Baron WealthBuilder Fund (the “Fund”) advanced considerably in the second quarter of 2020 and meaningfully exceeded its comparable benchmarks. The Fund gained 35.46% (Institutional Shares) in the quarter. The S&P 500 Index (the “Index”) gained 20.54%. The MSCI ACWI Index, which measures global markets, increased 19.22%.
The Fund’s gains in the quarter have more than offset the sudden and rapid declines in the first quarter as COVID-19 began to impact America and halt many global economies. The Fund has now advanced 10.42% since the start of the year. This result compares favorably to its benchmarks. The Index has fallen 3.08% in the first six months of 2020. The MSCI ACWI Index has declined 6.25%.
While COVID-19 remains a threat to world health, governments have met this pandemic with an unprecedented level of financial stimulus to prevent the health crisis from becoming a liquidity and financial crisis. Stay at home measures have had a severe impact on many individuals’ ability to earn and spend. However, investors have looked past their depressed results and valued businesses on their potential growth and anticipated future profits.
Michael Baron, Assistant Portfolio Manager and Ron Baron, CEO & Portfolio Manager
Table 1. Performance
Annualized for periods ended June 30, 2020
| Three Months3 | Six Months3 | One Year | Since Inception (December 29, 2017) |
|
|---|---|---|---|---|
| Baron Wealth Builder Fund Retail Shares1,2 | 35.31% | 10.30% | 19.53% | 14.53% |
| Baron Wealth Builder Fund Institutional Shares1,2 | 35.46% | 10.42% | 19.83% | 14.77% |
| Baron Wealth Builder Fund TA Shares1,2 | 35.43% | 10.50% | 19.91% | 14.80% |
| S&P 500 Index1 | 20.54% | (3.08)% | 7.51% | 8.23% |
| MSCI ACWI Index1 | 19.22% | (6.25)% | 2.11% | 2.94% |
1 The indexes are unmanaged. The index performance is not Fund performance; one cannot invest directly into an index. The S&P 500 Index measures the performance of 500 widely held large cap U.S. companies. The MSCI ACWI Index is an unmanaged, free float-adjusted market capitalization weighted index reflected in US dollars that measures the equity market performance of large- and mid-cap securities across developed and emerging markets. The indexes and the Fund are with dividends, which positively impact the performance results.
2 The performance data in the table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
3 Not annualized.
Performance listed in the above table is net of annual operating expenses. Annual expense ratio for the Retail Shares, Institutional Shares, and TA Shares as of December 31, 2019 was 1.57%, 1.33%, and 1.33%, respectively, but the net annual expense ratio was 1.48%, 1.23%, and 1.23% (includes acquired fund fees, net of the Adviser’s fee waivers), respectively. The performance data quoted represents past performance. Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate; an investor’s shares, when redeemed, may be worth more or less than their original cost. BAMCO, Inc. (‘BAMCO” or the “Adviser”) has agreed that, pursuant to a contract expiring on August 29, 2030, unless renewed for another 11-year term, it will reimburse certain expenses of the Fund, limiting net annual operating expenses (portfolio transaction costs, interest, dividend, acquired fund fees and expenses and extraordinary expenses are not subject to the operating expense limitation) to 0.30% of average daily nest assets of Retail Shares, 0.05% of average daily net assets of Institutional Shares and 0.05% of average daily net assets of TA Shares, without which performance would have been lower. Current performance may be lower or higher than the performance data quoted. For performance information current to the most recent month end, visit www.BaronFunds.com or call 1-800-99BARON.
Economic events and cycles do not neatly line up with quarters or even years. The COVID-19 pandemic did not begin precisely on January 1 and we doubt its conclusion (as measured by the development of widely available therapeutics or a vaccine) will exactly coincide with the final day of a month or year. Therefore, we find it more insightful and helpful to understand how the Fund has performed thus far through the COVID-19 cycle rather than only the previous three-month period.
2020 can be divided into three segments: pre-COVID-19, the COVID-19 panic, and the COVID-19 temporary normal. The underlying funds’ investments vary across market caps, sectors, geographies, and growth rates. These categories have performed differently in these various periods. That diversity has contributed to the strong relative and absolute returns exhibited so far in the year.
Pre-COVID-19: December 31, 2019 – February 19, 2020
The Fund performed very well during the pre-COVID-19 environment, December 31 through the Index’s peak on February 19. This period was a continuation of the 2019 economic conditions. Disruptive and high-growth companies that exhibited revenue expansion and operational efficiencies were rewarded as the likelihood of their long-term success increased. Underlying funds with investments in disruptive companies, like the concentrated Baron Focused Growth and Partners Funds, led the performance. High-growth diversified portfolios, like Baron Opportunity and Global Advantage Funds, also did well. Several funds’ performance was helped by advances in Tesla, Inc.