Baron Real Estate Fund: The Case for Active Management

March 2025 | Download PDF

Baron Real Estate Fund® is an actively managed, growth equity real estate fund designed to drive long-term capital appreciation. Managed by Jeff Kolitch since its 2009 inception, the all-cap Fund takes a unique approach by investing in both REITs and non-REIT real estate-related companies that operate within or support the real estate industry.

Unlike most real estate funds, which focus primarily on REITs, we embrace a more expansive, diversified investment process that captures opportunities across the broader real estate ecosystem.

1. More Flexible and Selective than Passive and Actively Managed Peers

Our benchmark-agnostic process allows us to focus on fundamentals and make strategic decisions around sub-industry allocation, geographic exposure, balance sheet strength, and lease duration.

Larger investment universe than actively managed REIT funds (330 REITs and non-REIT real estate-related companies in the MSCI USA IMI Extended Real Estate Index versus only 114 REITs in the MSCI US REIT Index)
Less reliant on debt capital markets than REIT funds (REITs must pay out at least 90% of taxable income in dividends annually)
Outsized portfolio allocations driven by conviction, thematic investing, and risk-adjusted return potential—not benchmark considerations
May own both REITs and non-REITs that are not included in the indexes
More discerning than passive real estate funds, which must fully replicate their benchmark indexes regardless of quality

2. Targeted Exposure to Non-REIT Real Estate Opportunities

Our active approach currently emphasizes seven non-REIT real estate-related categories, accounting for nearly 60% of net assets. This broader and more balanced exposure has been a key driver of the Fund’s long-term outperformance versus competitors.

Category allocations vary and are based on our research and assessment of opportunities in each category on a bottom-up basis.

3. Long-Term Performance Powered by Unique Non-REIT Holdings

Baron Real Estate Fund's non-REIT holdings that do not overlap with the Real Estate Spliced Index²—the benchmark for the largest passive real estate ETF—have outperformed on a cumulative basis across the 3-year, 5-year, 10-year, and since inception periods.

While both unique and overlapping holdings have contributed meaningfully to long-term performance, our unique holdings have delivered stellar results, generating cumulative returns that have exceeded the benchmark by 487.11% since inception.

**Cumulative Returns (%) as of March 31, 2025**

Baron Real Estate Fund³			-3.09	5.21	110.23	123.93	538.31
	Baron Real Estate Fund’s Unique Holdings⁴		-11.86	10.58	159.21	133.24	704.27
		Real Estate Service Companies	0.00	22.13	63.81	189.00	1,599.84
		Building Products/Services	-22.50	-7.91	62.97	77.52	622.16
		Hotels & Leisure	-6.54	-10.17	170.67	88.13	551.72
		Data Centers	214.83	107.10	93.44	528.08	528.08
		Real Estate Operating Companies	15.83	10.84	129.74	215.26	475.96
		Casinos & Gaming Operators	-39.28	-37.69	130.27	43.26	217.54
		Homebuilders & Land Developers	-23.75	86.59	296.01	117.50	38.70
	Baron Real Estate Fund’s Overlapping Holdings⁵		9.26	-16.15	36.20	95.92	376.84
Real Estate Spliced Index²			7.95	-8.30	49.56	46.41	217.16
Baron Real Estate Fund Excess Return vs. Index			-11.04	13.51	60.67	77.52	321.15
Unique Holdings Excess Return vs. Index			-19.81	18.88	109.65	86.83	487.11
Overlapping Holdings Excess Return vs. Index			1.31	-7.85	-13.36	49.51	159.68

**Annualized Returns (%) as of March 31, 2025**

Baron Real Estate Fund³	-3.09	1.71	16.02	8.40	12.93
MSCI USA IMI Extended Real Estate Index	2.45	4.79	15.39	7.73	10.76
MSCI US REIT Index	8.98	-1.77	10.04	4.01	7.94
S&P 500 Index	8.25	9.06	18.59	12.50	13.31
Real Estate Spliced Index²	7.95	-2.85	8.38	3.89	7.86
MSCI US IMI Real Estate 25/50 Index	7.95	-2.85	8.38	—	—

Sources: Baron Capital, MSCI Inc., Morningstar Direct, and FactSet PA.

Performance listed in the table above is net of operating expenses. The annual expense ratio for the Institutional Shares as of April 26, 2024 was 1.06%.

The performance data quoted represents past performance. Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate; an investor's shares, when redeemed, may be worth more or less than their original cost. The Adviser may waive or reimburse certain Fund expenses pursuant to a contract expiring on August 29, 2035, unless renewed for another 11-year term, and the Funds' transfer agency expenses may be reduced by expense offsets from an unaffiliated transfer agent, without which performance would have been lower. Current performance may be lower or higher than the performance data quoted. For performance information current to the most recent month end, visit BaronCapitalGroup.com or call 1-800-99-BARON.

(2)The Real Estate Spliced Index reflects the performance of the MSCI US REIT Index through July 24, 2018 and the MSCI US IMI Real Estate 25/50 Index thereafter.
(3)Institutional shares. For Retail and R6 shares, visit BaronCapitalGroup.com.
(4)Baron Real Estate Fund's unique holdings are those that do not overlap with the Real Estate Spliced Index during the period presented. An ETF proxy was used to identify the Fund's unique holdings relative to the Index.
(5)Baron Real Estate Fund's overlapping holdings are those that overlap with the Real Estate Spliced Index during the period presented. An ETF proxy was used to identify the Fund's overlapping holdings relative to the Index.

4. Consistent Outperformance Over Time

Baron Real Estate Fund has outpaced both the Real Estate Spliced Index and the Morningstar Real Estate Category over the 3-year, 5-year, 10-year, and since inception periods. We believe this consistent outperformance reflects the strength of our active approach—rooted in bottom-up, research-intensive security selection and the flexibility to invest in the winners and steer clear of the losers.