStar Group, a company specializing in providing real estate data and analytics, may play a crucial role. The fund’s investment in CoStar Group anticipates leveraging these potential shifts in the market, which could contribute to the fund’s long-term performance.

Fund’s Long-Term Strategy

Remain optimistic about long-term strategy

Despite the short-term performance challenges faced by Baron Growth Fund, the fund’s management team remains optimistic about its long-term strategy. They recognize that investment performance is subject to market cycles, and individual periods of underperformance do not necessarily undermine the viability of the overall strategy.

Positive results expected over cycles

Baron Growth Fund maintains its belief that over market cycles, its long-term strategy will deliver positive results. While short-term fluctuations and underperformance may occur, the fund’s focus on high-quality growth assets and its commitment to diligent research and analysis provide a strong foundation for positive returns in the future.

By adopting a long-term perspective and remaining steadfast in their investment approach, Baron Growth Fund aims to navigate market challenges and ultimately deliver favorable results for its investors. Through careful monitoring and assessment of individual holdings, as well as staying attuned to broader market trends, the fund endeavors to achieve its investment objectives and generate long-term growth.