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
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