- Alex Umansky’s Baron Global Advantage Fund has beaten out 99% of its competition over the past three years by focusing on companies with big competitive advantages.
- Amazon has been a huge contributor to the fund’s performance in recent years, and Umansky said the growth of online retail meant it could “easily” triple in value in five or 10 years.
- Technological trends around the world are driving some of his other winning investments, and Umansky told Business Insider about five of his highest-conviction buys.
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If you had to ask anyone to predict the future, you’d want to talk to someone who had a pretty good idea how the present was going to look.
Alex Umansky, a portfolio manager for Baron Funds, can claim an impressive track record in that regard. He runs the Baron Global Advantage Fund, which is the best-performing global stock fund of 2019, according to Kiplinger. It’s returned 46% this year.
The fund has also trounced 99% of its peers over the past three years, with an annual return of 26.9% over that stretch. Umansky says he starts with a simple mandate and wants to invest “with conviction” whenever he puts his money into a stock.
“All we want is 40 to 50 best ideas anywhere in the world,” he told Business Insider in an exclusive interview. “Competitive advantage is number one, how durable that competitive advantage is, and will it lead to sustainable growth, and then well-managed, and is it managed for the long term? Those are the most important criteria for us.”
With that in mind, Umansky says he’s a big believer in these five companies in the present and over the decades ahead.
Even though Amazon’s stock price is up more than sixfold in the past five years, Umansky thinks the online giant is still on track for dramatic gains in the years to come. At one point Umansky had 10% of his investments in Amazon, and it’s still the single largest holding in the Global Advantage Fund today.
“We do believe that Amazon is still going to at least triple, if not quadruple, over the next five to 10 years,” he said. “We can underwrite, let’s say, a $3 trillion market cap on Amazon relatively easy.”
That’s based on his belief that the transition to online retail is still in its early stages, as far more shopping will eventually be done online. In the meantime, Amazon’s combination of sales, Prime membership revenue, its profitable third-party retail business, its growing advertising business, and its growing cloud-computing business can justify a dramatically higher valuation.
Umansky makes a similar argument for Alibaba, which he invested in five years ago and has bumped up to the second-largest position in the fund. That’s based on China’s shift toward a more consumer-focused economy and Alibaba’s dominant position in online retail.
“China’s retail grew 8% [in the latest quarter], but e-commerce actually grew 21%, and Alibaba is growing even faster than that because they’re taking market share,” he said. “The growth opportunity is so large that in many ways it feels like it’s just easy money. It feels like where Amazon was some years back.”
With those two giants out of the way, Umansky says the biggest contributor to his fund this year is EPAM Systems, a software engineering and IT consulting company whose stock has climbed more than 80% this year. It’s nearly tripled in value since Umansky added it to the fund four years ago.
“The Nikes and Disneys and you know, all of these companies need to enter the 21st century and they need to reinvent the way they are communicating with their customers,” he said.
He added that EPAM’s success helped him find two other stocks that had enhanced the fund’s performance: the Argentina-based Globant SA, which has jumped 89% in the past year, and Endava PLC, which mostly operates in North America and Western Europe and has doubled in value in 2019.
Veeva develops cloud-computing programs for healthcare companies, and Umansky calls it one of the fund’s biggest contributors over its three-year run of success. He sees it as another company that’s taking advantage of an important industry-wide trend and staking out a strong competitive position.
“Veeva is the leader in the CRM space for the whole life-sciences industry. They have like 90% market share in the healthcare business,” he said. “They’re enabling the healthcare companies to access all of their information in one place. They are making them more efficient, they’re making them more effective.”
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“We’re quite bullish on the payment space in general,” Umansky said. “They’ve been a consolidator, and they’re going to benefit from the migration of payments from paper and physical form to digital and online.”