Baron Funds, an investment management company, released its fourth quarter 2023 investor letter for the “Baron Fifth Avenue Growth Fund.” The fund showed significant growth in the fourth quarter, with Institutional Shares increasing by 17.6%. This performance surpassed the gains of both the Russell 1000 Growth Index, which saw a 14.2% increase, and the S&P 500 Index, which rose by 11.7%. Over the entire year, the fund appreciated by 57.6%, exhibiting strong performance compared to the indexes’ returns of 42.7% and 26.3%, respectively. To understand the fund’s successful investments in 2023, it’s essential to examine its top five holdings.
Baron Fifth Avenue Growth Fund featured stocks such as Microsoft Corporation (NASDAQ:MSFT) in its Q4 2023 investor letter. Microsoft Corporation (NASDAQ:MSFT) is headquartered in Redmond, Washington, and is a multinational software company that develops, and licenses software, services, devices, and solutions. As of February 22, 2024, Microsoft Corporation (NASDAQ:MSFT) stock closed at $411.65 per share. Over the last month, Microsoft Corporation (NASDAQ:MSFT) saw a return of 1.67%, and its shares gained 61.58% in value over the past 52 weeks. With a market capitalization of $3.059 trillion, Microsoft Corporation (NASDAQ:MSFT) continues to be a significant player in the technology industry.
In its fourth quarter 2023 investor letter, Baron Fifth Avenue Growth Fund detailed its significant investment in Microsoft Corporation (NASDAQ:MSFT). The fund initiated a new position in Microsoft, a move it had hesitated to make for several years, primarily viewing it as a better fit for a post high-growth strategy. However, under the leadership of Satya Nadella, Microsoft underwent a transformation, shifting from a windows-centric, on-premises technology provider to one of the top two global cloud providers. Cloud services now account for over 55% of Microsoft’s total revenues and have been growing rapidly. The company has built a $125 billion run-rate cloud business, demonstrating substantial growth potential. For instance, Microsoft Cloud experienced a 23% year-over-year growth rate in constant currency, outpacing the company’s overall growth and that of its competitors. This growth equates to approximately $24 billion in added cloud revenues year-over-year, highlighting the significant scale of Microsoft’s cloud operations.
Moreover, Baron Fifth Avenue Growth Fund believes that Microsoft is exceptionally positioned competitively, thanks to its vertically integrated software stack and the growing adoption of artificial intelligence (AI) and GenAI. Microsoft’s AI positioning is seen as advantageous due to its lack of an innovator’s dilemma in its core business, strong partnerships such as with OpenAI, a vast proprietary data asset, and a robust partner ecosystem. These factors position Microsoft well to capitalize on the expanding addressable market driven by AI adoption.
At the end of the fourth quarter, Microsoft Corporation (NASDAQ:MSFT) was held by 302 hedge fund portfolios, down from 306 in the previous quarter, according to our database.