Emerging-markets stocks have been mostly submerging the past year or so. But Baron Emerging Markets fund has managed to stay afloat and deliver a respectable return. The fund has also excelled against the competition, beating 96% of diversified emerging-markets funds over the past 12 months.
Manager Michael Kass credits Baron’s philosophy of deeply researching companies for the successful run. Doing his homework helped him find such obscure companies as Shuaa Capital, a United Arab Emirates financial firm (and the fund’s only holding in so-called frontier markets); Steinhoff International, a South African furniture maker; and China’s Sihuan Pharmaceutical. All three stocks have at least doubled over the past year.
Kass, with the help of four analysts, begins by developing big-picture themes, such as financial reforms in China and government-policy changes in Brazil. He then looks for shareholder-friendly companies that are run by entrepreneurial managers and have sustainable competitive advantages and the potential to generate long-term earnings growth. Kass or an analyst travels abroad to meet with company executives every few months.
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The developing world is undergoing a sea change, says Kass. Growth has shifted from state-controlled companies to truly private entrepreneurial concerns. “The type of companies we own are the latter,” he says. “This is why we have this huge wind at our back.”
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