Peepo Performance: Why Trying to Forecast the Market is Folly
In the first quarter of 2023, the Baron Durable Advantage Fund® gained 16.0% (Institutional Shares), outperforming the S&P 500 Index by a significant margin. While stock selection drove the majority of the Fund’s relative gain, sector allocation also played a crucial role. Communication Services, Financials, and Information Technology (IT) represented 71.4% of the portfolio on average and were the top three best-performing sectors, generating 633bps of relative gains. In contrast, the Fund’s lack of investments in Energy, Utilities, Real Estate, or Materials added 127bps to its performance.
Attempting to forecast the market and align portfolios with those forecasts is a futile exercise. The first quarter demonstrated this once again, and investors need to focus more on adaptability than prediction. The transformation to the “digital” economy is accelerating, making adaptability more crucial than ever. Businesses that excel in embracing and driving change usually succeed over the long term.
The Kurzweil effect, named after Ray Kurzweil, an American inventor who wrote extensively on it in the early 2000s, refers to the rapid acceleration in the rate of change brought about by the transformation to the digital economy. Recent examples include the proliferation of ChatGPT, reaching 1 million users in five days after launch and 100 million in two months, making it faster than TikTok and Instagram. There was also the bank run on Silicon Valley Bank, which culminated in its collapse, along with Signature Bank, First Republic Bank, and Credit Suisse needing rescuing within days.
In conclusion, it is futile to attempt to forecast the market and align portfolios to those predictions. Businesses that are adaptable to change are much better positioned for success than those that aren’t. The rate of change is accelerating due to the digital revolution, making adaptability even more crucial. Peepo Performance proves that stock selection and sector allocation are vital to outperformance.
Editor Notes: Baron Durable Advantage Fund®’s Q1 performance demonstrates the importance of stock selection and sector allocation in outperforming the market. The digital revolution is accelerating, and businesses that embrace change are better positioned for long-term success than those that don’t. Learn more about the impact of the digital revolution on businesses at GPT News Room.
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