As one of the United States’ top stockpickers, Michael Baron faces significant exposure to the spreading coronavirus epidemic, which has posed a challenge for travel companies such as Hyatt Hotels Corp. and Norwegian Cruise Line Holdings Ltd.
Both are among the concentrated picks of the US$3-billion Baron Partners Fund, and shares of each have taken hard hits as investors try to predict the long-term economic consequences of the virus.
Further declines could undermine the fund’s strong relative performance, up 9.73 per cent through March 3, according to Morningstar, and better than 99 per cent of peers so far in 2020 – as it was in 2019 and for the past 10 years.
In a telephone interview on Tuesday afternoon, Mr. Baron sounded positive even as markets renewed their downward trend. Mr. Baron indicated he plans few changes and said the market swoon will not test his steadiness so much as the underlying research that went into choosing the stocks in the first place.
Major contributions to the fund’s recent record have came from its two largest holdings, real estate data provider CoStar Group Inc. and electric car maker Tesla Inc., together 35 per cent of the fund’s portfolio as of Dec. 31.
“It’s our research, it’s not our nerve,” Mr. Baron said.
“We don’t spend our time trying to predict things that are unpredictable. The virus is one of those things,” he said.
Analysts said the strategy of Mr. Baron, who co-manages the fund with his well-known father Ron Baron, marks an unusual approach in an era when investors have shifted into low-cost passive funds that have locked many into index declines.
The fund also faces skeptics who worry its high-conviction strategy overly exposes it to the fates of a narrow number of holdings. A number of rivals have run aground that way such as the CGM Focus Fund, down 17.14 per cent through Tuesday and trailing roughly all rivals, as it did in 2019 and 2018.
A CGM representative declined to comment.
Neil Bathon, managing partner of fund analyst Fuse Research Network, said whatever the risks, such funds can play a role for clients in a broader portfolio – if they deliver returns.
“This is what active management needs to look like to compete with the passive guys,” Mr. Bathon said.
Mr. Baron declined to talk about individual stocks he may have bought or sold this year but said “it’s fair to assume that we have not repositioned the portfolio drastically based on near-term market movements.”
Hyatt accounted for 8.5 per cent of the fund’s portfolio as of Dec. 31. On Monday the company retracted its earnings guidance, and its shares were down 16 per cent for 2020. Mr. Baron said of Hyatt in a follow-up e-mail that “we continue to like their pipeline for growth; they have the largest pipeline relative to its size in the group. It should be able to increase rooms by 6-7% per year and grow by a total of 40% over 4 years.”
Norwegian accounted for 1.43 per cent of Mr. Baron’s portfolio at Dec. 31, and the stock has fallen 43 per cent this year. Mr. Baron said while the line has seen a virus-related slowdown, “it is resulting in postponing rather than canceling trips; the bookings for the second half 2020 and 2021 are very strong.”