| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 12.63% | 19.08% | 6.39% |
Baron Discovery Fund returned 19.08% in Q2 2026, underperforming the Russell 2000 Growth Index's 25.71% return driven almost exclusively by momentum in AI winner stocks. The managers draw explicit parallels to the dot-com bubble, arguing that while AI is transformative technology, adoption faces real headwinds including token cost pushback, data sovereignty concerns, and infrastructure constraints. They attribute 6% of the 6.63% underperformance to being underweight Momentum and Beta factors, viewing this as a feature of their disciplined process rather than a flaw. The managers used software sector weakness to initiate positions in Samsara and Rubrik at attractive valuations, with Rubrik purchased in the mid-$50s during the SaaS-pocalypse and closing the quarter above $80. They took profits in AI-exposed names approaching price targets while adding to defense positions on weakness. The portfolio holds concentrated positions in differentiated businesses across infrastructure, software, defense, and specialty industrial companies trading at compelling valuations despite strong growth prospects. Top contributors included SiTime, Forgent Power Solutions, and CareDx.
Baron Discovery Fund maintains a disciplined, fundamental approach focused on small-cap companies with sustainable earnings growth, competitive advantages, and attractive valuations, explicitly avoiding momentum-driven AI winners that managers view as priced for perfection in a bubble comparable to the dot-com era.
The managers expect 2026 to remain challenging for fundamental investors as momentum continues to dominate, but they are positioning the portfolio to preserve capital when the inevitable reversal occurs in the AI winner trade. They see attractive valuations across much of the market in companies with strong earnings growth that are being ignored due to lack of AI exposure. While this positioning may lead to continued underperformance if the AI mania extends, they believe it positions the fund to outperform when market focus returns to fundamentals and sustainable business models. They are sticking to their disciplined process of finding companies with significant growth opportunities, sustainable competitive advantages, exceptional management teams, and attractive valuations rather than chasing the latest AI fad.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Aug 3 2026 | 2026 Q2 | AEIS, BIRK, CDNA, CWST, DT, ENPR, ESTS, FORG, GWRE, IOT, KTOS, LOAR, MRCY, NOVT, PCOR, RBRK, SHAK, SIMO, WMS | AI, defense, momentum, semiconductors, small caps, software, value | - | Baron Discovery underperformed in Q2 2026 as momentum-driven AI winners dominated small-cap performance in what managers view as a bubble comparable to the dot-com era. They explicitly avoided chasing momentum, instead using software sector weakness to initiate Samsara and Rubrik at attractive valuations while taking profits in AI-exposed names approaching targets. The portfolio is positioned with concentrated holdings in differentiated businesses trading at compelling valuations despite market ignoring non-AI growth stories. |
| Apr 25 2026 | 2026 Q1 | AEIS, ARQT, DKNG, DT, HRTX, INTA, MASI, WAY | AI, cybersecurity, Data centers, healthcare, semiconductors, small cap, software, technology | - | Baron Discovery Fund underperformed due to AI disruption fears hitting software holdings despite strong earnings. Managers maintain conviction in software companies with competitive moats beyond code, adding to positions at attractive valuations. They expect catalysts including M&A activity and cybersecurity needs to drive outperformance as markets recognize value dispersion in software. |
| Jan 26 2026 | 2025 Q4 | ALKT, CWAN, CWST, DKNG, DT, ESTA, EXAS, FROG, GCI, GTLB, INDIE, LLYVA, LOAR, MRCY, PRMB, RGEN, S, SITM, TREX, VRNS, WAY | AI, defense, growth, healthcare, Quality, small caps, software |
EXAS ESTA CWAN WAY CAS FROG INDI VRNS LLYVA PRMB GLIBA CWST |
Baron Discovery Fund's systematic growth approach delivered 10.96% returns in 2025 despite market preference for low-quality momentum stocks. The fund maintains high-conviction positions in software, healthcare, and defense companies with competitive advantages. Management expects favorable 2026 conditions from declining inflation, AI infrastructure spending, and economic growth to benefit their anti-momentum, quality-focused strategy. |
| Oct 28 2025 | 2025 Q3 | AAON, AEIS, BIRK, BMI, CDNA, CYBR, DKNG, DT, EXAS, GTLS, INSP, KTOS, LLYVA, MEG, MRCY, PAR, PRMB, SPRY, WING, WYNN | cybersecurity, defense, earnings, growth, Quality, small cap, technology, water |
BIRK INSP WING KTOS BIRK PAR INSP WING KTOS |
Baron Discovery Fund underperformed in Q3 due to the worst Earnings Quality factor performance in 50 years, as speculative stocks dominated. The Fund avoided meme stocks and emerging tech sectors, instead focusing on defense spending beneficiaries and establishing positions in water distribution, footwear, and cybersecurity. Managers maintain conviction in quality-focused investing despite current market frothiness. |
| Jul 25 2025 | 2025 Q2 | ALKT, BASE, CW, CYBR, DAY, DKNG, DT, EXAS, GWRE, INSP, IRT, KTOS, LLYVA, MAC, MEG, MRCY, NOVT, PAR, RH, TEM, WYNN | AI, Cloud, cybersecurity, defense, growth, small caps, sports betting, technology |
KTOS MEG KARH CLWR INSP WYNN |
Baron Discovery Fund returned 14.76% in Q2 2025, outperforming the Russell 2000 Growth Index by 279 basis points. The fund navigated policy-driven volatility while benefiting from secular tailwinds in AI, defense, and cybersecurity. Small-cap growth stocks appear positioned for outperformance after extended underperformance, supported by attractive valuations and potential macroeconomic improvements from comprehensive policy reforms. |
| Mar 31 2025 | 2025 Q1 | AXON, CWAN, CYBR, DKNG, EXAS, GTLS, GWRE, INDI, INSP, KTOS, LLYVA, MASI, MEG, MRCY, NARI, PAR, RDDT, TEM, TTAN, WING | Biotechnology, defense, growth, Market Dislocation, small cap, tariffs, Value Investing |
EXAS INDI MEG WING KARM ACLX |
Baron Discovery Fund outperformed during Q1 2025 market decline driven by tariff concerns. The fund's investing in reverse strategy positions it to capitalize on market dislocations by purchasing high-quality, fast-growing companies at attractive valuations. Recent additions include Wingstop, defense contractor Karman Holdings, and biotech Arcellx. Small-cap growth valuations remain compelling with investor allocation at decade lows. |
| Dec 31 2024 | 2024 Q4 | AXON, CDNA, CWAN, CYBR, DAY, DKNG, EXAS, FND, GTLS, GWRE, IRT, KTOS, LLYVA, MAC, MEG, PAR, RDDT, S, TTAN, VRNS | contrarian, growth, REITs, small caps, software, technology, value |
CHT PAR MAC TTAN IRT BC.MI |
Baron Discovery Fund's contrarian approach delivered strong Q4 results with 6.20% returns, outperforming benchmarks through concentrated positions in AI-enabled public safety, energy transition infrastructure, and restaurant technology. New investments in mall REIT Macerich and trades software ServiceTitan reflect opportunistic value creation. Managers expect significant small-cap upside from anticipated policy tailwinds including deregulation and tax cuts. |
| Sep 30 2024 | 2024 Q3 | AEIS, AXON, BASE, CDNA, CWAN, CYBR, DKNG, EXAS, GTLS, GWRE, INDI, KTOS, LLYVA, MEG, NARI, PTECH, SIZE, TEM, TWFG, VCYT | growth, healthcare, rates, Rotation, small caps, technology, valuation |
CDNA AXON TEM TWFG NARI |
Baron Discovery Fund believes the three-year bear market in small-cap growth is ending. The Fed's rate cuts, small-cap valuations at 25-year discounts to large-cap, and investor under-allocation create a compelling setup. Key holdings like CareDx and Axon delivered strong performance, while new positions in TWFG and additions to Inari Medical position the fund for the expected rotation into small-cap growth. |
| Jul 31 2024 | 2024 Q2 | AEIS, AXON, BASE, CDXC, CHI, CYBR, DKNG, EXAS, FND, GTLB, GWRE, INSP, ITGR, KNSL, KTOS, MEG, NVMI, PAR, PCOR, SILK, SITE, STVN, TEM, TXRH | AI, Diagnostics, healthcare, small caps, technology, value, volatility | - | Baron Discovery Fund's Q2 underperformance reflects technical trading factors rather than fundamental deterioration. Managers see exceptional opportunities in small-cap growth stocks trading at historically low valuations, particularly AI-enabled software and diagnostics companies. With inflation softening and M&A activity increasing, they remain highly confident in long-term prospects despite continued near-term volatility. |
| Apr 15 2024 | 2024 Q1 | AEIS, ALGM, AXNX, AXON, CDNA, CYBR, DKNG, ENDV, ESTA, FND, GTLB, INTA, KNSL, MASI, MRCY, NARI, NVTS, RH, S, SITE | cybersecurity, growth, healthcare, semiconductors, small cap, technology, Valuations |
KNSL DKNG CYBR MASI INTA |
Baron Discovery Fund's Q1 underperformance was driven by an unprecedented single-stock impact from not owning Super Micro Computer. Small-cap growth stocks remain attractively valued versus large-caps and historically outperform coming out of market downturns. The portfolio is positioned to capitalize on the eventual transition from bear to bull market in small-cap growth. |
| Jan 30 2024 | 2023 Q4 | AAON, ACVA, AEIS, AXON, BASE, CYBR, DKNG, ESTA, EWCZ, FND, GTLB, GTLS, ICHR, KNSL, KTOS, MRAI, MRCY, REXR, S, VRNS | cybersecurity, defense, growth, HVAC, small caps, technology, value |
^FTSE GTLB VRNS AAON |
Baron Discovery Fund's 22.58% return in 2023 demonstrates the power of experiential judgment in small-cap investing. Strong cybersecurity holdings and new HVAC position AAON highlight the fund's ability to identify quality growth companies. With small-cap valuations attractive relative to large caps, 2024 should favor their fundamental analysis approach over algorithmic investing. |
| Sep 30 2023 | 2023 Q3 | AEIS, AXNX, AXON, BYD, CWAN, EWCZ, GTLB, GTLS, GWRE, INDI, KNSL, LLYVA, MEG, NVTS, PAR, REPG, REXR, RVNC, S, SILK, SITE, TXG | growth, healthcare, semiconductors, small caps, software, technology, value | - | Baron Discovery Fund outperformed in Q3 despite market headwinds, marking its 10-year anniversary with returns doubling the benchmark. The managers see compelling valuations amid peak pessimism and remain positioned for economic recovery. New positions in cybersecurity and life sciences reflect their fallen angel strategy, while strong software and insurance holdings drive performance. |
| Dec 31 2022 | 2022 Q4 | ALGM, AXON, CDNA, DH, FORG, GTLS, MEG, QLYS, RVNC, SMAR | - | - | |
| Sep 30 2022 | 2022 Q3 | AXON, CDNA, CWAN, DH, PING, RVNC, SFOR LN, SILK, SMAR, TXRH, WOOF | - | - | |
| Jun 30 2022 | 2022 Q2 | ALKT, ASGN, CDAY, CWAN, DAVA, DH, ESTA, GTLB, GWRE, MEG, PGNY, REXR, SAIL | - | - | |
| May 22 2022 | 2022 Q1 | ACC, AXNX, AXON, GTLS, JBGS, MRCY, PING, VLDX | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
AIThe managers draw explicit parallels between the current AI infrastructure buildout and the dot-com bubble, warning that AI valuations have been driven by momentum rather than fundamentals. They note that while AI is transformative technology, adoption faces headwinds including token cost pushback, data sovereignty concerns driving shift to small language models, and community opposition to data center construction. They are avoiding AI momentum stocks trading at extreme valuations. |
Data Centers Semiconductors Cloud Momentum |
MomentumThe managers explicitly state they do not chase momentum and instead use momentum-driven overvaluations to take profits and redeploy into out-of-favor ideas. They attribute 6.63% of underperformance to being underweight Momentum and Beta factors, viewing this as a feature of their disciplined process rather than a flaw. They believe momentum-driven AI winners are priced for perfection with zero tolerance for setbacks. |
Risk Appetite Value Quality | |
SoftwareThe managers initiated two new software positions (Samsara and Rubrik) during the quarter when the sector was out of favor following first quarter weakness. They describe buying Rubrik in the mid-$50s during the SaaS-pocalypse when markets feared AI would disintermediate all software companies, and the stock subsequently rose to over $80. They view software selloffs as opportunities to deploy capital at attractive valuations. |
SaaS Cloud Enterprise Software | |
DefenseThe managers discuss holdings in Karman Holdings and Kratos Defense, noting that defense stocks faced multiple compression due to election-year budget uncertainty and reversal of momentum following earlier Iran war-driven gains. Despite near-term headwinds, they maintain conviction in Karman's 20% organic growth outlook driven by multi-year missile production increases and added to Kratos on weakness, citing strong execution and innovative positioning. |
Defense Spending Aerospace Defense Components | |
Data CentersThe managers hold positions in data center-related companies including Forgent Power Solutions and SiTime Corporation, both of which performed strongly in the quarter. However, they express caution about the sustainability of AI-driven data center buildout, citing community opposition to construction, power grid constraints, and potential lumpiness in capital expenditures. They are managing risk in names with large year-to-date gains from AI exposure. |
AI Cloud Infrastructure Electrical Equipment | |
SemiconductorsThe managers hold SiTime Corporation, which reported significantly better than expected results with 80% growth guidance driven by AI data center adoption and positioning on Apple's internal modem. They view the semiconductor cycle positively for select names with differentiated positioning, though they sold Advanced Energy Industries after shares approached long-term price targets on AI data center excitement, suggesting valuation discipline in the space. |
Semiconductor Cycle AI Data Centers | |
InfrastructureThe managers initiated a position in Advanced Drainage Systems, citing secular tailwinds from aging infrastructure, rising storm frequency, and conversion from concrete to plastic pipe. They also hold Forgent Power Solutions, benefiting from grid buildout and data center electrical infrastructure demand. They see multi-year growth opportunities in infrastructure-related names with attractive valuations at cyclical lows. |
Infrastructure Spending Grid Upgrade Construction | |
RestaurantsThe managers initiated a position in Shake Shack after shares fell on weaker-than-expected first quarter earnings, which they attribute to poor communication rather than business deterioration. They view Shake Shack as a compelling long-term growth story with differentiated brand, improving unit economics, and runway to 1,500 domestic locations from 390 today. They see the quality positioning as insulating the brand from QSR value wars. |
Quick Commerce Consumer Finance Retail Food | |
| 2026 Q1 |
AIManager discusses AI disruption impact on software companies, noting the SaaS-pocalypse where AI is changing the industry. However, they believe their software holdings have competitive advantages beyond code, including deterministic data, network effects, and regulatory moats that protect against AI disintermediation. |
Software Disruption LLM Competitive Advantages Deterministic Data |
SoftwareSoftware holdings were the primary detractor, contributing 4.36% of negative performance due to AI disruption fears. Manager maintains conviction in software companies with protected characteristics like deterministic data, network effects, and regulatory advantages, viewing current valuations as attractive despite near-term headwinds. |
SaaS Valuations Competitive Moats Enterprise Cybersecurity | |
Data CentersManager added new position in Forgent Power Solutions, a manufacturer of electrical distribution equipment for data centers. They see data center infrastructure build as creating supply/demand mismatch that Forgent is positioned to capitalize on with its manufacturing capacity and custom products. |
Infrastructure Power Equipment Manufacturing Supply Chain | |
CybersecurityManager highlights cybersecurity companies like SentinelOne as having advantages in seeing company data and parsing threats. They expect cyber-attacks based on LLM usage to create catalysts for cybersecurity software, noting recent LiteLLM attack as example of vulnerabilities. |
Endpoint Protection Network Security Threat Detection Enterprise Security | |
SemiconductorsSemiconductor exposure provided positive relative performance, particularly companies benefiting from AI secular growth narrative including semiconductor materials, equipment, and electronic instruments. Advanced Energy Industries performed well due to data center and semiconductor end market strength. |
AI Infrastructure Equipment Materials Power Management | |
| 2025 Q4 |
AIManager draws parallels between today's AI-driven market concentration and the 2014-15 oil collapse, warning that AI has become a macroeconomic assumption embedded in capital expenditure plans and valuations. Physical constraints like energy intensity and grid limitations complicate AI scalability assumptions. |
Artificial Intelligence Valuations Infrastructure Energy Scalability |
EnergyEnergy plays a critical role in AI infrastructure economics through data center power consumption. Rising electricity prices and grid constraints in data-center-heavy regions are compressing margins and extending deployment timelines, creating physical bottlenecks to AI scaling. |
Electricity Data Centers Grid Power Infrastructure | |
Small CapsThe portfolio consists of fundamentally strong small-cap businesses with resilient cash flows and improved competitive positions. Manager likes the current portfolio composition despite market preference for large-cap AI momentum over small-cap breadth. |
Small Cap Fundamentals Cash Flow Competitive Position | |
| 2025 Q3 |
Defense SpendingThe Fund benefits from a generational increase in defense spending amid heightened global conflicts. Defense companies like Kratos, Mercury Systems, and Karman Holdings are winning new contracts across multiple divisions and benefiting from the current administration's openness to smaller, agile defense contractors. The defense spending cycle appears to be in a generational upswing. |
Defense Contracts Spending Military Technology |
CybersecurityThe rising cybersecurity threat environment, proliferation of cloud and AI applications, and new regulatory requirements have made SASE a critical priority for large enterprises. Netskope is gaining market share due to its next-generation technology and unique architecture that provides granular control over modern applications including generative AI tools. |
SASE Cloud Security Data Protection Enterprise AI | |
WaterPrimo Brands benefits from tailwinds driving growth in water consumption as consumers become more health conscious and trade sugary soft drinks for water. The aging municipal water infrastructure in the U.S. is leading more people to seek out high-quality spring and purified water. |
Bottled Water Health Infrastructure Distribution Brands | |
| 2025 Q2 |
DefenseThe fund is positioned across multiple defense companies benefiting from increased funding and demand for advanced military technologies. Companies like Kratos Defense & Security Solutions and Karman Holdings are well positioned for accelerated multi-year growth in areas such as hypersonic technology, drone engines, missile defense, and space launch components. |
Defense Spending Hypersonics Drones Missiles Space |
AIApplied AI represents one of the powerful secular tailwinds benefiting portfolio companies. The fund holds positions in AI-powered observability and security platform businesses like Dynatrace that are capitalizing on the growing demand for AI-driven solutions. |
Artificial Intelligence Observability Security Analytics | |
CloudThe movement of application software to the cloud is identified as a key secular tailwind. Portfolio companies are benefiting from the ongoing digital transformation and cloud migration trends across enterprises. |
Cloud Migration SaaS Digital Transformation | |
CybersecurityCybersecurity is highlighted as one of the powerful secular tailwinds driving portfolio company growth. The fund maintains exposure to companies providing advanced security solutions in an increasingly digital world. |
Security Software Cyber Defense Data Protection | |
Sports BettingThe explosion in online sports betting represents a significant growth opportunity. DraftKings is positioned as a top contributor to performance, benefiting from the rapid expansion of legalized sports betting markets. |
Online Gambling Gaming Digital Entertainment | |
| 2025 Q1 |
DefenseThe fund has significant exposure to defense companies including Kratos Defense & Security Solutions and newly added Karman Holdings. These companies are positioned to benefit from growing defense spending on hypersonic missiles, space programs, and unmanned aircraft solutions. Karman specifically targets the fastest-growing segments of defense with 90% sole-sourced sales and proprietary IP-driven solutions. |
Defense Spending Hypersonics Space Missiles Drones |
BiotechnologyThe fund initiated a position in Arcellx, a biotechnology company developing next-generation CAR-T cell therapy for multiple myeloma treatment. The investment is based on the large proven market opportunity and Arcellx's safer therapy profile compared to existing treatments, with potential to capture meaningful market share in the $10-15 billion multiple myeloma CAR-T category. |
CAR-T Multiple Myeloma Gene Therapy Oncology Biotechnology | |
DiagnosticsExact Sciences Corporation, a major holding, provides cancer diagnostics through its flagship Cologuard colorectal cancer screening test. Despite competitive pressures from blood-based tests, the company maintains advantages in pre-cancer sensitivity and is developing its own blood-based tests to compete effectively in the large screening market. |
Cancer Screening Diagnostics Medical Devices Healthcare Genomics | |
SemiconductorsThe fund holds indie Semiconductor, which designs automotive semiconductors for advanced driver assistance systems and in-cabin features. Despite near-term headwinds from inventory corrections and automotive uncertainty, the company has a $7.1 billion strategic backlog and is positioned for outsized growth as its product mix shifts to higher-margin ADAS applications. |
Automotive Semiconductors ADAS Semiconductor Cycle Auto Parts Technology | |
RestaurantsThe fund initiated a position in Wingstop, a franchised limited-service restaurant company specializing in chicken wings. The investment thesis centers on the company's efficient franchise model, strong unit economics with 70%+ cash-on-cash returns for franchisees, and long-term growth potential to 10,000 global units from the current 2,500 locations. |
Franchising Quick Service Unit Growth Restaurants Consumer Discretionary | |
| 2024 Q4 |
AIAxon highlighted the 2025 launch of an AI bundle oriented around its innovative Draft One product which automates the process of report writing for public safety officers. This represents a significant expansion opportunity as Axon continues to find new areas of growth and pulls ahead of competition. |
Automation Public Safety Software Innovation Growth |
CybersecurityCyberArk Software represents the fund's largest position at 3.4% of net assets. The cybersecurity sector continues to be a core focus area for the fund's technology investments. |
Software Enterprise Security Technology | |
Commercial Real EstateThe fund initiated a position in Macerich, a REIT owning 43 high-quality malls. The fundamental backdrop for high-quality mall real estate remains favorable with robust tenant demand, shortage of desirable space, and enabling landlords to raise rents. A CEO transition provides turnaround opportunities. |
REITs Malls Retail Turnaround Management | |
Energy TransitionChart Industries serves long-duration secular growth markets including liquid natural gas, hydrogen, carbon capture, and water treatment. The company has record revenue, backlog, and margins with strong execution expected into 2025. |
LNG Hydrogen Carbon Capture Infrastructure Growth | |
SaaSServiceTitan operates as the leading business management software platform for trades, serving a $30 billion addressable market. PAR Technology continues building an all-in-one platform for enterprise restaurants with greater than 20% software revenue growth targets. |
Software Platforms Trades Restaurants Growth | |
| 2024 Q3 |
Small CapsThe fund believes the bear market in small-cap growth stocks that started in February 2021 is finally ending. Small-cap growth is trading at its largest discount relative to large cap in 25 years, with investors under-allocated to the asset class. The combination of lower interest rates, stronger economic growth, attractive valuations, and easier earnings comparisons creates a backdrop conducive for stronger small company fundamentals and valuation multiples. |
Small Cap Growth Valuation Rotation Outperformance Russell 2000 |
RatesLower interest rates are a positive for smaller growth companies as they increase the present value of future cash flows and expand valuation multiples. The Fed cut rates by 50 basis points in September, and lower rates are also a tailwind for the economy, creating an environment where portfolio companies can see accelerating revenue growth. |
Fed Interest Rates Monetary Policy Valuation Growth | |
Medical DevicesThe fund holds positions in medical device companies like CareDx, Inari Medical, and others focused on specialized treatments. CareDx benefited from CMS retiring a draft local coverage determination that had caused reimbursement issues. Inari Medical offers catheter-based devices for venous thromboembolism treatment with significant market opportunities in both PE and DVT markets worth about $6 billion total. |
Medical Devices Reimbursement VTE Healthcare Innovation | |
AIAxon Enterprise introduced Draft One software that leverages generative AI and body-worn camera audio to produce high-quality draft report narratives in seconds, freeing up 20-25% of an officer's day. This showcases the potential generative AI use cases in Axon's business and drove strong international bookings growth. |
Generative AI Software Automation Law Enforcement Innovation | |
| 2024 Q2 |
AIFund owns several AI-enabled companies including GitLab, SentinelOne, and Couchbase that adapt AI models to enhance their products. Also owns Nova Ltd., a semiconductor capital equipment company enabling AI chip manufacturing. Managers believe the market will broaden from AI hardware to adaptive AI investments. |
Software Semiconductors Machine Learning Enterprise Cybersecurity |
GLP1GLP-1 drugs have become the biggest class of therapeutics with expected 2024 sales of $50 billion. Fund has exposure through Stevanato Group which manufactures specialized components for injectable drugs, though near-term inventory issues have created headwinds. |
Pharmaceuticals Medical Devices Diabetes Weight Loss Injectable | |
DiagnosticsFund has increased exposure to diagnostics companies including Veracyte, CareDx, Exact Sciences, and new position Tempus AI. Managers see compressed valuations despite consistent execution, with Exact Sciences offering significant upside in colorectal cancer screening market. |
Cancer Testing Genomics Healthcare Screening | |
CybersecuritySentinelOne provides endpoint protection using AI to detect anomalous behavior and automate remediation. Despite beating revenue guidance, shares dropped on operating expense concerns but managers see significant upside potential with 25% revenue growth expected through 2028. |
Endpoint Protection AI Cloud Security Enterprise Automation | |
SemiconductorsNova Ltd. is a semiconductor capital equipment company focused on metrology for AI chip production. Astera Labs was sold after quick double due to AI hype exceeding reasonable valuation. Fund continues to look for small-cap AI hardware opportunities. |
Equipment Metrology AI Chips Manufacturing Hardware | |
| 2024 Q1 |
Small CapsFund focuses on small-cap growth stocks which remain in a three-plus year bear market while large-cap stocks reach all-time highs. Small-cap growth stocks have attractive valuations both on an absolute basis and relative to large-cap stocks, and typically show significant appreciation coming out of deep market downturns. |
Small Cap Growth Valuations Outperformance Recovery |
CybersecurityCyberArk Software delivered strong quarterly results with 36% annual recurring revenue growth and 20% free-cash-flow margins. The increasing frequency and severity of cyberattacks, new SEC regulatory requirements, and greater federal government emphasis on privilege controls are driving healthy demand. |
Identity Security Privileged Access Regulatory Government Growth | |
SemiconductorsMultiple semiconductor holdings including Navitas Semiconductor and SiTime Corporation faced near-term headwinds but maintain strong long-term positioning. Navitas highlighted design wins across mobile, data center, renewable energy, and vehicle electrification expected to ramp in 2024-2025. |
GaN Power Semiconductors Design Wins Electrification Data Center | |
Medical DevicesMasimo Corporation represents a special situation investment in vital sign monitoring equipment. The company is exploring separation of its consumer and healthcare businesses to unlock value in the under-appreciated healthcare business that produces recurring revenue from disposable sensors. |
Vital Signs Monitoring Healthcare Recurring Revenue Special Situation | |
Sports BettingDraftKings showed strong market share gains and improved outlook for future profitability. Market share capture has been driven by investment in innovative product offerings resulting in strong customer retention, and the company is well positioned to expand margins as the U.S. sports betting market grows. |
Online Sportsbook Market Share Customer Retention Profitability Expansion | |
| 2023 Q4 |
CybersecurityMultiple cybersecurity holdings performed strongly in Q4, with SentinelOne, GitLab, Varonis, and CyberArk all contributing positively. The managers see accelerating demand driven by AI adoption requiring data security, SEC disclosure requirements, and vendor consolidation favoring comprehensive platforms over point solutions. |
Endpoint Protection Cloud Security Data Security AI-enabled Consolidation |
AIAI is viewed as both an opportunity and democratizing force in markets. The managers believe AI will help investors but cannot replace experiential judgment in evaluating management teams. They see AI driving cybersecurity demand and enabling new product features like GitLab's generative AI coding tools. |
Artificial Intelligence Democratization Generative AI Automation | |
DefenseThe fund maintains 4.5% exposure to defense-oriented names and added to Mercury Systems position. The managers are convinced the new management team at Mercury has made meaningful progress in turnaround efforts and shares remain meaningfully undervalued. |
Defense Electronics Turnaround Undervalued | |
HVACNew position in AAON represents a high-quality manufacturer benefiting from decarbonization trends and ESG regulations. The company has superior energy-efficient products and is taking market share as price premiums compress. Management expects to double the investment over five years. |
Energy Efficiency Decarbonization Market Share Premium Products | |
Small CapsThe managers believe 2024 will be the year of small cap as relative valuations return to normalized levels, with small caps garnering bigger multiples than large caps. They see their experiential-based fundamental analysis being amply rewarded. |
Relative Valuation Multiples Outperformance | |
| 2023 Q3 |
CybersecurityThe fund initiated a position in SentinelOne, a cybersecurity vendor focused on endpoint protection using AI to detect threats. The company serves over 11,000 organizations and is gaining market share from legacy antivirus vendors who struggle with evolving threats. |
Endpoint Protection AI Detection Threat Environment Ransomware Security |
BiotechnologyThe fund added 10x Genomics, which sells innovative instruments for life sciences research including single-cell analysis platforms. The company has multiple growth drivers including new product cycles and expansion into biopharmaceuticals from basic research. |
Life Sciences Single Cell Genomics Research Tools Biopharmaceuticals | |
SemiconductorsNavitas Semiconductor, a leader in gallium nitride power semiconductors, faced near-term demand concerns but maintains strong design win momentum and opportunity pipeline growth across data center, solar, and electric vehicle applications. |
GaN Power Semiconductors Data Centers Electric Vehicles Solar | |
SoftwareMultiple software holdings including Clearwater Analytics (portfolio accounting software) and PAR Technology (restaurant SaaS) showed strong performance. These companies benefit from industry digitization trends and have efficient business models driving margin expansion. |
SaaS Portfolio Software Restaurant Technology Cloud Platforms Digitization |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Jan 26, 2026 | Fund Letters | Andrew Peck | EXAS | Exact Sciences Corp. | Health Care | Diagnostics & Research | Bull | NASDAQ | acquisition, Cancer Screening, cashflow, diagnostics, healthcare | Login |
| Jan 26, 2026 | Fund Letters | Andrew Peck | ESTA | Establishment Labs Holdings Inc. | Health Care | Medical Devices | Bull | NASDAQ | Aesthetics, growth, innovation, market share, Medical devices | Login |
| Jan 26, 2026 | Fund Letters | Andrew Peck | CWAN | Clearwater Analytics Holdings Inc. | Information Technology | Application Software | Bull | New York Stock Exchange | Fintech, Margins, private equity, recurring revenue, Software | Login |
| Jan 26, 2026 | Fund Letters | Andrew Peck | WAY | Waystar Holding Corp. | Health Care | Health Care Technology | Bull | NASDAQ | AI, Automation, cashflow, Healthcare IT, Revenue cycle | Login |
| Jan 26, 2026 | Fund Letters | Andrew Peck | CAS | Casella Waste Systems Inc. | Industrials | Waste Management | Bull | NASDAQ | consolidation, infrastructure, Margins, Pricing power, waste management | Login |
| Jan 26, 2026 | Fund Letters | Andrew Peck | FROG | JFrog Ltd. | Information Technology | Application Software | Bull | NASDAQ | AI, cybersecurity, Devops, Free Cash Flow, Software Supply Chain | Login |
| Jan 26, 2026 | Fund Letters | Andrew Peck | INDI | indie Semiconductor Inc. | Information Technology | Semiconductors | Bull | NASDAQ | Ad As, Auto-Semiconductors, Content, design wins, Electrification | Login |
| Jan 26, 2026 | Fund Letters | Andrew Peck | VRNS | Varonis Systems Inc. | Information Technology | Security Software | Bull | NASDAQ | cybersecurity, Data Governance, recurring revenue, SaaS, Subscriptions | Login |
| Jan 26, 2026 | Fund Letters | Andrew Peck | LLYVA | Liberty Live Group | Communication Services | Entertainment | Bull | NASDAQ | Live entertainment, NAV discount, Pricing power, Sponsorship, Ticketing | Login |
| Jan 26, 2026 | Fund Letters | Andrew Peck | PRMB | Primo Brands Corp. | Consumer Staples | Household Products | Bull | New York Stock Exchange | Bottled Water, cashflow, consumer staples, Margins, recurring revenue | Login |
| Jan 26, 2026 | Fund Letters | Andrew Peck | GLIBA | Liberty Broadband Corp. | Communication Services | Cable & Satellite | Bull | NASDAQ | broadband, cable, corporate actions, holding company, NAV discount | Login |
| Jan 26, 2026 | Fund Letters | Andrew Peck | CWST | Casella Waste Systems Inc. | Industrials | Waste Management | Bull | NASDAQ | consolidation, infrastructure, Margins, Pricing power, Waste bManagement | Login |
| Oct 28, 2025 | Fund Letters | Andrew Peck | BIRK | Birkenstock Holding plc | Consumer Discretionary | Textiles, Apparel & Luxury Goods | Bull | NYSE | Brand Equity, direct-to-consumer, expansion, gross margins, vertical integration | Login |
| Oct 28, 2025 | Fund Letters | Andrew Peck | INSP | Inspire Medical Systems, Inc. | Health Care | Health Care Equipment | Bear | NYSE | Competitive therapies, Execution, guidance, procedure volumes, Reimbursement | Login |
| Oct 28, 2025 | Fund Letters | Andrew Peck | WING | Wingstop Inc. | Consumer Discretionary | Restaurants | Bull | NASDAQ | Commodity costs, Comps, Digital, Franchising, Unit economics | Login |
| Oct 28, 2025 | Fund Letters | Andrew Peck | KTOS | Kratos Defense & Security Solutions, Inc. | Industrials | Aerospace & Defense | Bull | NASDAQ | backlog, Defense spending, Hypersonics, operating leverage, Unmanned systems | Login |
| Oct 28, 2025 | Fund Letters | Andrew Peck | BIRK | Birkenstock Holding plc | Consumer Discretionary | Textiles, Apparel & Luxury Goods | Bull | NYSE | Brand Equity, direct-to-consumer, expansion, gross margins, vertical integration | Login |
| Oct 28, 2025 | Fund Letters | Andrew Peck | PAR | PAR Technology Corporation | Information Technology | Application Software | Bull | NYSE | ARR, Cloud pos, Enterprise wins, operating leverage, Restaurant technology | Login |
| Oct 28, 2025 | Fund Letters | Andrew Peck | INSP | Inspire Medical Systems, Inc. | Health Care | Health Care Equipment | Bear | NYSE | Competitive therapies, Execution, guidance, procedure volumes, Reimbursement | Login |
| Oct 28, 2025 | Fund Letters | Andrew Peck | WING | Wingstop Inc. | Consumer Discretionary | Restaurants | Bull | NASDAQ | Commodity costs, Comps, Digital, Franchising, Unit economics | Login |
| Oct 28, 2025 | Fund Letters | Andrew Peck | KTOS | Kratos Defense & Security Solutions, Inc. | Industrials | Aerospace & Defense | Bull | NASDAQ | backlog, Defense spending, Hypersonics, operating leverage, Unmanned systems | Login |
| Jun 30, 2025 | Fund Letters | Baron Discovery Fund | KTOS | Kratos Defense & Security Solutions, Inc. | Industrials | Aerospace & Defense | Bull | NASDAQ | Aerospace & Defense, Bull, defense technology, Drone Engines, government contracts, Hypersonic Technology, Microwave Electronics, Space Technology, Unmanned systems | Login |
| Jun 30, 2025 | Fund Letters | Baron Discovery Fund | MEG | Montrose Environmental Group, Inc. | Industrials | Environmental & Facilities Services | Bull | NYSE | attractive valuation, Bull, environmental services, Industrial Activity, organic growth, regulatory compliance, State Regulation, Testing and Monitoring | Login |
| Jun 30, 2025 | Fund Letters | Baron Discovery Fund | KARH | Karman Holdings Inc. | Industrials | Aerospace & Defense | Bull | NASDAQ | Bull, defense budget, Defense Systems, Exceptional Margins, Hypersonic Technology, Missile-Defense, Rocket Components, Space Launch | Login |
| Jun 30, 2025 | Fund Letters | Baron Discovery Fund | CLWR | Clearwater Analytics Holdings, Inc. | Information Technology | Application Software | Bull | NASDAQ | acquisition integration, Bull, Competitive advantages, EBITDA margins, High Growth, Portfolio Accounting, Reporting Software, SaaS | Login |
| Jun 30, 2025 | Fund Letters | Baron Discovery Fund | INSP | Inspire Medical Systems, Inc. | Health Care | Health Care Equipment | Bull | NYSE | Addressable market, Bull, Compelling Valuation, Hypoglossal Nerve Stimulation, long-term growth, market leadership, Medical Device, sleep apnea | Login |
| Jun 30, 2025 | Fund Letters | Baron Discovery Fund | WYNN | Wynn Resorts, Limited | Consumer Discretionary | Casinos & Gaming | Bull | NASDAQ | Bull, Casino Gaming, Chinese Tourism, Integrated Resort, Luxury Resort, Macau Recovery, Premium Positioning, UAE Expansion | Login |
| Mar 31, 2025 | Fund Letters | Baron Discovery Fund | EXAS | Exact Sciences Corporation | Health Care | Life Sciences Tools & Services | Bull | NASDAQ | biotechnology, cancer diagnostics, Colorectal Cancer, healthcare, Medical devices, Screening Tests | Login |
| Mar 31, 2025 | Fund Letters | Baron Discovery Fund | INDI | indie Semiconductor, Inc. | Information Technology | Semiconductors | Bull | NASDAQ | Adas, Advanced Driver Assistance, Automotive Semiconductors, automotive technology, Radar, semiconductors, Vision Systems | Login |
| Mar 31, 2025 | Fund Letters | Baron Discovery Fund | MEG | Montrose Environmental Group, Inc. | Industrials | Environmental & Facilities Services | Bull | NYSE | Environmental consulting, environmental services, government contracts, regulatory compliance, Remediation, Value | Login |
| Mar 31, 2025 | Fund Letters | Baron Discovery Fund | WING | Wingstop Inc. | Consumer Discretionary | Restaurants | Bull | NASDAQ | asset-light, Chicken Wings, Franchise Restaurant, Franchising, Quick Service Restaurant, same-store sales, Unit growth | Login |
| Mar 31, 2025 | Fund Letters | Baron Discovery Fund | KARM | Karman Holdings Inc. | Industrials | Aerospace & Defense | Bull | NYSE | Aerospace, Defense Contractor, government contracts, Hypersonics, IPO, Missile-Defense, Proprietary technology, Space Launch | Login |
| Mar 31, 2025 | Fund Letters | Baron Discovery Fund | ACLX | Arcellx, Inc. | Health Care | Biotechnology | Bull | NASDAQ | biotechnology, cancer treatment, CAR-T Therapy, cell therapy, Immunotherapy, Multiple Myeloma, Oncology, Partnership | Login |
| Dec 31, 2024 | Fund Letters | Baron Discovery Fund | CHT | Chart Industries, Inc. | Energy | Oil & Gas Equipment & Services | Bull | NASDAQ | carbon capture, EBITDA margins, energy transition, Hydrogen, Industrial Equipment, LNG, manufacturing, turnaround | Login |
| Dec 31, 2024 | Fund Letters | Baron Discovery Fund | PAR | PAR Technology Corporation | Information Technology | Application Software | Bull | NYSE | Acquisitions, EBITDA Profitability, Enterprise software, platform, Point of Sale, Restaurant technology, SaaS | Login |
| Dec 31, 2024 | Fund Letters | Baron Discovery Fund | MAC | The Macerich Company | Real Estate | Retail REITs | Bull | NYSE | CEO transition, Class A properties, Mall Real Estate, REIT, Supply-Demand Imbalance, turnaround, valuation discount | Login |
| Dec 31, 2024 | Fund Letters | Baron Discovery Fund | TTAN | ServiceTitan, Inc. | Information Technology | Application Software | Bull | NASDAQ | Field Service Management, margin expansion, market leader, network effects, Non-Discretionary, SaaS platform, Trades Software | Login |
| Dec 31, 2024 | Fund Letters | Baron Discovery Fund | IRT | Independence Realty Trust, Inc. | Real Estate | Residential REITs | Bull | NYSE | affordable housing, Development Projects, Multifamily REIT, supply constraints, valuation discount, Value-Add, Workforce Housing | Login |
| Dec 31, 2024 | Fund Letters | Baron Discovery Fund | BC.MI | Brunello Cucinelli S.p.A. | Consumer Discretionary | Apparel, Accessories & Luxury Goods | Bull | Borsa Italiana | Absolute Luxury, brand heritage, China expansion, Luxury goods, margin expansion, Pricing power, Recession proof | Login |
| Sep 30, 2024 | Fund Letters | Baron Discovery Fund | CDNA | CareDx, Inc. | Health Care | Life Sciences Tools & Services | Bull | NASDAQ | CMS, diagnostics, Equity, healthcare, Medical Testing, Regulatory, Reimbursement, Transplant | Login |
| Sep 30, 2024 | Fund Letters | Baron Discovery Fund | AXON | Axon Enterprise, Inc. | Industrials | Aerospace & Defense | Bull | NASDAQ | AI software, Body Cameras, Equity, international expansion, law enforcement, Public safety, SaaS, Tasers | Login |
| Sep 30, 2024 | Fund Letters | Baron Discovery Fund | TEM | Tempus AI, Inc. | Health Care | Life Sciences Tools & Services | Bull | NASDAQ | AI, cancer diagnostics, Clinical trials, Data licensing, Equity, Genomics, pharmaceuticals, Precision-medicine | Login |
| Sep 30, 2024 | Fund Letters | Baron Discovery Fund | TWFG | TWFG, Inc. | Financials | Insurance | Bull | NASDAQ | Capital-light, Equity, founder-led, Independent Agents, Insurance Broker, M&A, P&C insurance, platform | Login |
| Sep 30, 2024 | Fund Letters | Baron Discovery Fund | NARI | Inari Medical, Inc. | Health Care | Health Care Equipment & Supplies | Bull | NASDAQ | Clinical Studies, DVT, Equity, International, Market expansion, Medical devices, PE, Thromboembolism, Vascular | Login |
| Mar 31, 2024 | Fund Letters | Baron Discovery Fund | KNSL | Kinsale Capital Group, Inc. | Financials | Property & Casualty Insurance | Bull | NYSE | excess and surplus lines, financials, Insurance, premium growth, Property & Casualty, specialty insurance, underwriting | Login |
| Mar 31, 2024 | Fund Letters | Baron Discovery Fund | DKNG | DraftKings Inc. | Communication Services | Interactive Media & Services | Bull | NASDAQ | customer retention, Digital Entertainment, Free Cash Flow, market share, Online-Gaming, Sports betting, US gaming market | Login |
| Mar 31, 2024 | Fund Letters | Baron Discovery Fund | CYBR | CyberArk Software Ltd. | Information Technology | Systems Software | Bull | NASDAQ | Annual Recurring Revenue, cybersecurity, Enterprise software, Free Cash Flow, Identity Security, Privileged Access Management, SaaS | Login |
| Mar 31, 2024 | Fund Letters | Baron Discovery Fund | MASI | Masimo Corporation | Health Care | Health Care Equipment | Bull | NASDAQ | business separation, Healthcare Equipment, medical technology, Patent Litigation, razor-and-blade model, Special Situation, Vital Sign Monitoring | Login |
| Mar 31, 2024 | Fund Letters | Baron Discovery Fund | INTA | Intapp, Inc. | Information Technology | Application Software | Bull | NASDAQ | Annual Recurring Revenue, Cloud software, Enterprise software, Legal Technology, Private Equity Software, Professional Services Software, SaaS | Login |
| Dec 31, 2023 | Fund Letters | Baron Discovery Fund | ^FTSE | SentinelOne, Inc. | Information Technology | Systems Software | Bull | NYSE | AI-enabled, cloud security, cybersecurity, endpoint protection, growth, SaaS, technology | Login |
| Dec 31, 2023 | Fund Letters | Baron Discovery Fund | GTLB | GitLab Inc. | Information Technology | Application Software | Bull | NASDAQ | AI, Devops, enterprise, platform, SaaS, Software Development, technology | Login |
| Dec 31, 2023 | Fund Letters | Baron Discovery Fund | VRNS | Varonis Systems, Inc. | Information Technology | Systems Software | Bull | NASDAQ | AI, cybersecurity, Data Security, enterprise, Regulatory, SaaS, technology | Login |
| Dec 31, 2023 | Fund Letters | Baron Discovery Fund | AAON | AAON, Inc. | Industrials | Building Products | Bull | NASDAQ | Decarbonization, energy efficiency, ESG, HVAC, Industrials, margin expansion, market share | Login |
| TICKER | COMMENTARY |
|---|---|
| IOT | Samsara provides a cloud software platform for commercial vehicle telematics, video-based driver safety, frontline worker workflow automation, and industrial equipment monitoring. Its software collects and analyzes data from millions of moving sensors and cameras installed in its customers' commercial trucks, construction equipment, warehouses, and other assets, helping companies visualize and improve their physical operations. More than 20,000 customers in the transportation, field services, construction, utilities, and other industries have adopted Samsara, giving it a leading market position in its software vertical. Samsara has been winning share from competitors in the $175 billion connected fleet and industrial asset software market due to its superior cloud native architecture, ability to address multiple use cases in a single platform, and its rapid product release cycle. Importantly, as Samsara continues to expand its connected asset base, it is building an unmatched data asset and physical sensor network that it is using to drive better outcomes for its customers relative to competitors. Capturing more than 25 trillion data points from over 100 billion miles driven across 99% of major U.S. roads, Samsara uses AI to help companies optimize their vehicle routes, prevent accidents, improve asset utilization, conduct predictive maintenance, and lower insurance premiums. In its fiscal 2026, across its customer base, the company prevented 380,000 accidents and reduced carbon emissions by billions of pounds. Seeing a fast and tangible return on investment, customers have renewed and expanded their Samsara subscriptions at a healthy rate. We see a long runway for growth as Samsara expands in existing accounts and wins new logos. Samsara is less than 35% penetrated in its existing customers' vehicle fleets and has a significant opportunity to cross-sell newer non-vehicle products into its base. The company believes cross-selling all its products and covering all its existing customer assets wall-to-wall would increase its annualized recurring revenue eight-fold without ever needing to add a new logo. That said, the company has also increased its customer count every quarter and identified hundreds of thousands of potential new accounts to win. As it has scaled, Samsara has delivered healthy operating leverage, and we think free cash flow margins will soon surpass 20%. Lastly, we believe the combination of Samsara's expansive sensor and camera network, its proprietary data asset, and its exposure to real-world operations insulates it from AI disruption better than most software businesses and positions it as an AI beneficiary over the long term. |
| RBRK | Rubrik, Inc., a subscription software company focused on automating backup, storage, and recovery of corporate data, as well as creating resilience to cyberattacks on that data. It serves many Fortune 500 and Global 2000 companies including leading technology and defense firms. We purchased our investment in the mid-$50s per share during the SaaS-pocalypse when the market believed that every software company would be disintermediated by AI. Investors were also concerned that the increased cost of memory chips (due to an AI-data-center-induced shortage), would hamstring growth and margins of Rubrik as it and its customers use backup hardware. This has not materialized, and Rubrik does not believe memory costs are a material issue. At the time we invested, shares traded at about 21 times enterprise value to free cash flow (on 2027 numbers), with free cash flow growing over 40%. If the company has a clear competitive advantage (which we obviously believe based on our diligence), it was a steal at that price (it closed the quarter at over $80 per share). |
| SIMO | SiTime Corporation is a fabless semiconductor company that designs and sells micro-electro-mechanical system (MEMS)-based timing solutions and clock chips across consumer, communications, data center, automotive, and industrial end markets. MEMS-based solutions continue to take share from traditional quartz-based timing solutions given their benefits including a smaller form factor, programmability, and robustness in harsh conditions. Shares rose during the quarter as the company reported meaningfully better-than-expected results and guidance driven by continued strong growth in its data center-related products which are proliferating with the adoption of AI. While investors expected close to 50% growth for the year, the company guided to 80%-plus growth, a step change driven by accelerating adoption of the company's unique offerings. Combined with its positioning on Apple's internal modem, growing presence in automotive, industrial, and aerospace and defense end markets, and accretion from the soon-to-close Renesas timing chip acquisition, we believe the company will continue to deliver strong growth for several years to come with strong operating leverage driving significant earnings growth and stock performance. |
| FORG | Forgent Power Solutions, Inc. is a leading manufacturer of electrical distribution equipment used in data centers, the power grid, and industrial applications. Forgent is a low- and medium-voltage equipment specialist focused on custom, engineered-to-order products (over 90% of revenue) whereas larger competitors in the industry generally focus more on higher voltage and standard products. The stock rose during the quarter as Forgent continued to deliver very strong financial results reflecting improving demand for its products amidst the broader data points on AI infrastructure and grid buildout continuing to point to strong growth for the next several years. Forgent is gaining share with its ability to offer customized products at industry-leading lead times and is still just scratching the surface of its opportunity having sold very little directly to the biggest customers in the market. The company has invested heavily in capacity and people to support future growth, and we see many strong years of growth and margin expansion ahead as it grows from an approximate $1.2 billion revenue run-rate currently into its $5 billion manufacturing footprint. |
| CDNA | CareDx, Inc. sells diagnostic testing services which detect early rejection of heart, kidney, and lung transplants. Shares declined dramatically in the third quarter of 2025, as the Centers for Medicare and Medicaid Services (CMS) MolDX Program issued a draft local coverage decision (LCD) that, if finalized, would significantly limit reimbursement for CareDx's tests. In particular, the draft LCD would remove increased coverage for HeartCare (which is a dual test including donor derived cell-free DNA (dd-cfDNA) and gene expression profiling (GEP) despite definitive data showing a heightened clinical benefit from using both tests. The draft LCD also proposes a bundled payment reimbursement model that has been studied and is recommended by medical societies. It is not yet clear whether the structure of the bundling program would help or hurt CareDx's revenues. We thought that at their lowest levels of $11 to $12 last summer, CareDx shares were pricing in a worst-case scenario, and we meaningfully increased our position at those levels. Recently, shares have outperformed and are trading in the high-$20s as investors better understood that the LCD process is a dialogue between the CMS and key stakeholders and that the CMS may come to better appreciate recent clinical data. We expect the LCD to be finalized very soon. Further, in the second quarter of 2026, CareDx announced a very solid 1Q26 result with revenues up 39% year over year and testing volumes up 17% year over year. The company also announced financially and strategically attractive deals to divest its lab products business and acquire Naveris, marking the company's entrance into the head and neck cancer testing market. |
| SHAK | Shake Shack Inc., the better-burger fast casual concept, detracted from performance in the second quarter. The stock fell sharply after the company reported weaker-than-expected first-quarter earnings, though we believe the reaction reflected poor communication and expectation-setting rather than any deterioration in the underlying business. Same-Shack sales grew 4.6%, including 1.4% in positive traffic, the third consecutive quarter of positive traffic growth, despite a 2.40% weather headwind. Restaurant-level margin expanded 0.5% to 21.2%. While adjusted cash flow (EBITDA) missed expectations, this was due to the timing of some costs (specifically accelerated pre-opening costs as well as the timing of some repair and maintenance costs). Lastly, while trends in April showed weakness, early May rebounded nicely with 8% same-Shack sales and 5% restaurant traffic growth driven by excitement around menu innovation. We continue to believe that Shake Shack is a compelling long-term growth idea and that its valuation is extremely attractive relative to business fundamentals. Shake Shack operates over 675 locations globally, with 390 company-operated units and 289 licensed units. The brand sells across urban street locations, suburban formats, and licensed venues including airports, stadiums, and international franchise territories. Average unit volumes in domestic company-operated restaurants exceed $4 million, among the highest in the fast-casual peer set. Shake Shack differentiates itself versus both conventional quick service burger chains and most fast-casual peers through a higher quality product and a proven innovation ability that most burger chains cannot match. That product quality has translated into average unit volumes that exceed most fast-casual peers despite a price point that, while premium to quick service restaurant (QSR) operators, remains accessible relative to sit-down dining. Importantly, this quality positioning insulates Shake Shack from the aggressive discounting and value-war dynamics currently pressuring conventional QSR operators like McDonald's, Burger King, and Wendy's, whose core consumer is highly price-elastic and whose product is not meaningfully differentiated on quality. We believe Shake Shack is still in the early innings of its growth lifecycle with significant runway across several dimensions. Management has articulated a long-term target of 1,500 domestic company-operated Shacks, compared to roughly 390 today. They expect to open 60 to 65 company operated restaurants in 2026, up from 44 in 2025, which is supported by improving unit economics as the company has been able to expand restaurant level margins while reducing build costs. Internationally, licensed partners in the Middle East, Asia, and Europe continue to expand. At the same time, restaurant-level margins are on an upward trajectory as the operations team captures efficiency gains unlocked under new management. We believe that Shake Shack will be able to grow revenue in the double digits and EBITDA mid-teens over the next several years and that shares are attractively priced relative to that growth. |
| KTOS | Similar to Karman, shares of leading defense technology provider Kratos Defense & Security Solutions, Inc. declined during the quarter as sentiment toward high-multiple small- and mid-cap defense companies weakened amid increased uncertainty surrounding the pace of defense budget growth and a reversal in momentum-driven investor flows. We remain shareholders and used recent weakness to add to our position. The company continues to execute well, with strong visibility into additional contract wins across its core business and new opportunities emerging across previously nascent segments. We believe CEO Eric DeMarco has built one of the most innovative defense players and continue to see compelling long-term prospects for Kratos. |
| WMS | During the quarter, we reinitiated a position in Advanced Drainage Systems, Inc. (ADS), the leading U.S. manufacturer of stormwater and onsite wastewater management products. The company offers a comprehensive suite of pipes, drainage structures, storage chambers, and water treatment systems designed to manage stormwater from the moment it hits the ground until it is returned cleanly to the environment. We view ADS as a high quality, competitively differentiated business. It is the only national player of scale in an otherwise fragmented market and is roughly 10 to 15 times larger than its next closest competitors. Its manufacturing and logistics footprint is unmatched, spanning more than 60 plants and a company-owned fleet of roughly 600 trucks and 1,100 trailers that enables delivery of bulky products directly to jobsites. Its vertically integrated recycling operations, which supply roughly half of its raw materials at a discount to virgin resin, make it the lowest cost producer in the space. ADS operates in an industry that is currently benefitting from both secular and cyclical tailwinds. The company estimates the combined stormwater and onsite wastewater market at roughly $16 billion today, of which it holds only a high teens share, leaving ample room to grow. Several secular tailwinds are working in its favor, most notably the rising frequency and intensity of storms and the aging, undersized infrastructure across much of the country, both of which are driving greater investment into stormwater management systems. On the wastewater side, only about 25% of U.S. homes currently have an onsite septic system versus roughly a third of new homes being built, so adoption should rise naturally over time. Underpinning all of this is the steady, multi-decade conversion from legacy concrete pipe and tanks to plastic, which is cheaper, lighter, and both faster and less labor-intensive to install. From a cyclical standpoint, both residential and non-residential new construction markets are potentially at cyclical lows following several years of muted activity. We see a compelling, multi-year growth opportunity ahead for ADS. Management outlined a credible path to grow revenue organically at a rate greater than 8% through 2030, and at greater than 10% including acquisitions, drawing on a strong track record of using M&A as a growth lever. We also expect margins to expand over time, supported by operating leverage as residential and non-residential new construction markets eventually recover, along with ongoing new product introductions and favorable price/cost realization. Finally, we believe the valuation is attractive today, with shares trading at a below-average multiple of roughly 12 times fiscal 2027 EBITDA on what should prove to be near-bottom-of-the-cycle earnings. |
| ESTS | Establishment Labs Holdings Inc. sells next-generation Motiva breast implants that have meaningfully lower safety risks and aesthetic benefits compared to competitors. Shares outperformed in the second quarter, driven by continued strong adoption of Motiva in the U.S. breast augmentation market and anticipation of the upcoming launch in the U.S. breast reconstruction market. Additionally, the macro consumer spending anxieties and silicone supplier contract fears that weighed on the stock last quarter have notably eased. Positive momentum was further amplified by the company's official inclusion in the Russell 2000 Index, which drives increased institutional visibility and index-related buying. This caused significant upward share price movement, and we trimmed our investment based upon shares nearing our long-term valuation targets. We believe Establishment Labs will capture substantial plurality share in the U.S. over the next few years, which is meaningfully reflected in the shares. There is further upside if Establishment Labs is successful in launching its new minimally invasive products which promise easier procedures and faster healing times for its patients. |
| AEIS | Advanced Energy Industries, Inc. is a designer and manufacturer of power components that ensure precision power delivery for end market applications including semiconductor manufacturing, medical procedures and data center equipment. We were meaningful buyers between $50 and $110 during calendar years 2020 and 2021 when the company was trading at very low multiples and its strategic value was unrecognized. In the quarter we sold about 60% of our investment at $375, on the back of excitement about the growth in AI data center buildouts. We believe that at those levels the company was approaching our long-term price target, and the position had grown to nearly 4% of the portfolio. Both are reasons that we would sell according to our long-standing risk management process. We really like the company and the management team and would look to add to our investment at lower valuations. |
| BIRK | While we remain long-term believers in the brand, we exited our position in Birkenstock Holding plc in order to raise capital for new ideas that we felt had higher return potential. |
| Ticker | Put/Call | Amount Bought | Shares Bought | % Change | Weight % |
|---|---|---|---|---|---|
| No Recent Buys Data | |||||
| Ticker | Put/Call | Amount Sold | Shares Sold | % Change | Weight % | Status |
|---|---|---|---|---|---|---|
| No Recent Sells Data | ||||||
| Industry | Prev Quarter % | Current Quarter % | Change |
|---|---|---|---|
| No industry data available | |||
