Baron WealthBuilder Fund (the “Fund”) advanced meaningfully in the third quarter of 2020 and exceeded its comparable benchmarks. The Fund gained 19.79% (Institutional Shares) in the quarter. The S&P 500 Index gained 8.93%. The MSCI ACWI Index, which measures global markets, increased 8.13%.
The Fund’s quarterly performance is a continuation of the strong results exhibited since the depths of the COVID-19 induced market panic. The Fund has now advanced 32.28% since the start of the year. This result again compares favorably to its benchmarks. The S&P 500 and MSCI ACWI Indexes gained 5.57% and 1.37%, respectively
COVID-19 remains a threat to world health. But governments have met this pandemic with an unprecedented level of financial stimulus hoping to prevent the health crisis from becoming a liquidity and financial crisis. And, we assume, there will be more government financial assistance. It is yet unclear when reliable vaccines or therapeutics will be publicly introduced, and we do not know the severity of a “second wave” as the Northern Hemisphere enters colder months. However, investors have looked past these near-term uncertainties 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 September 30, 2020
| Three Months3 | Nine Months3 | One Year | Since Inception (December 29, 2017) |
|
|---|---|---|---|---|
| Baron Wealth Builder Fund Retail Shares1,2 | 19.74% | 32.08% | 46.32% | 20.79% |
| Baron Wealth Builder Fund Institutional Shares1,2 | 19.79% | 32.28% | 46.60% | 21.03% |
| Baron Wealth Builder Fund TA Shares1,2 | 19.78% | 32.36% | 46.79% | 21.06% |
| S&P 500 Index1 | 8.93% | 5.57% | 15.15% | 10.48% |
| MSCI ACWI Index1 | 8.13% | 1.37% | 10.44% | 5.63% |
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, 2031, 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.
We wrote extensively in the prior quarterly report about the various investment periods in 2020: Pre-COVID-19, the COVID-19 Panic, and the COVID-19 Temporary Normal. The Fund’s investments vary across market caps, sectors, geographies, and growth rates, and we previously explained how each performed in these different environments.
The economy remains in this “COVID-19 Temporary Normal” period as individuals and businesses continue to adapt many of their practices to conform with the health realities. The Fund is populated with businesses that are driving change in the economy and the implications of COVID-19 have accelerated many of these transformations. Underlying funds with exposure to disruptive businesses again had the most sizable impact. Additionally, the underlying funds with investments in smaller companies, real estate, and emerging markets also performed well in this environment.
Underlying funds, like Baron Focused Growth, Baron Partners, and Baron Opportunity Funds, with portfolios dominated by companies with potential to disrupt large segments of the economy did well. It was led by companies like Tesla, Inc. We expect Tesla’s deliveries to grow by over 30% this year. Its facilities were able to return to activity faster than most anticipated. Its international factories have implemented learnings from its original site to ramp production at a far faster rate than its legacy plant. And investors are convinced that these results can be duplicated as its new production plants open around the globe next year.