Mutual Funds & Personal Finance
 

Ron Baron seeks strong growers for his Baron Asset Fund. And he wants ones that he can buy cheaply and hold for a long spell.

No surprise there. Those are the same guidelines that Baron applies to all of its funds.

At $2.9 billion Baron Asset, Baron and co-manager Andrew Peck have an 11% annual turnover ratio, according to Morningstar. Over the three years through Dec. 31, the fund's average annual turnover ratio was about 20%, the fund says.

That's well below the 116% average for its midcap growth rivals tracked by Morningstar.

To buy stocks at attractive prices, Baron and Peck exercise patience. The managers wait for opportunities when a stock's price has fallen for reasons unrelated to its long-term growth potential.

This cuts market risk. And it lets the managers focus their hunt on firms with solid operations and fundamentals.

This buy-and-hold approach has worked for the fund. Going into Monday, the fund this year was up 7.48% vs. 7.42% for its peers and 5.06% for the S&P 500.

Over the past three years, its average annual gain was 28.30% vs. 22.54% for its peers and 4.33% for the bogey.

Chicago Mercantile Exchange, (CME) a top 10 holding, is up 15% this year. It has IBD's Composite Rating of 99.

The Merc's electronic exchange accounts for a growing portion of the firm's trading volume. Its electronic platform also generally has higher margins than its traditional pit-based market.

The Merc's best known product is its interest-rate futures contract. Hedge funds and other sophisticated investors, as the fund described them in its Sept. 30 quarterly report, increasingly use such securities to hedge risks.

The exchange's popularity has given it pricing power. And it is moving into new markets, such as one for foreign exchange futures.

The Merc was also among the fund's top sells in the reporting period ended Sept. 30. Its price-earnings ratio has climbed to 49, near a five-year high, from a range of 21-39 in Q1 2005.

Brokerage Booster

Charles Schwab, (SCHW) another top holding, is up 24% this year. It has a 97 Composite Rating.

Investors have generally responded well to the firm's divestiture of noncore acquisitions.

That's enabled newly returned Chief Executive Charles Schwab and his team to focus on boosting profitability in the brokerage business, Baron's quarterly report said.

An expanding economy has also helped trading volume.

Baron is optimistic about the firm's plans to shift customer assets into its banking operation. Baron likes the outlook for Schwab's U.S. Trust division.

And Schwab remains a takeover target, especially by a foreign financial firm seeking a U.S. base, Baron's quarterly report said.

CapitalSource, (CSE) a new buy of the fund in its latest reporting period, is a specialty commercial lender. Clients are mainly small and midsize businesses.

The stock is up about 12% this year. It has a 90 Composite Rating.

Economic expansion has fueled demand for capital by small businesses. That's translated into growth for CapitalSource.

Last month it reported Q4 earnings growth of 12%. Gains were especially strong among commercial real estate and health care real estate customers.

Another holding, First Marblehead, (FMD) is up 41% this year. The firm provides outsourcing services to student-loan providers.

It has rallied 115% since a closing low of 21.60 on Oct. 7. That was shortly after the firm was jolted by the September resignation of its chief executive, who had given inappropriate gifts to an employee of another large bank customer.

In turn, that happened after the stock began to sell off in June when a large customer, Collegiate Funding Services, said it would take part of its loan securitization business in-house.

Through those difficulties, First Marblehead's fundamentals stayed sound.