Baron Asset Fund on Arch Capital Group
Thesis
Arch underperformed as investors rotated away from resilient insurance stocks and property insurance pricing softened. Baron views this pricing cyclicality as normal rather than evidence of a structural deterioration in the business. The Fund continues to own Arch because of its strong management team and the expectation that earnings and book value will continue to grow over time. Near-term insurance pricing weakness is therefore treated as part of the normal cycle rather than a break in the long-term thesis.
“we continue to own the stock due to Arch’s strong management team and our expectation of continued growth in earnings and book value”
Key risks
- Soft property insurance pricing caused by strong industry profitability and elevated capital levels
- Normal cyclicality in insurance pricing