This fund company was an early believer in Tesla — it’s now making these bets
Stock geeks like me look forward to a special market event four times a year, and it just happened.
No, not earnings season. I’m talking about when my favorite fund managers reveal what they bought during the previous quarter — so I can find stock ideas for you and me.
Managers reveal their activities in “13F” forms typically filed 45 days after every quarter. So another data dump just happened.
A fund group I like to track closely is Baron Capital Management, based in New York.
Not only does the firm (mostly) have great records at its funds, but it generally likes to “think different,” as Steve Jobs used to say.
That can be a big plus in investing, as opposed to traveling with the pack. Baron also makes big bets on companies with “big ideas” and winning qualities such as sustainable competitive advantages.
Big Tesla win
This strategy leads to outsized wins. Most notably, Ron Baron and his team stuck with Tesla TSLA,
Another tactic that sets Baron Capital apart is its willingness to go big on position size. While a lot of mutual funds cap positions at 1%-2% of their portfolios to manage risk, it’s not uncommon for Baron funds to have 4% positions, or larger. This makes it easier to understand what the firm really likes. The Baron Focused Growth Fund BFGFX,
To find other promising stocks favored by Baron Capital, I just looked at all the holdings in its fresh 13F filings to single out ones that increased significantly in size, as long as they were not minuscule positions. I favor names that are greater than 3% in size, except in the case of initial public offerings (IPOs) and one cannabis name, because that’s a popular space. I also favored holdings of the Baron funds with excellent outperformance.
Here’s a look at some of the most interesting third-quarter stock moves at Baron. All data are as of Sept. 30, 2021.
High-growth tech companies
Alex Umansky has an excellent record at his Baron Fifth Avenue Growth Fund, so it is a great place to start. The fund beats its Morningstar U.S. large-mid-cap broad growth index and large growth category by around 24 percentage points annualized over the past five years. You can read more about the fund here.
Umansky likes companies with lasting competitive advantages that are gaining market share. A cloud-computing company that fits the bill is ServiceNow NOW,
Among consumer-facing tech names, Umansky favors Shopify SHOP,
What about the guy who was the face of the big bet on Tesla? Ron Baron’s Baron Focused Growth Fund increased its position size substantially in Guidewire Software GWRE,
Reopening plays
Covid cases are rising again, especially in Europe and the U.K., but also in the U.S. This is beginning to weigh on the markets, particularly “reopening” plays. If you want to make a contrarian bet against the fear that Covid will shut down travel and entertainment venues again, consider Hyatt Hotels H,
Health care and biotech stocks
Neal Kaufman, who manages the Baron Health Care Retail Fund BHCFX,
Kaufman was just increasing position size in two plays on this theme — Thermo Fisher Scientific TMO,
True contrarians should be taking a close look at biotech right now. The SPDR S&P Biotech XBI,
In biotech, Kaufman took on a new position in Natera NTRA,
Among big-pharma names, Kaufman increased his positions in Abbott Laboratories ABT,
Recent IPOs
Baron is a large fund group, which gives it the privilege of access to IPOs at the offering prices. With hot IPOs, this entry will typically be far below where the IPO trades on its first day. This puts individual investors at a disadvantage. One way to get around this is to be patient and wait for IPOs to fall below where they traded in the opening days. That’s the case with three IPOs that look interesting because they are held by the Baron Discovery Fund BDFFX,
They still trade above their offering prices, but they are all well below where you would have bought them in the opening days. They are: ForgeRock FORG,
Cannabis company
In marijuana, the Baron Discovery Fund initiated a position in Hydrofarm HYFM,
One catch with all of these names is that we do not know what prices Baron funds bought them at. But a key tenet of the Baron approach is to invest for the long term. So I will assume Baron still likes these companies even if they may be up significantly from third-quarter prices. If that’s the case, one fix is to consider taking starter positions now and adding on weakness.
Michael Brush is a columnist for MarketWatch. At the time of publication, he owned TSLA, GWRE and RRR. Brush has suggested TSLA, NOW, NVDA, GWRE, H, RRR, TMO, XBI, IBB, ABT and LLY in his stock newsletter, Brush Up on Stocks. Follow him on Twitter @mbrushstocks.