Baron Funds, an investment management firm, released its “Baron FinTech Fund” third quarter 2023 investor letter, a copy of which can be downloaded here. During the quarter concluding on September 30, 2023, Baron FinTech Fund® (Institutional Shares) experienced a 1.30% increase, contrasting with a 6.77% loss for the FactSet Global FinTech Index (the Benchmark). Since its inception on December 31, 2019, the Fund has achieved an annualized growth of 6.50%, surpassing the Benchmark, which declined by 2.22%. Take a moment to review the fund’s top 5 holdings to gain insights into their primary investment choices for 2023.
In its Q3 2023 investor letter, Baron FinTech Fund mentioned Morningstar, Inc. (NASDAQ:MORN) and explained its insights for the company. Morningstar, Inc. (NASDAQ:MORN) is a Chicago, Illinois-based financial services company with a $11.5 billion market capitalization. Morningstar, Inc. (NASDAQ:MORN) delivered a 22.88% return since the beginning of the year, while its 12-month returns are up by 10.29%. The stock closed at $271.04 per share on November 17, 2023.
Here is what Baron FinTech Fund has to say about Morningstar, Inc. (NASDAQ:MORN) in its Q3 2023 investor letter:
“We initiated a position in Morningstar, Inc., a leading provider of financial data and software for the investment industry. The company owns valuable data assets that are widely used by investors, fund managers, and consultants. We believe that Morningstar will benefit from rising demand for its proprietary financial information and significantly expand margins back to historical levels after completing a recent investment cycle.
Morningstar owns several unique data products that span both public and private markets. Key products include Morningstar Category, Morningstar Style Box, and Morningstar Rating, which are the de factor standards for mutual fund classification and ratings. Pitchbook aggregates data on privately held companies, such as valuations, fundraising rounds, ownership, and debt. Morningstar generates over 70% of its revenue from license-based products that are sold on a subscription basis. These products generate recurring revenues with high margins and pricing power. Aside from subscriptions, Morningstar also generates revenue from products with variable fees that are charged on a transactional basis or as a percentage of client assets.
Prior to our purchase, Morningstar shares had underperformed as operating margins had dipped into the low teens from their historic 20% to 25% range. This was caused by revenue declines in some of the more cyclical products as well as significant expense growth as the company increased headcount. This investment cycle appears to be over as management has slowed hiring and signaled their intention to improve operating efficiency. We believe that a slower pace of expense growth combined with a normalization in cyclical product sales will boost profit margins and drive rapid earnings growth. We took advantage of recent share price weakness to purchase this high-quality financial data business with earnings that should grow durably over a multi-year period.”
A woman examining her finances and a mortgage payment plan on her laptop.
Our calculations show that Morningstar, Inc. (NASDAQ:MORN) does not belong on our list of the 30 Most Popular Stocks Among Hedge Funds. Morningstar, Inc. (NASDAQ:MORN) was in 22 hedge fund portfolios at the end of the second quarter of 2023, compared to 20 funds in the previous quarter. Morningstar, Inc. (NASDAQ:MORN) delivered a 21.53% return in the past 3 months. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters Q3 2023 page.
Disclosure: None. This article is originally published at Insider Monkey.