Fund Highlight: Baron International Growth Fund - Investing in Agricultural Innovation
The Baron International Growth Fund (BIGFX) seeks to invest in foreign growth companies with market capitalizations of $10 billion or less, focusing on securities that portfolio manager Michael Kass believes offer favorable price-to-value characteristics. The fund has recently begun investing in what it refers to as “agricultural innovation”, companies that provide products and/or services that serve the agricultural industry. Currently, Kass has identified an opportunity in the Asian markets.
As Asian economies grow rapidly, per capita income continues to rise, increasing levels of food consumption, and drastically expanding the production of feed crops. Land is limited, so as the agricultural market matures, the emphasis shifts to crop yield (the amount of crops produced per acre) to avoid shortages and maximize output.
The fund has been searching for companies with a proven ability to improve yields in underserved emerging economies such as Asia. The problem with many of these companies is the inherent volatility related to commodity prices. Kass has stated that the fund will avoid companies where costs and prices are highly variable and susceptible to commodity market fluctuations. Instead, the focus is on companies that have demonstrated the ability to generate high returns, are visible, possess intellectual property that provides a competitive advantage, and have the experience and stamina to maneuver through government regulations and stringent approval processes.
Kass sees opportunities in farming equipment, irrigation, improved fertilization, crop protection, and genetically modified seeds. Seeds and crop protection are the two fields that most align with the fund’s stated focus: intellectual property, unique innovative products, on-going research and development spending, and proven distribution channels.
In late February, the Baron International Growth Fund invested in Syngenta, a Swiss company that operates both crop protection and genetically modified (GMO) seed businesses. The position represents 2% of the Fund’s holdings.
Sygenta, is a world leader in crop protection, with well-established insecticide, herbicide, and fungicide products. The company also has a rapidly growing seed business that has benefited from the company’s strong distribution network. The combination of the two businesses provides the company with the opportunity to serve its clients on two fronts, both protecting and nurturing crops and through GMOs, helping increase yields. Sygenta aims to be a one-stop shop for its agricultural clients. A focus on research and development similar to biotechnology companies makes Baron optimistic that the company will continue to offer new and innovative products to support long-term growth.