We initiated a position in Synchrony Financial (NYSE:SYF), the largest provider of private label credit cards in the U.S. Synchrony partners with leading retailers such as Lowe’s, Walmart, and Amazon to offer their customers credit products to finance the purchase of goods and services. These partnerships are win-win since merchants benefit from increased sales and stronger customer loyalty, customers enjoy access to credit and promotional offers, and Synchrony earns high margins and returns on capital. We believe that Synchrony will be a prime beneficiary of the secular growth of private label credit cards. Private label card spending is growing two to three times faster than overall retail sales and has a long runway for growth given that private label represents only 3% of total card spending in the U.S. Synchrony is the largest player in a consolidated industry with meaningful barriers to entry including economies of scale, the importance of marketing expertise, close integration with merchants, and long-term contracts. Synchrony has a long track record of success under GE’s prior ownership that we believe will continue for many more years.
From Baron Funds' Fifth Avenue Growth Fund fourth quarter 2016 commentary.
