Baron Funds, an investment management company, released its “Baron Asset Fund” second quarter 2023 investor letter. A copy of the same can be downloaded here. U.S. equities continued their upward trend in the second consecutive quarter. The rise was led by the outsized performance of a few large technology companies, partly driven by the hype surrounding their potential benefits from the widespread adoption of artificial intelligence (AI). Against this backdrop, the Baron Asset Fund increased by 3.63% (Institutional Shares) trailing Russell Midcap Growth Index’s 6.23% returns. The underperformance of certain stocks affected the fund in the quarter. In addition, please check the fund’s top five holdings to know its best picks in 2023.
Baron Asset Fund highlighted stocks like Morningstar, Inc. (NASDAQ:MORN) in the second quarter 2023 investor letter. Headquartered in Chicago, Illinois, Morningstar, Inc. (NASDAQ:MORN) provides investment research services. On July 27, 2023, Morningstar, Inc. (NASDAQ:MORN) stock closed at $230.39 per share. One-month return of Morningstar, Inc. (NASDAQ:MORN) was 17.50%, and its shares lost 9.77% of their value over the last 52 weeks. Morningstar, Inc. (NASDAQ:MORN) has a market capitalization of $9.803 billion.
Baron Asset Fund made the following comment about Morningstar, Inc. (NASDAQ:MORN) in its second quarter 2023 investor letter:
“We initiated a position in Morningstar, Inc. (NASDAQ:MORN), a leading provider of financial data and software for the investment industry. The company owns several leading data assets that are widely used by public and private investors, as well as investment managers and consultants. We believe that Morningstar will benefit from rising demand for its proprietary financial information, allowing it to achieve strong revenue, margin, and earnings growth. We expect the company to continue to aggregate market share, exercise pricing power, and reduce the rate of its expense growth.
Morningstar owns several unique and differentiated data assets that span both public and private markets. Key products include Morningstar Data, which is the de facto standard for mutual fund ratings. Pitchbook aggregates data on private market companies, such as valuations, fundraising rounds, and information on company debt. Morningstar generates over 70% of its revenue from license-based products that are sold on a subscription basis. These products generate highly recurring revenues, with high margins and pricing power, which results in a high-quality earnings model. Aside from subscriptions, Morningstar also generates revenues from some products in which fees are charged on a transactional basis or as a percentage of client assets.
Recently, Morningstar shares have underperformed as profit margins have dipped into the low teens from their historic 20% to 25% range. This has been caused by revenue declines in some more cyclical products, combined with significant expense growth as the company invested in headcount to support future growth. Management has begun to slow hiring to constrain expense growth, and we believe that continued growth in Morningstar’s license-based products and a normalization in cyclical product sales will help profit margins and drive earnings growth. We took advantage of the price weakness to purchase this high-quality financial information business with earnings that should grow durably over a multi-year period.”
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Morningstar, Inc. (NASDAQ:MORN) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 20 hedge fund portfolios held Morningstar, Inc. (NASDAQ:MORN) at the end of first quarter which was 23 in the previous quarter.
We discussed Morningstar, Inc. (NASDAQ:MORN) in another article and shared Artisan Small Cap Fund’s insights on the company. In addition, please check out our hedge fund investor letters Q2 2023 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.
