Baron Small Cap favors steady growers that can be held for a long time--a strategy that has helped the fund regularly outperform its benchmark as well as its peers.
Laura Lallos: When people think of Baron funds, they probably think of firm founder Ron Baron and the flagship fund, Baron Growth (BGRFX). That fund is a Morningstar Medalist, but there's another fund in the family that also earns a Bronze rating, and that's Baron Small Cap (BSCFX).
Baron Small Cap has been run by Cliff Greenberg since he joined the firm in 1997, so a long track record. Greenberg is now the director of research there, and he has played a key role as the firm has grown. He has helped to build an investment team that has stayed very focused on Baron's long-term approach to growth. Now, that kind of long-term sensibility really does distinguish Baron Small Cap from other funds in the small-cap growth category. The fund's turnover was 20% at last count, and that compares with over 100% for many of the funds in that group.
Greenberg is looking for steady growers that he can hold for a long time. He is looking for sustainable competitive advantages--"moats" as we would call them--confidence in management, reasons that he can stick with his picks. And that fund's top holding SBA Communications (SBAC) has been in the portfolio for a decade. As SBA Communications illustrates, Greenberg will hold on to mid-cap territory, so this fund might not be for investors who want very pure small-cap growth exposure, and it's also probably not for investors who want something very aggressive.
The fund has lagged in years like 2013 when biotech or very speculative technology plays surge ahead, but it also holds up better in years like now. It's got below-average Morningstar Risk scores. It's less volatile than the Russell 2000 Growth.
One concern is cost. Like other Baron funds, this one is expensive relative to peers. But so far, Greenberg has consistently overcome that obstacle, and the fund does outperform peers and its benchmark regularly.
