Emerging Market Performance and Outlook
In the first quarter of 2024, the Baron Emerging Markets Fund reported a performance gain of 2.50% (Institutional Shares), while its primary benchmark, the MSCI EM Index, gained 2.37%. The MSCI EM IMI Growth Index, a proxy benchmark, rose 2.98% during the quarter.
Fund Performance and Strategy
The Fund’s performance closely tracked the Benchmark but slightly lagged the Proxy Benchmark. The fund managers, Michael Kass and his team, believe the global economy is likely to experience slower growth and a peak in bond yields, which could lead to global central bank easing and a shift in equity performance favoring emerging markets (EM) and international equities. This forecast had been supported by the U.S. Federal Reserve’s (Fed) policy pivot in November 2023.
Sector and Theme Contributions
Positive contributions to the fund’s performance came from the materials sector, particularly investments in sustainability/ESG (Suzano S.A. and Grupo Mexico, S.A.B. de C.V.), and from the communications services sector, driven by digitization-related positions in India (Bharti Airtel Limited, Indus Towers Limited, and Tata Communications Limited).
Country Allocations
Brazil, South Africa, and Taiwan contributed positively to the fund’s performance, while China faced challenges. The fund managers expressed cautious optimism regarding China’s recovery, citing the government’s stimulus measures and easing of monetary and regulatory policies.
Long-Term Outlook
The fund managers emphasized the potential for emerging markets and international equities to emerge from a period of underperformance. They highlighted opportunities in India, Korea, and Latin America, particularly in sectors such as domestic consumer, financial, and industrial leaders.
Conclusion
The Baron Emerging Markets Fund’s performance in the first quarter of 2024 demonstrates the fund’s positioning in anticipation of a shift in the global economy and equity markets. The fund managers remain confident in the long-term growth potential of emerging markets and continue to actively manage the portfolio based on their research and outlook.
