Active Investing Is Alive and Well at Baron Funds’ Annual Investors Meeting

"We want Baron fund investors to better understand the funds they're investing in," said Baron Capital Chairman and CEO Ron Baron, who was a research analyst when he founded the company 25 years ago. (Its first fund, the Baron Small Cap Growth Fund, started trading the following year, in 1983.) The firm focuses on investing in equities for the long term based on its extensive research of individual companies and their stocks.

This reporter missed the entertainers and corporate CEOs but listened to the roundtable of eight portfolio managers for 10 funds — two 5-star, five 4-star, two 3-star and one 2-star fund, according to Morningstar's ratings for their retail shares. They represent most of the managers and funds of the firm, which has only 13 funds and 10 portfolio managers.

Here are some of the highlights from that session:

• Non-U.S. equities can perform better than they have in relation to U.S. stocks over the next 15 years, according to Michael Kass, portfolio manager of Baron International Growth (BIGFX) and Baron Emerging Markets (BEXFX) funds.

He said the populist wave in the U.S. is a risk to capital, which is not the case outside the U.S. He sees opportunities in Japan, Europe and the developing world, whose liquidity cycle is running about 18 months to two years behind that of the U.S.

• Among developing markets, China is a favorite for the next 10 years but India is one for the next 20 years, said Alex Umansky, manager of the Baron Fifth Avenue Growth (BFTHX) and Baron Global Advantage (BGAFX) funds. Both economies are growing at rates two or more times that of the U.S. and more than three times the growth rate of Europe.

• Overall, "high-quality growth companies are now in vogue and their multiples are expanding," said Cliff Greenberg, a director of the Baron Capital Group and portfolio manager of the Baron Small Cap fund (BSCFX). "The market is shining on our types of stocks."
• The flip side of those gains is fewer bargain buys available, although there are opportunities, said Jeff Kolitch, portfolio manager of Baron Real Estate Fund (BREFX). He looks for companies whose stocks are trading at a 25% discount to their liquidation value, which is the case for MGM and CBRE shares, both holdings in the fund as of the end of the third quarter, according to Morningstar.

• There is no end in sight yet for the tech cycle, according to Mike Lippert, portfolio manager of the Baron Opportunity Fund (BIOPX). He expects sustainable, meaningful earnings growth due to continued technology innovations and chose Wix.com, (WIX), a web development platform provider, when asked for his top stock pick.

• Other stocks chosen by Baron portfolio managers were NCS Multistage Holdings (NCSM), which provides engineered products and support services for natural gas well completions; Novanta (NOVT), which designs, develops, manufactures and sells precision photonic and motion control components to original equipment manufacturers in the medical, industrial, electronics and scientific markets; and Hangzhou Hikvision (002415.CH), a China-based video and surveillance product manufacturer.

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