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VO LU M E 4 / N O. 3 • S U M M E R 2 0 07
On the Avenue
INVESTOR
Baron 5th Ave. Growth Fund Seeks Global Growth
H ave you had a cocktail lately? A stick of gum or a
candy bar? How about a bowl of yogurt? Or perhaps you’ve
premium brands have been
gaining on value brands, we
sent an overnight delivery or stayed in a hotel. If so, you may believe from shifting demo-
well have purchased the product or service of one of the graphics and consumer
companies in which Baron Fifth Avenue Growth Fund has preferences. The result is a
invested for their global growth prospects. growth rate in the mid teens
“Much more than with smaller companies,” says Randy that we believe can be sus-
Haase, portfolio manager of the large-cap growth Fund, tained for years to come.”
“larger companies are likely to be multinational, doing busi- Group Danone (1.0%)
ness both in the U.S. and overseas. Whether it’s a U.S. com- is a French company well
pany that’s expanding globally or an internationally based known in the U.S. for its
company that also markets in the U.S., we’re taking a close Dannon and Stoneyfield yo-
look to see if its growth prospects warrant an investment. gurt brands and Evian water.
“Global growth business investments,” says Randy, “allow The company currently sells
us to participate in country economies growing faster than its products in just 30 coun- Randy Haase
America’s … as well as to diversify our risks by earning non- tries, where it enjoys a 36% market share.
dollar currencies. Multi-national companies represent about “Group Danone has benefited from consumer interest
44% of Baron Fifth Avenue Growth Fund’s portfolio. We in health and wellness products, which is one of our themes
think these businesses have strong and sustainable long-term when selecting companies,” says Randy. “In the entire food
growth opportunities. Like our large-cap U.S. growth com- and beverage category, the fastest growing segment is organic
pany investments they are market-share leaders with strong foods.” Sales of organic products grew from $4 billion in 1997
franchises and well-known brand names. Within Baron Fifth to $17 billion in 2006 and are projected to double to $34
Avenue Growth Fund, we believe that a lot of the companies billion in 2011, according to industry sources.
have strong growth potential not only in the U.S., but outside “Not only is organic the fastest-growing segment in the
the U.S. as well.” food and beverage industry,” says Randy, “the fastest-growing
Of the 50 companies currently held by Fifth Avenue
continued on page 2
Growth, three are domiciled outside the U.S. Together they
represent about 6.2% of the portfolio’s assets. While their
BARON
names may not all be familiar, their brands are.
Diageo (3.7% of the portfolio as of June 30), based in the
U.K., is the world’s largest spirits company, producing and
marketing premium brand spirits including Smirnoff,
INVESTOR
What’s Inside
Tanqueray, Captain Morgan, Johnnie Walker, J&B, Baileys Baron 5th Ave. Seeks Global Growth . . . . . . . . . .page 1
and Jose Cuervo. Its brands, Randy says, account for 29% of Baron Fifth Ave. Growth Portfolio Holdings . . . . .page 2
spirit sales in the U.S. and 21% of spirit sales worldwide. Inside iOpportunity: No More Books . . . . . . . . . .page 3
Diageo, says Randy, is benefiting from several trends. Performance as of December 31, 2006 . . . . . . . . .page 4
“Spirits are taking market share from wine and beer. And Baron Investment Conference . . . . . . . . . . . . . . . .page 4
How to Contact Baron Funds . . . . . . . . . . . . . . . .page 4
continued from page 1
The subscription-based business enjoys a high re- These companies demonstrate the powerful effect of
newal rate and has plans to expand into retail real estate. the Internet on distribution and related costs. Where
Costar currently has no competitors and, in our opinion, information providers such as these companies would
presents a high barrier to entry for others. once have relied on the frequent and expensive publish-
ing of books and directories, they now take advantage of
Gartner Group (1.8%) is another example of a com- online distribution, which we think enhances the value of
pany generating information for online sale and distribution. their products and services, while greatly reducing costs.
Its 650 analysts produce comprehensive reports and consult
for information technology executives. Gartner is also a sub- (Baron iOpportunity Fund invests in companies that we believe will
scription-based business with a high renewal rate. benefit from growth opportunities resulting from the Internet and in-
formation technology. In this column, Portfolio Manager Michael
The company provides guidance on trends and tech- Lippert presents his views on technologies and developments that he
nologies that will influence purchasing, security and gen- believes will influence the market in the months to come.)
services by manufacturers of technol- to India, making FedEx the largest “When it comes to selecting com-
ogy. And last is the expanding e-com- carrier currently serving that market. panies for Fifth Avenue Growth
merce market. Companies like FedEx, Another example of a U.S. com- Fund,” says Randy, “clearly one of the
says Randy, are the last link in online pany with growth prospects both here themes is global growth. Whether it’s
purchases. and abroad, says Randy, is Pepsi (3.2%). picking a U.S. company like Marriott,
As for growth prospects, both in Its five major brands are Pepsi, FedEx or Pepsi for its potential to ben-
the U.S. and beyond, Randy notes that Tropicana, Frito-Lay, Gatorade and efit from overseas markets or a com-
while 25% of the company’s revenue Quaker Oats. pany overseas like Diageo, Group
now comes from outside the U.S., 95% In 2002, Randy says, Pepsi Danone or Cadbury for its potential to
of consumers live outside the U.S. achieved more than $200 million in also grow in the U.S. market, we’re
“Given those numbers,” says Randy, revenue from each of 7 international looking for quality companies that are
“we believe FedEx will experience sub- markets. Last year, it exceeded $200 well known and respected.”
stantial growth in overseas markets.” million in 15 international markets. (Baron Fifth Avenue Growth Fund
As is the case with Marriott, Randy Last year, he says, Pepsi’s operating invests in large companies that we believe
says, FedEx also has significant growth earnings outside the U.S. were 20% of have significant growth potential over the
opportunities in China and India. the total. In 2009, Pepsi projects oper- next five years. This is the first install-
FedEx has just begun overnight deliv- ating earnings outside the U.S. will ment of a column in which Portfolio
ery service to 19 cities in China. Within reach 30%. In the last quarter, overall Manager Randy Haase presents his views
China, overnight service for 60 cities is earnings were up 17%, while operating on the companies, industries and devel-
set to launch soon. As for India, there earnings from outside the U.S. were up opments that he believes will be impor-
are now 16 weekly flights from the U.S. 29%, Randy says. tant in the months to come.)