{"id":49068,"date":"2023-08-16T07:53:54","date_gmt":"2023-08-16T11:53:54","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/baron-funds-q2-2023-report-letter-from-ron-baron\/"},"modified":"2023-08-16T07:53:57","modified_gmt":"2023-08-16T11:53:57","slug":"baron-funds-q2-2023-report-letter-from-ron-baron","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=49068","title":{"rendered":"Baron Funds Q2 2023 Report – Letter From Ron Baron"},"content":{"rendered":"
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\u201cA shoe is just a shoe until someone steps into it…\u201d – Deloris Jordan., Michael Jordan\u2019s mom. Air: Courting a Legend. <\/em>Spring 2023.<\/strong><\/p>\n<\/blockquote>\n

That was how Deloris Jordan, Michael Jordan\u2019s mom, described her vision <\/em>to Nike (NKE) for a basketball shoe she wanted named for her son. <\/em>Mrs. Jordan outlined the impact Michael\u2019s story <\/em>could have on Nike\u2019s business. That was since Deloris believed Michael would become the greatest basketball player ever! \u201cA shoe is just a shoe until someone steps into it,\u201d she explained\u2026and ultimately persuaded Nike to bet on her son as an influencer <\/em>for the Nike brand. <\/em>Mrs. Jordan represented Michael in contract negotiations with Nike. Those discussions\u2026and Nike\u2019s executives\u2019 interviews with Michael and Deloris\u2026extensive viewings of Michael\u2019s college game films\u2026interviews with Michael\u2019s coaches and people who knew him well<\/em>\u2026and Deloris\u2019 unwavering belief in her son\u2026 led Nike to create the Air Jordan brand.<\/p>\n

Nike was founded by Phil Knight and his college track coach in 1964. Knight began selling running shoes with an innovative waffle sole he had designed for college track athletes\u2026from the trunk of his car!<\/p>\n

In 1984, Michael Jordan\u2019s rookie year in the NBA and 20 years after Nike\u2019s founding, that company was principally a running shoes business. Nike\u2019s annual revenues then approximated $900 million, and its basketball shoe division was not profitable\u2026 and about to be closed.<\/p>\n

In 1984, Air Jordan catapulted the Nike brand into relevancy. That\u2019s because Nike and Deloris TOLD THE STORY about Michael Jordan, the person who stepped into the Air Jordan shoe\u2026<\/em>after Phil Knight made what seemed at the time a \u201crisky investment\u201d in Jordan because it \u201cfelt like the right thing to do.\u201d Today, Air Jordan\u2019s annual basketball shoe revenues approximate $5 billion, about 10% of Nike\u2019s $50 billion annual sales!<\/p>\n

Trina Spear is the co-founder and CEO of FIGS, Inc. (FIGS), the native online provider of exceptional health care worker uniforms of the highest quality. The lesson Trina learned from Air Jordan\u2019s incredible success? She believes what drives the most revenue for a business isn\u2019t necessarily what drives the most brand awareness.<\/em><\/p>\n

FIGS has designed the most attractive, innovative, and technical branded scrubs for its community <\/em>of health care workers by making investments that seemed risky at the time but were the \u201cright thing to do\u201d. It has established a competitive advantage for its brand by TELLING THE STORY <\/em>and providing unwavering support for its community <\/em>of individuals she calls Awesome Humans<\/em>. They are the doctors and nurses who work so hard to serve the rest of us… and, whom, she believes\u2026and we do, too\u2026 are generally underappreciated.<\/p>\n

FIGS\u2019 annual revenues have increased from zero to $500 million in the past 10 years. This is due to the incredible support and buy-in of the health care community. One of the first individuals who mentored me early in my career used to tell me, \u201cWhat goes around, comes around.\u201d We believe that to be so\u2026and we also believe FIGS, in part due to its community <\/em>support, is just getting started.<\/p>\n

One more thing. Trina Spear started her business selling FIGS scrubs she and her co-founder partner had designed\u2026from the trunk of Trina\u2019s car in hospital parking lots\u202650 years after Phil Knight sold shoes from the trunk of his car!<\/p>\n

We have an analogous story at Baron. I have often shared with the incredibly talented individuals with whom I have worked for so many years my view that Baron should not even exist. That is since few firms have been able to outperform benchmark indexes\u2026and extremely low cost passively managed funds by definition earn benchmark returns. To outperform benchmarks we would need to recruit, train, and retain exceptional people\u2026have a differentiated process\u2026consistently invest in our people and business\u2026OUTPERFORM\u2026put our clients\u2019 interests ahead of our own\u2026and TELL OUR STORY!!! We have accomplished all that.<\/p>\n

Since their respective inceptions as mutual funds, 16 of 19 Baron mutual funds, representing 98.7% of Baron Fund\u2019s AUM, have outperformed their benchmarks.<\/p>\n

Thirteen Baron mutual funds, representing 96.3% of Baron Funds\u2019 AUM, rank in the top 20% of their respective Morningstar categories. Nine funds, representing 56.4% of Baron Funds\u2019 AUM, rank in the top 10% of their categories, and five funds, representing 46.7% of Baron Funds\u2019 AUM, rank in the top 1% of their categories. All five of these funds are the number one performers in their categories. Baron Partners Fund is the number one performing U.S. equity mutual fund since its conversion from a partnership to a mutual fund in 2003.* Its performance as a partnership from 1992 through 2003 was equally strong.<\/p>\n

In early August, Michael Baron, David Baron, President and COO Linda Martinson, General Counsel Pat Patalino, CFO Peggy Wong, and I met with Baron Funds\u2019 Independent Board of Trustees, as we do each quarter. The Independent Trustees are employed by Baron Funds, not by Baron, my family\u2019s private management company. The Independent Trustees are charged by SEC regulation with oversight of Baron Funds and BAMCO, Inc., the adviser to Baron Funds. To fulfill their responsibilities, the Trustees ask Baron executives to discuss our outlook and business operations as well as our investment strategies, tactics, and performance. They also frequently ask to speak with portfolio managers and analysts, as well as other professionals in Accounting, Legal and Compliance, IT, Sales, Marketing, and Trading.<\/p>\n

At our May meeting, a third-party was commissioned to produce reports to help the Independent Trustees with the renewal of the Funds\u2019 investment advisory contracts with Baron. Those reports analyzed the relative and absolute performance of Baron Funds. I was pleased to read commentary concluding that most Baron Funds outperformed their benchmark indexes and their respective peer groups. We believe our funds have outperformed by not being the same as the market. According to the reports, with respect to top performing Baron Partners Fund, there were \u201cno peer funds that…were a reasonable style match\u201d for that fund. I believe this is the case for most of our mutual funds as well, which is why they have outperformed virtually all other mutual funds.<\/p>\n

I informed the Trustees that despite challenging market and economic conditions, Baron continued to consistently invest in its business. Without interruption. In addition to expanding our office footprint about 50% during the past nine months, Baron added 16 individuals to our team. Baron now employs 201 individuals. Despite layoffs in financial services and reductions in compensation for many in our industry, that has not been the case at Baron. Baron continues to hire, train, and retain. This is due to our belief that the longer talented professionals work together, the better our performance for clients is likely to be. Since Baron has never had a layoff in our 41-year history, we believe we have been able to recruit the best investors. Loyalty is a two-way street, we think. Of course, Baron\u2019s no layoffs <\/em>practice has been the case, despite the fact that our family business profitability has not always been optimal.<\/p>\n

One more thing. Fortunately, a few of our recent hires appear to be serious athletes. At least, I hope that is the case since we\u2019re trying really hard to improve our teams\u2019 standings in the intramural Wall Street softball and basketball leagues, The JP Morgan Corporate Challenge, and golf competitions. We live in hope.<\/p>\n

Thank you for joining us as fellow shareholders in Baron Funds.<\/p>\n

Respectfully,<\/strong><\/em><\/p>\n

Ronald Baron, CEO<\/strong><\/em><\/p>\n

P.S.<\/strong> We hope to see you at the 30th <\/sup>annual Baron Investment Conference on November 10, 2023. It will take place, as it has since 2005, at The Metropolitan Opera House in Lincoln Center in New York City. This fall, we will celebrate our 41st <\/sup>year in business. These annual meetings are typically attended by more than 5,000 Baron Funds\u2019 shareholders and Baron clients. I promise you will learn a lot from the exceptional CEOs who manage the competitively advantaged growth companies in which your savings have been invested. I hope you will also come to understand even better our Firm\u2019s mission. That is to provide extraordinary investment opportunities to middle class individuals like my parents that are more commonly available only to institutions and very wealthy individuals.<\/p>\n

We\u2019re sure you\u2019ll have a great time. The entertainment at lunch and in the afternoon isn\u2019t exactly chopped liver <\/em>as they say. We will also continue with drawings for what have become traditional Tesla door prizes before lunch. Those amazingly beautiful automobiles\u2026the safest ever made on Planet Earth\u2026are given at our expense\u2026not yours. Just like all the expenses incurred that day. Ours. Not yours. It is our way to say \u201cThank you\u201d for trusting us to manage your family\u2019s hard-earned savings. We can\u2019t promise investment returns\u2026but we can promise we will try as hard as possible to continue to achieve outstanding results. See you November 10. Oh, yeah. You\u2019ll have a better chance to win a Tesla than to win the Lottery!!! That I can guarantee.<\/p>\n

P.P.S.<\/strong> Don\u2019t forget to get an absolutely delicious ice cream cone on the Lincoln Center Plaza at the end of the day. This year, we will have four Scream Ice Cream trucks waiting for you as you leave the Lincoln Center campus. I have a small personal investment in the Scream Ice Cream business. One college summer, I drove an ice cream truck, and when I had the chance to go back to my \u201croots\u201d by investing in Scream, I grabbed it. The cones are \u201con the house.\u201d Just tell the ice cream man, \u201cRon sent me.\u201d And don\u2019t forget to pick up a \u201cswag\u201d bag as you leave. This year, in addition to our \u201cOWN IT\u201d Baron conference t-shirts made by FIGS and a big chocolate chip cookie, we\u2019ve included Walter Isaacson\u2019s Elon <\/em>biography. It is an amazing story! Just Amazing!!!!! Enjoy!!<\/p>\n

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* This is a hypothetical ranking created by Baron Capital using Morningstar data and is as of 6\/30\/2023. There were 2,113 share classes in these nine Morningstar Categories for the period from 4\/30\/2003 to 6\/30\/2023.<\/em><\/p>\n<\/td>\n<\/tr>\n<\/table>\n

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