Baron Funds, an investment management company, released its “Baron Asset Fund” third quarter 2024 investor letter. A copy of the letter can be downloaded here. US equities ended the quarter higher for the fourth quarter in a row. The Fed’s long-awaited interest rate cuts and generally positive economic data caused a significant shift from large-cap, Magnificent Seven, growth, and momentum stocks toward value, cyclical, and small-cap stocks. Against this backdrop, Baron Asset Fund returned 8.34% (Institutional Shares) in the quarter, outperforming the Russell Midcap Growth Index’s 6.54% return. The stock returns in the quarter were driven by Earnings Quality and the favorable environment for the firm’s investment strategy. In addition, please check the fund’s top five holdings to know its best picks in 2024.
Baron Asset Fund highlighted stocks like Welltower Inc. (NYSE:WELL), in the third quarter 2024 investor letter. Welltower Inc. (NYSE:WELL) is a REIT that drives the transformation of healthcare infrastructure. The one-month return of Welltower Inc. (NYSE:WELL) was 8.17%, and its shares gained 60.85% of their value over the last 52 weeks. On October 29, 2024, Welltower Inc. (NYSE:WELL) stock closed at $137.34 per share with a market capitalization of $85.679 billion.
Baron Asset Fund stated the following regarding Welltower Inc. (NYSE:WELL) in its Q3 2024 investor letter:
“We initiated a new position in Welltower Inc. (NYSE:WELL), which owns and operates senior housing and medical office buildings in the U.S. and internationally. We believe that operating fundamentals in the senior housing industry will continue to be robust, and Welltower is well positioned to capture both a cyclical and secular inflection in growth during the coming years. If occupancy of the company’s units were to return to levels achieved before the pandemic, we believe that senior housing cash flow would grow by more than 50%. In addition, we believe that there is further structural upside opportunity to both occupancy and operating margins by enhancing asset management, employing proprietary data analytics, and introducing initiatives such as amenity-based pricing. We recently met with the entire Welltower executive team in our offices and came away encouraged by the multi-dimensional growth opportunities ahead. Welltower has recruited top senior executives from the multi-family housing market to execute and deploy various initiatives that they believe can drive profitability beyond what other industry participants have achieved.
In addition, the broader industry backdrop hasn’t been this favorable in many years. Underlying demand is supported by a demographics boom with the over 80 population projected to grow at a 4% to 5% CAGR over the next five years versus annual growth below 2% coming out of the Great Financial Crisis. Supply is expected to remain muted since construction starts are declining rapidly, current developer economics are no longer attractive and entitling and building a new project takes roughly five years. The current financing environment for senior housing remains capital constrained, with loans either coming due and/or interest rate caps coming off assets that were acquired during a period of low interest rates. We believe this should provide an active and growing external acquisition pipeline, where management can invest capital at an attractive “cost basis” below replacement cost. Lastly, we believe that management, led by Shankh Mitra (CEO), John Burkart (COO), Tim McHugh (CFO), and Nikhil Chaudhri (CIO), are astute capital allocators focused on driving accretive value per share. Putting this all together, we see a path for earnings to more than double over the next five years, leading to attractive return prospects for the fund.”
Aerial view of a healthcare facility, depicting the scale of the company’s operations.
Welltower Inc. (NYSE:WELL) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 32 hedge fund portfolios held Welltower Inc. (NYSE:WELL) at the end of the second quarter which was 36 in the previous quarter. While we acknowledge the potential of Welltower Inc. (NYSE:WELL) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we discussed Welltower Inc. (NYSE:WELL) and shared Morgan Stanley’s best overweight & quality stocks. Welltower Inc. (NYSE:WELL) was the top contributor to the performance of Baron Real Estate Fund in Q2 2024. In addition, please check out our hedge fund investor letters Q3 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.