December 31, 2015
Institutional Shares (BEXIX)
Baron Emerging Markets Fund
Fact Sheet
BAMCO, Inc., Registered Investment Adviser
Baron Emerging Markets Fund
Institutional Shares (BEXIX)
December 31, 2015
The performance data quoted represents past performance. Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate; an investor's shares, when redeemed, may be worth
more or less than their original cost. The Adviser has reimbursed certain Fund expenses (by contract as long as BAMCO, Inc. is the adviser to the Fund) and the Fund's transfer agency expenses may be reduced by expense offsets from an
unaffiliated transfer agent, without which performance would have been lower. Current performance may be lower or higher than the performance data quoted. For performance information current to the most recent month end, visit
www.BaronFunds.com or call 1-800-99BARON.You should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. The prospectus and summary prospectus contain this and other information
about the Fund and can be obtained from the Fund's distributor, Baron Capital, Inc., by calling 1-800-99BARON or visiting www.BaronFunds.com. Please read them carefully before investing.
The Fund may not achieve its objectives. Portfolio holdings may change over time.
The Fund’s historical performance was impacted by gains from IPOs and/or secondary offerings, and there is no
guarantee that these results can be repeated or that the Fund’s level of participation in IPOs and secondary offerings will be the same in the future.
Definitions (provided by BAMCO, Inc.): The MSCI EM (Emerging Markets) IMI Index Net USD and the MSCI
EM (Emerging Markets) IMI Growth Index Net USD are unmanaged free float-adjusted market capitalization
indexes designed to measure equity market performance of large-, mid- and small-cap securities in the emerging markets. The MSCI EM (Emerging Markets) IMI Growth Index Net USD screens for growth-style securities.
The indexes and the Fund include reinvestment of dividends, net of withholding taxes, which positively impacts
the performance results. The Morningstar US OE Diversified Emerging Mkts Average is not weighted and
represents the straight average of annualized returns of each of the funds in the Diversified Emerging Markets
category. The Fund has been included in the category since inception. As of 12/31/15, the category consisted of
909, 840, 840, 578 and 386 funds for the 3-month, year-to-date, 1-, 3- and 5-year periods. © 2015 Morningstar,
Inc. All Rights Reserved. The Morningstar information contained herein: (1) is proprietary to Morningstar and/or
its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or
timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any
use of this information. Standard Deviation (Std. Dev.): measures the degree to which a fund’s performance has
varied from its average performance over a particular time period. The greater the standard deviation, the greater
a fund’s volatility (risk). Sharpe Ratio: is a risk-adjusted performance statistic that measures reward per unit of
risk. The higher the Sharpe ratio, the better a fund’s risk adjusted performance. Alpha: measures the difference
between a fund’s actual returns and its expected performance, given its level of risk as measured by beta. Beta:
measures a fund’s sensitivity to market movements. The beta of the market is 1.00 by definition. R-Squared:
measures how closely a fund’s performance correlates to the performance of the benchmark index, and thus is a
measurement of what portion of its performance can be explained by the performance of the index. Values for
R-Squared range from 0 to 100, where 0 indicates no correlation and 100 indicates perfect correlation. Tracking
Error: measures how closely a fund’s return follows the benchmark index returns. It is calculated as the annualized standard deviation of the difference between the fund and the index returns. Information Ratio: measures
the excess return of a fund divided by the amount of risk the fund takes relative to the benchmark index. The
higher the information ratio, the higher the excess return expected of the fund, given the amount of risk involved.
Upside Capture: explains how well a fund performs in time periods where the benchmark’s returns are greater
than zero. Downside Capture: explains how well a fund performs in time periods where the benchmark’s returns
are less than zero. EPS Growth Rate (3-5 year forecast): indicates the long-term forecasted EPS growth of the
companies in the portfolio, calculated using the weighted average of the available 3-to-5 year forecasted growth
rates for each of the stocks in the portfolio provided by FactSet Estimates. The EPS Growth rate does not forecast
the Fund’s performance. Price/ Earnings Ratio (trailing 12-months): is a valuation ratio of a company’s current
share price compared to its actual earnings per share over the last twelve months. Price/Book Ratio: is a ratio
used to compare a company’s stock price to its tangible assets, and it is calculated by dividing the current closing
price of the stock by the latest quarter’s book value per share. Price/Sales Ratio: is a valuation ratio of a stock’s
price relative to its past performance. It represents the amount an investor is willing to pay for a dollar generated
from a particular company’s operations. Price/Sales is calculated by dividing a stock’s current price by its revenue
per share for the last 12 months. Historical portfolio characteristics are provided by Compustat and FactSet Fundamentals. Weighted Harmonic Average: is a calculation that reduces the impact of extreme observations on
the aggregate calculation by weighting them based on their size in the fund.
This information does not constitute an offer to sell or a solicitation of any offer to buy securities by anyone in any
jurisdiction where it would be unlawful under the laws of that jurisdiction to make such offer or solicitation. This
information is only for the intended recipient and may not be distributed to any third party.
Not bank guaranteed, may lose value, not FDIC insured.
Baron Emerging Markets Fund
GICS Sector Breakdown¹
Portfolio Facts and Characteristics
Fund
MSCI EM IMI
Growth Index
# of Equity Securities / % of Net Assets
85/89.1%
Turnover (3 Year Average)
21.47%
Median Market Cap†
$5.85 billion $0.89 billion
Weighted Average Market Cap†
$29.00 billion $39.78 billion
EPS Growth (3-5 year forecast)†
17.9%
19.5%
Price/Earnings Ratio (trailing 12-month)*†
18.0
16.0
Price/Book Ratio*†
2.4
2.2
Price/Sales Ratio*†
1.8
1.3
Std. Dev. (%) - Annualized
Sharpe Ratio
Alpha (%) - Annualized
Beta
R-Squared (%)
Tracking Error (%)
Information Ratio
Upside Capture (%)
Downside Capture (%)
Top 10 Holdings
Samsung Electronics Co., Ltd.
Sinopharm Group Co. Ltd.
TAL Education Group
LG Household & Health Care Ltd.
Ctrip.com International, Ltd.
Shenzhou International Group Holdings Ltd.
Divi's Laboratories Ltd.
Taiwan Semiconductor Manufacturing
Company Ltd.
Fomento Económico Mexicano, S.A.B. de C.V.
Alibaba Group Holding Limited
Total
3 Years
12.12
0.17
5.17
0.81
80.22
5.85
0.97
95.82
68.36
5 Years
14.75
0.11
3.92
0.78
84.20
6.94
0.66
87.36
70.19
Investment Strategy
The Fund invests mainly in non-U.S. companies of all
sizes with significant growth potential. The majority of
investments are in companies domiciled in developing
countries, and the Fund may invest up to 20% in companies
in developed market and frontier countries. Diversified.
Portfolio Manager
* Weighted Harmonic Average
† Source: FactSet PA – Compustat, FactSet and BAMCO. Internal valuations metrics
may differ.
Performance Based Characteristics²
December 31, 2015
Institutional Shares (BEXIX)
Top 15 GICS Sub-Industry Breakdown¹
Michael Kass has been portfolio manager since inception.
Michael joined Baron in 2007 and has 28 years of research
experience. From 2003 to 2007, he was a managing principal
of Artemis Advisors, which acquired the Artemis Funds, a
long-short equity strategy he co-founded in 1998. From
1993 to 2003, he worked at ING Furman Selz as a director
of proprietary trading and was named senior managing
director and portfolio manager in 1996. From 1989 to 1993,
he worked at Lazard Frères in investment banking. From 1987
to 1989, Michael was an analyst at Bear Stearns. Michael
graduated summa cum laude from Tulane University with a
B.A. in Economics in 1987.
Investment Principles
• Long-term perspective allows us to think like an owner of
a business
• Independent and exhaustive research is essential to
understanding the long-term fundamental growth
prospects of a business
% of Net Assets
2.3
2.0
2.0
2.0
1.8
1.8
1.7
1.7
1.6
1.6
18.5
• We seek appropriately capitalized open-ended growth
opportunities, exceptional leadership, and sustainable
competitive advantages
• Purchase price and risk management are integral to our
investment process
Fund Facts
Colors of Sub-Industry bars correspond to sector chart above.
In addition to the general stock market risk that securities may fluctuate in value, investments in developing countries may have increased
risks due to a greater possibility of: settlement delays; currency and capital controls; interest rate sensitivity; corruption and crime; exchange rate volatility; and inflation or deflation. The Fund invests in companies of all sizes, including small and medium sized companies
whose securities may be thinly traded and more difficult to sell during market downturns.
1 - Industry sector or sub-industry group levels are provided from the Global Industry Classification Standard (“GICS”), developed and exclusively owned by MSCI, Inc. (“MSCI”) and Standard &
Poor’s Financial Services LLC (“S&P”). All GICS data is provided “as is” with no warranties. The Adviser may have reclassified/classified certain securities in or out of a sub-industry. Such reclassifications are not supported by S&P or MSCI.
2 - Source: FactSet SPAR. Except for Standard Deviation and Sharpe Ratio, the performance based characteristics above were calculated relative to the Fund's benchmark.
Inception Date
Net Assets
Institutional Shares
CUSIP
Gross Expense Ratio (as of FYE 12/14)
Less: Reimbursement of Expenses by Adviser
(as of FYE 12/14)
Net Expense Ratio (as of FYE 12/14)
December 31, 2010
$1.71 billion
06828M876
1.27%
(0.02)%
1.25%
Baron Emerging Markets Fund
December 31, 2015
Institutional Shares (BEXIX)
Performance as of December 31, 2015
Country Breakdown
Developing
China
India
Taiwan
Korea
Mexico
South Africa
Brazil
Indonesia
Total Returns(%)
4th Q 2015
Annualized Returns(%)
Year to Date
1 Year
Return + – Return + – Return + –
BEXIX - Institutional Shares
MSCI EM IMI Growth Index
MSCI EM IMI Index
MorningstarDiversifiedEmergingMktsCategoryAverage
3.41
2.79
1.03
0.69
0.62
2.38
2.72
-10.97
-10.97
-10.51 -0.46 -10.51 -0.46
-13.86 2.89 -13.86 2.89
-13.79 2.82 -13.79 2.82
3 Years
Return
2.04
-3.65
-6.12
-5.69
5 Years
10 Years
Since Inception
12/31/2010
+ – Return + – Return + – Return
5.69
8.16
7.73
1.68
-2.90
-4.59
-4.45
4.58
6.27
6.13
N/A
N/A
N/A
N/A
1.68
-2.90
-4.59
N/A
+ –
% of
% of
Net
Net
Assets
Assets
83.8 Developing (Cont'd)
3.4
25.4 Philippines
0.8
16.0 Panama
0.7
9.8 Thailand
5.3
7.5 Developed
3.3
6.5 Hong Kong
1.0
5.6 Singapore
0.7
4.6 United States
0.3
3.5 United Kingdom
BEXIX has outperformed the MSCI EM
IMI Growth Index 100% of the time (since
its inception and using rolling 3-year
annualized returns).
4.58
6.27
The blue shading represents Fund outperformance vs. the corresponding benchmark. The yellow shading represents underperformance.
Historical Performance(Calendar Year %)
Risk/Return Comparison¹
BEXIX - Institutional Shares
2011
-17.00
MSCI EM IMI Growth Index
-20.04
MSCI EM IMI Index
-19.49
2012
23.22
2013
15.02
2014
3.75
2015
-10.97
20.72
0.10
-0.15
-10.51
18.68
-2.20
-1.79
-13.86
1 - Source: FactSet SPAR.
Baron Emerging Markets Fund
December 31, 2015
Institutional Shares (BEXIX)
Review and Outlook
Contribution to Return¹
By Sub-Industry
Top Contributors/Detractors to Performance for the Quarter Ended December 31, 2015
Contributors
Detractors
• Shares of Steinhoff International Holdings Ltd. declined in Q4.
The company is the second largest European furniture retailer
(behind Ikea) with a vertically integrated business model. The
key driver of weak performance was a broad market sell-off in
South Africa, which was compounded by a devaluation of the
South African Rand. We retain conviction in the company as
business fundamentals remain attractive. Steinhoff has a strong
management team and is a beneficiary of accelerated industry
consolidation.
• Makalot Industrial Co., Ltd. is a Taiwanese apparel manufacturer
and supplier to fast fashion and sportswear brands. Makalot
has benefited from the two biggest trends in apparel - growth
in functional fabrics and fast fashion - as well as a currency
tailwind and possible tariff reduction. While share price has
been strong most of the year, it gave away some gains in Q4 as
sportswear customers had a tough quarter due to unseasonably
warm weather and increased inventory. We think this setback is
temporary and long-term growth prospects are solid.
• Despite strong earnings, India battery manufacturer Amara Raja
Batteries Ltd. detracted due to competitive concerns. After
years of strong sales in the auto aftermarket channel, Amara Raja
is now selling into industrial markets rebounding with the robust
Indian economy. These markets can be volatile and competitive,
but we believe they can offer meaningful incremental operating
leverage. Amara Raja has an excellent distribution network to
compete with the incumbent and we think it will produce strong
cash flow once its expansion is complete.
By Holdings
Top Contributors
Average Weight(%) Contribution(%)
TAL Education Group
1.82
0.63
Ctrip.com International, Ltd.
1.65
0.45
Alibaba Group Holding Limited
1.44
0.39
LG Household & Health Care Ltd.
1.86
0.38
Qihoo 360 Technology Co. Ltd.
0.93
0.35
Top Detractors
Average Weight(%) Contribution(%)
Steinhoff International Holdings N.V.
1.57
-0.24
Makalot Industrial Co., Ltd.
1.54
-0.24
Amara Raja Batteries Limited
1.18
-0.22
Grand Korea Leisure Co., Ltd.
0.76
-0.22
Eclat Textile Co., Ltd.
1.45
-0.21
1 - Source: FactSet PA.
Baron Emerging Markets Fund
Institutional Shares (BEXIX)
December 31, 2015
When reviewing performance attribution on our portfolio, please be aware that we construct the portfolio from the
bottom up, one stock at a time. Each stock is included in the portfolio if it meets our rigorous investment criteria. To help
manage risk, we are aware of our sector and security weights, but we do not include a holding to achieve a target sector
allocation or to approximate an index. Our exposure to any given sector is purely a result of our stock selection process.
Quarterly Analysis
Quarterly Performance Attribution¹
On a country basis, outperformance of investments in China, Brazil, and Mexico added the most value. These positive
relative results were somewhat offset by average cash exposure of 9.1% in an up market, underperformance of Taiwanese
investments, and larger exposure to lagging Indian equities.
Sector Average Weights(%)
Consumer Consumer
Discretionary Staples
Baron Emerging Markets
23.55 8.65
Fund
MSCI EM (Emerging Markets) 12.24 12.33
IMI Growth Index
Over/Underweight
11.32 -3.68
Health Care Industrials Information
Technology
Energy
Financials
4.54
15.19
11.56
4.05
13.41
Materials
Telecom
Services
1.21
7.14
Utilities
Total²
1.63 100.00
3.16
20.16
6.38
9.90
25.08
4.95
3.31
2.48 100.00
1.39
-4.97
5.18
-5.85 -11.67
-3.74
3.83
-0.85
-
4.77
-5.87
7.38
2.73
-13.26 17.85
10.79
-5.22
-3.27
3.38
-2.30
1.96
2.62
4.39
-2.08
0.37
1.55
1.59
2.79
7.07
-7.83
4.76
-1.66
-11.19 10.36 10.42
-6.77
-4.86
0.59
Total Return(%)
Baron Emerging Markets
4.76
Fund
MSCI EM (Emerging Markets) 4.25
IMI Growth Index
Relative Return
0.51
7.49
Baron Emerging Markets Fund gained 3.41% in the fourth quarter and outperformed the MSCI EM IMI Growth Index by
62 basis points due to stock selection.
On a sector basis, Consumer Staples, Information Technology (IT), and Financials investments were the primary
contributors to relative results. Within Consumer Staples, outperformance of LG Household & Health Care Ltd. and lack
of exposure to the poor performing food retail and brewer sub-industries added the most value. Shares of LG, a major
consumer goods company in Korea, rose on the strength of an earnings beat driven by cosmetics sales in China. Strength
in IT was mostly attributable to outperformance of Chinese Internet software & services holdings, led by Alibaba Group
Holding Ltd. and Qihoo 360 Technology Co., Ltd. Kingdee International Software Group Co. Ltd. of China and Novatek
Microelectronics Corp. of Taiwan also aided relative performance. These positive relative results were partly offset by
lower exposure to this top performing sector, which increased 7.5% in the index. Within Financials, outperformance of
Bank Rakyat Indonesia (Persero) Tbk PT of Indonesia and SKS Microfinance Ltd. of India contributed to relative results.
Bank Rakyat posted resilient 3Q15 results, which helped quell fears of a China-led slowdown in the region and eased
concerns about asset quality, while rising demand for rural loans in India boosted shares of SKS Microfinance. Larger
exposure to the investment banking & brokerage sub-industry through Chinese companies Haitong Securities Co., Ltd.
and Huatai Securities Co., Ltd. also lifted relative performance. Stabilization of Chinese market indexes brought some
signs of recovery to the brokerage sector. In addition, the reopening of the IPO market and news about a potential early
launch of the Shenzhen-Hong Kong stock connect brought renewed optimism in the positive impacts of financial reforms
for the industry.
Underperformance of Telecommunication Services and Energy investments detracted the most from relative results.
Within Telecommunication Services, underperformance of wireless telecommunication services holdings, led by
Advanced Info Service Public Co., Ltd., and larger exposure to this lagging sub-industry hurt relative results. Shares of
Advanced Info, Thailand’s largest mobile phone operator, declined after 4G spectrum auctions resulted in the entry of a
new player. China Mobile Ltd. of China and Far Eastone Telecommunications Co., Ltd. of Taiwan also hampered relative
performance in the sub-industry. Weakness in Energy was mainly due to underperformance integrated oil & gas holdings,
led by Petroleo Brasileiro SA of Brazil and PetroChina Co. Ltd. of China.
Annual Analysis
One-Year Performance Attribution¹
Baron Emerging Markets Fund fell 10.97% for the year and trailed the MSCI EM IMI Growth Index by 46 basis points.
On a country basis, outperformance of Indian investments and meaningfully larger exposure to Indian equities, which
outpaced the broader index, added the most value. Outperformance of investments in Mexico and China and lack of
exposure to lagging Turkish equities, which fell 28.9% in the index, also aided relative results. These favorable relative
results were overshadowed by underperformance of investments in Brazil, the U.S., Norway, and Thailand, and lower
exposure to better performing equities in South Korea and no exposure in Russia.
Sector Average Weights(%)
Baron Emerging Markets
Fund
MSCI EM (Emerging
Markets) IMI Growth Index
Over/Underweight
Consumer Consumer
Discretionary Staples
Energy
Financials
Health Care Industrials Information
Technology
Materials
Telecom
Services
Utilities
Total²
23.33
7.78
4.12
15.10
12.37
5.00
13.16
0.59
7.29
1.51
100.00
12.03
12.02
3.62
21.89
5.67
9.33
24.66
4.80
3.26
2.72
100.00
11.29
-4.23
0.49
-6.79
6.70
-4.33 -11.49 -4.21
4.03
-1.22
-
-5.86
6.47 -26.96 -17.27
7.11
-31.94 -11.36 -17.44 -19.97 -44.02 -11.07
-7.38
-9.03
1.52
15.50 -22.37 -1.38
Total Return(%)
Baron Emerging Markets
Fund
MSCI EM (Emerging
Markets) IMI Growth Index
Relative Return
-4.59 -15.89 0.20 -16.25 -6.44 -11.88 -19.09 -15.41 -10.51
6.91
-15.69 -4.92
-5.55
-0.88 -28.61 -0.56
Return calculations for the Fund are transaction based and are calculated from the underlying security-level data; they may not correspond with published performance
information based on NAV per share.
1 - Attribution analysis for other periods or versus another index will be provided upon request. Source: FactSet PA.
2 - Fund total returns include cash, fees and unassigned securities.
On a sector basis, Health Care, Consumer Staples, and Consumer Discretionary investments and lower exposure to
the underperforming Financials sector contributed the most to relative results. Within Health Care, outperformance
of pharmaceuticals, biotechnology & life sciences holdings and larger exposure to this industry group added the most
value. Among the largest contributors to relative results were Indian companies Torrent Pharmaceuticals Ltd., Divi’s
Laboratories Ltd., and Lupin Ltd., which benefited from substantial growth in the U.S. as branded drugs continued to go
off-patent. Investments in Ginko International Co., Ltd. of Taiwan and Sinopharm Group Co., Ltd. of China also aided
relative performance. Strength in Consumer Staples was mainly due to the outperformance of LG Household & Health
Care Ltd., a Korean consumer goods company. Mexican holdings Fomento Económico Mexicano, S.A.B. de C.V., a soft
drink producer, Grupo Lala, S.A.B. de C.V., a packaged foods & meats company, and Wal-Mart de Mexico, S.A.B. de C.V.,
also contributed to relative results after being helped by lower input costs and improving consumer spend during the year.
Within Consumer Discretionary, outperformance of TAL Education Group and Ctrip.com International Ltd. of China, and
Dish TV India Ltd. contributed the most to relative results.
Energy, IT, and Utilities investments were the largest detractors from relative performance. Energy holdings trailed their
index counterparts after falling 27.0%, with PetroChina Co. Ltd. of China, Lekoil Ltd. of the U.K., and Petroleo Brasileiro
SA of Brazil leading the decline. Weakness in IT was mostly attributable to lower exposure to Internet software & services
holding Tencent Holdings Ltd., which increased 35.9% and represented a weight of 4.3% in the index. Underperformance
of Internet software & services, semiconductor, and systems software holdings, led by Opera Software ASA of Norway,
MediaTek, Inc. of Taiwan, and TOTVS SA of Brazil, respectively, also hurt relative results. The Fund
exited its position in Opera early in 2015 after management disclosed that its exposure to the Russian
Ruble was greater than previously indicated. Within Utilities, underperformance of the Fund’s only U.S.
holding, TerraForm Global, Inc., a renewable energy company focused on emerging markets, detracted
the most from relative performance.
Baron Emerging Markets Fund
December 31, 2015
Institutional Shares (BEXIX)
Top 10 Holdings as of December 31, 2015
Company
Investment Premise
Company
Investment Premise
Samsung Electronics Co, Ltd
(005930.KS) is a leading consumer
electronics manufacturer and the
largest handset maker in the world.
It is also a key player in the semiconductor and display industries,
providing consumer electronics inhouse as well as to third parties.
Samsung benefits from tremendous scale, which gives it a cost advantage
and allows it to outspend competitors in R&D. This investment in innovation has accelerated new product introductions and improved Samsung’s
global brand positioning. Samsung’s in-house capabilities with display,
memory, and semiconductors are also a key differentiator as vertical
integration lowers Samsung’s product costs and gives it a time-to-market
advantage. We believe the sustainability of these advantages is underestimated, and that Samsung is undervalued relative to its earnings prospects.
Shenzhou International Group
Holdings Ltd (2313.HK) is the world’s
largest, vertically integrated knitwear
manufacturer with category focus on
casual wear and sporting wear. It sells
garments to third party customers and
uses all of its internal fabric production
in the production of these garments.
As the largest manufacturer of sporting wear and casual wear,
Shenzhou is a beneficiary of the growth in these clothing segments around the world. Further, as brand customers pare down
suppliers to the very best, Shenzhou has gained share within its
existing customer base. With global scale, vertical integration,
and migration towards lower cost m manufacturing in Southeast
Asia, we think Shenzhou is a class act in the world of knitwear
manufacturing.
Sinopharm Group Co., Ltd.
(1099.HK) is the largest wholesaler and retailer of pharma and
health care products and a leading
supply chain service provider in
China.
As a core subsidiary of state-owned enterprise (SOE) China National
Pharmaceutical Group Corporation, we believe Sinopharm will benefit
from the government’s plan to use the company as a test case in its
ongoing effort to reform its bloated and debt-laden state-owned sector. As the government has said that it is hopeful that its test cases will
advance broader SOE reform, we believe it is incentivized to succeed.
We believe successful reform of Sinopharm will result in increased
returns on equity, which in turn will lead to share price appreciation.
Divi’s Laboratories Ltd. (DIVI.IN)
is a leading player in pharmaceutical contract manufacturing and
production of Active Pharmaceutical Ingredients (APIs) for the generics industry. Divi’s focuses on high
value-add projects, earning high
margins and returns on capital.
Divi’s is a beneficiary of increased API outsourcing by global pharmaceutical companies. The company has a dominant position in
key APIs such as Naproxen (75% global share) and Dextromethorphan (80% share), given its high quality standards and lower
cost structure. We expect the company to generate 15% earnings
growth for the next five years as demand continues to be robust.
TAL Education Group (XRS) is a
leading K-12 after school tutoring
provider in China that currently
operates 300+ learning centers in
19 cities.
TAL Education has been benefiting from positive secular trends in China,
including growing competition to get into top schools and rising disposable incomes. TAL’s growth prospects are also fueled by its focus on the
K-12 market, a highly fragmented $50 billion market in which the top three
providers have less than 3.5% market share. Its focus on top academic
students also protect its high-end brand and allows it to charge a premium
for its services. TAL operates an asset-light and cash generative business
model, and we believe it can grow EPS at 25%+ for years to come.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) is the
world’s largest independent
semiconductor foundry, manufacturing chips on behalf of other
companies.
Given its size, the company benefits from economies of scale and
a superior cost structure. It also deploys new technology faster
than the competition, allowing it to enjoy higher average sales
prices and gross margins. We believe Taiwan Semiconductor is
poised to gain market share, driven by increased dominance in
advanced nodes (20 nanometers and 16 nanometers), while also
maintaining superior profitability.
LG Household & Healthcare Ltd.
(051900.KS) is a Korean consumer
products company with a leading position in
household products (42% of revenue) and
cosmetics (42% of revenue) and a significant
presence in beverages (26% of revenue). The
company was founded in 1947 and was spun
off from LG Chemical in 2011.
LG Household & Healthcare has been using M&A as a key strategy to increase scale and utilization, which translates into higher
margins. With enviable distribution strength, LGHH is quickly becoming the distribution partner of choice for major multinational
brands in Korea, with recent partnerships including those with
Danone and Unilever. LGHH has been expanding its presence
overseas, notably in China and Vietnam with growing desire for
EM consumers to upgrade their skincare and food products.
Fomento Económico Mexicano, S.A.B.
de C.V. (FMX) is a Mexican holding
company that controls Coca-Cola Femsa,
a leading Coca-Cola bottling and distribution company in Mexico and South
America. It also operates the Oxxo brand
of convenience stores throughout Mexico
and holds a large stake in Heineken NV.
Fomento Económico Mexicano is a diversified emerging markets
consumer company with, in our opinion, attractive long-term
growth potential in its key markets. Following the sale of its
flagship beer brand to Heineken, management’s emphasis is on
growing its principal operating business, the Oxxo convenience
store brand, which we believe is a unique and attractive, highreturn asset. We credit company management’s long-term record
of shareholder value creation.
Ctrip is the leading mainland
China focused online travel
agency (OTA). The company is
incorported in the Cayman Islands
with operational headquarters in
Shanghai.
Ctrip is the leading online travel agency in China, where the
online travel market is estimated grow from from $44b in bookings today to $80b in four years, while online travel penetration
moves from 9% to 20% in that same period.
Alibaba Group Holding Ltd. (BABA) is
the largest e-commerce company in the
world. Alibaba owns and operates the
two largest online shopping platforms
in China, Taobao and Tmall. It also participates in the profits of Ant Financial,
which owns Alipay, the largest 3rd party
online payment provider in China.
Alibaba is the most dominant e-commerce platform in the world.
With over 400 million active buyers and over 10 million merchants,
we believe Alibaba is poised to benefit disproportionately from the
increased penetration of Internet, mobile, and e-commerce in China.
It enjoys more than 50% market share of all e-commerce transactions in China, and we expect it to continue growing 20%+ for years
to come. We also see significant positive optionality in Alibaba’s cloud
computing, data management, and electronic payments platforms.
We invest in people — not just buildings
Long-Term Investors • Research Driven
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