Baron Funds, an investment management company, released its “Baron Discovery Fund” third quarter 2024 investor letter. A copy of the letter can be downloaded here. In the third quarter, the fund appreciated 13.55% (Institutional Shares), outperforming the 8.41% return for the Russell 2000 Growth Index. Year-to-date, the fund returned 9.50% compared to the index’s 13.22% return. The firm was pleased with the fund’s performance in the third quarter and believes that the bear market in small-cap growth stocks, which began in February 2021, may finally end. In addition, please check the fund’s top five holdings to know its best picks in 2024.
Baron Discovery Fund highlighted stocks like TWFG, Inc. (NASDAQ:TWFG), in the third quarter 2024 investor letter. TWFG, Inc. (NASDAQ:TWFG) is an independent distribution platform for personal and commercial insurance products. The one-month return of TWFG, Inc. (NASDAQ:TWFG) was 13.58%, and its shares gained 37.55% of their value over the last three months. On November 6, 2024, TWFG, Inc. (NASDAQ:TWFG) stock closed at $33.70 per share with a market capitalization of $499.161 million.
Baron Discovery Fund stated the following regarding TWFG, Inc. (NASDAQ:TWFG) in its Q3 2024 investor letter:
“Our largest purchase during the quarter was TWFG, Inc. (NASDAQ:TWFG), a Texas-based insurance broker that supports independent insurance agents in the property and casualty (P&C) space. TWFG primarily helps captive agents make the transition over to independence by offering a turnkey independent agent solution called “Agency-in-a-Box.” TWFG provides agents with the carrier relationships needed to sell insurance as an independent agent (these are often hard to obtain as a sole operator), as well as the technology, training, back office, and brand needed to run a successful independent agency. TWFG has a capital efficient business model where the independent agent is responsible for the ongoing expenses of his or her business, while TWFG keeps 20% of the commissions generated.
The U.S. P&C market is over $850 billion in annual premiums, of which over $400 billion is in Personal Lines. Over time, captive agents – who only represent one insurer – have been losing share in distribution to independent agents. Independent agents are not exclusive to any one insurer, so they can offer customers a much broader range of insurance options and thus can write more premiums and earn more commissions, as compared to captive agents. In homeowners’ insurance, the share of premiums written by independent agents increased from 41% to 49% from 2011 to 2021 as more agents left captive models and became independents. TWFG is squarely focused on serving this growing pool of independents.
TWFG was founded in 2001 by former insurance agent Gordy Bunch. Bunch has successfully scaled the business to over $1 billion in written premiums while taking in little outside capital, and TWFG now has a presence in over 40 states and serves over 400 TWFG-branded independent agencies. We believe that TWFG can grow by adding more agencies as the secular shift of agents from captive to independent continues, and that the 80/20 commission split is an attractive deal for agents that delivers substantial value while allowing them to retain most of the economics. The industry remains highly fragmented with over 40,000 agents, which provides TWFG with a long runway for growth. Additionally, management has begun to acquire smaller agencies at favorable terms, which increases both revenue and profit margins. We expect management will use the IPO proceeds to accelerate the pace of these accretive acquisitions. We believe that TWFG’s long track record of growth, capital-light business model, opportunities for accretive M&A, large addressable market, and a founder-CEO with significant skin-in-the-game make for a compelling investment opportunity.”
A car dealership presenting the latest technological advancements in automobile insurance after-market service.
TWFG, Inc. (NASDAQ:TWFG) is not on our list of 31 Most Popular Stocks Among Hedge Funds. While we acknowledge the potential of TWFG, Inc. (NASDAQ:TWFG) 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 addition, please check out our hedge fund investor letters Q3 2024 page for more investor letters from hedge funds and other leading investors.
READ NEXT: Michael Burry Is Selling These Stocks and A New Dawn Is Coming to US Stocks.
Disclosure: None. This article is originally published at Insider Monkey.