Baron Partners Fund: Latest Insights and Commentary

U.S. stocks struggled during the first quarter of 2025 as the shock of Trump’s tariff war erased any optimism that the U.S. stock market or economy would continue to flourish under the new administration, replaced by heightened concerns of a possible recession. The mass layoffs of federal workers added to the confusion. The Magnificent Seven, which had led the market on AI-driven enthusiasm, were even harder hit by tariff uncertainties, as their relatively high valuations made them more exposed to a slowdown. In addition, the January launch of Chinese AI app DeepSeek as a less expensive alternative to U.S.-based AI models had investors questioning whether the massive investments in AI would ultimately produce the expected outsized returns. The Russell Midcap Growth Index declined 7.1%.

GDP growth is widely predicted to slow during 2025, reflecting weakening consumer demand and more cautious corporate spending. Consumer confidence has plummeted. The March 2025 inflation figure came in above the U.S. Federal Reserve’s target of 2%, as measured by the Consumer Price Index. The Fed has taken a wait-and-see approach as the effects of heightened U.S. policy uncertainty on growth, inflation, and employment play out. It left interest rates unchanged in its first meeting of the year.

Against this challenging backdrop, Baron Partners Fund declined. Communication Services, Real Estate, and Financials holdings contributed the most. Investments within Consumer Discretionary, Information Technology (IT), and Health Care detracted. Second largest contributor X.AI Holding Corp. drove gains within Communication Services. Appreciation within Real Estate was driven by top contributor CoStar Group, Inc. Financials benefited from share price gains in third largest contributor Arch Capital Group, Inc. Consumer Discretionary had a rough quarter, with all five holdings giving up ground, led by Tesla, Inc. and Hyatt Hotels Corporation, the top and second largest detractors, respectively. Third largest detractor Gartner, Inc. drove declines within IT. The sole holding within Health Care, veterinary diagnostics platform IDEXX Laboratories, Inc., detracted as foot traffic to veterinary clinics remained under pressure. 

The second quarter may bring with it as much doubt and volatility as the first quarter, given continued elevated uncertainty around tariffs. After reaching a record high of more than $3.3 trillion in corporate profits in the fourth quarter of 2024, U.S. companies are scrambling to estimate the potential impact of the tariff war. As first quarter earnings season approaches, many observers expect businesses to offer weaker earnings guidance for the rest of the year or withdraw guidance completely.

We are closely monitoring current market conditions while staying focused on company fundamentals -- well-managed businesses with durable competitive advantages and compelling growth prospects at attractive prices -- as we believe this is the best way to generate alpha over the long term, although there are no guarantees.

CONTRIBUTORS

• The contributors to performance for period ending March 31, 2025 is not yet available

 

DETRACTORS

• The detractors to performance for period ending March 31, 2025 is not yet available