| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 9.68% | 12.52% | 3.55% |
Baron Small Cap Fund returned 12.57% in Q2 2026, trailing the Russell 2000 Growth Index's 25.71% return, primarily due to the Fund's structural underweight to high-beta and momentum factors which drove approximately 70% of underperformance. The AI secular growth trade dominated market returns, benefiting the Fund's data center holdings including Vertiv, Legence, and Cognex, though certain software holdings suffered on concerns about AI disruption. Small caps outperformed large caps for the quarter, extending year-to-date gains and remaining on track to outperform for the first time since 2016. The Fund added five new positions including restaurant franchisors Shake Shack and Wingstop, data center REIT Blackstone Digital Infrastructure Trust, and defense contractor Applied Aerospace & Defense. With 55 holdings and 39% of assets in companies owned for 10+ years, the manager believes the portfolio is well-positioned as market rotation favors overlooked sectors and the industrial economy strengthens after three years of subpar growth, though geopolitical uncertainty and AI-driven disruption require heightened diligence.
Baron Small Cap Fund invests in high-quality small-cap businesses with strong competitive advantages, great long-term opportunities, and reasonable valuations, holding winners as they compound over time while maintaining concentrated positions in the manager's highest conviction ideas across Industrials, Consumer Discretionary, IT, Health Care, and Financials sectors.
The manager believes small caps generally and the portfolio in particular are well positioned for good returns. Despite recent small-cap outperformance, most stocks remain unloved and undervalued with attractive relative valuations versus large caps. The manager foresees stronger growth rates going forward as the industrial economy perks up after three years of subpar growth, with improved earnings trajectory driven by faster organic growth and execution of corporate opportunities expected to drive good stock performance. The rotation away from AI/technology stocks toward overlooked sectors is viewed as healthy and positive for the Fund. However, the situation remains fluid with the collapsed U.S.-Iran deal, rising oil prices, and trending higher rates creating uncertainty.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Aug 4 2026 | 2026 Q2 | CAKE, CGNX, CWST, FWONK, GWRE, KTOS, MSGS, PLNT, SHAK, SITE, TDG, VRT, WING | AI, Data centers, defense, industrials, Restaurants, small caps, software | - | Baron Small Cap Fund's Q2 2026 return of 12.57% trailed the Russell 2000 Growth Index due to underexposure to momentum and beta factors that dominated performance. Data center holdings including Vertiv and Legence surged on AI infrastructure demand while software names declined on AI disruption concerns. The manager sees small caps well-positioned with attractive valuations and strengthening industrial fundamentals despite near-term geopolitical uncertainty. |
| May 1 2026 | 2026 Q1 | CGNX, GWRE, IT, PLNT, RBC, VRT | AI, Data centers, energy, Geopolitical, growth, small caps, software, technology |
VRT CGNX RBC PLNT IT GWRE |
Baron Small Cap Fund fell 7.90% in Q1 as AI disruption fears hammered software holdings while Iran war boosted commodities. Data center infrastructure names Vertiv and Legence surged on AI buildout demand. Manager sees opportunity in quality software companies trading cheaply on AI concerns, expecting small-cap outperformance if geopolitical tensions resolve and markets broaden beyond Magnificent Seven. |
| Feb 5 2026 | 2025 Q4 | CGNX, CWA, FROG, GWRE, HLI, ICLR, IT, JBT, KNSL, KTOS, MTD, NEPT, NOVT, ODD, PLNT, RBC, RRR, SITE, TDG, VRT | AI, Data centers, defense, growth, Quality, small caps, technology | - | Baron Small Cap Fund underperformed in 2025 as Quality Growth stocks fell out of favor while unprofitable concept stocks rallied. AI infrastructure and defense holdings drove positive contributions. The manager maintains conviction in high-quality portfolio companies and expects 2026 to provide a better environment for small-cap outperformance driven by earnings growth and multiple expansion. |
| Nov 5 2025 | 2025 Q3 | BWIN, CGNX, DAY, GTLS, GWRE, HLI, HLLY, IBP, ICLR, INTA, IT, ITGR, KNSL, KTOS, NVCN, PLNT, PTECH, RDNT, RRR, SITE, VRT | AI, Data centers, defense, growth, industrials, Quality, small cap, technology | - | Baron Small Cap Fund underperformed in Q3 as the small-cap rally favored speculative junk over quality companies. The Fund's focus on established, profitable businesses with strong cash flows was out of favor as meme stocks and concept plays dominated. Defense and data center holdings performed well. Management expects market preferences to shift back toward quality growth companies. |
| Aug 5 2025 | 2025 Q2 | ASGN, BWIN, CAKE, CWA, DKNG, DXCM, ENS, FROG, GDYN, GWRE, HH, HLLY, ICLR, IDXX, INSM, IT, KNSL, KTOS, LLYVA, NCNO, NEOG, ODD, PLNT, RRR, SEMI, SIZE, TDG, UTZ, VRT | AI, defense, growth, small caps, technology, value | - | Baron Small Cap Fund gained 10.38% in Q2 2025, driven by AI infrastructure leader Vertiv and defense technology stocks. Despite trailing the Russell 2000 Growth Index this quarter, the fund maintains its long-term outperformance track record. The manager sees compelling value in small caps after years of underperformance versus large caps and expects relative outperformance ahead. |
| Mar 31 2025 | 2025 Q1 | ASGN, BFAM, CAKE, FA, GDYN, GTLS, GWRE, IBTA, INDI, IT, KNSL, KTOS, NEOG, RDNT, RPAY, RRR, TDG, TTD, VRT, WCN | AI, growth, insurance, small caps, tariffs, technology, Trade Policy |
RADNQ PAR |
Baron Small Cap Fund outperformed its benchmark despite a 9.07% decline in Q1 2025, benefiting from strong insurance stock selection while suffering from AI infrastructure disruption and tariff uncertainty. The manager maintains conviction in high-quality small-cap growth companies trading at discount valuations, focusing on fundamental business strength rather than macro predictions during this volatile period. |
| Dec 31 2024 | 2024 Q4 | ALTR, ASGN, AZPN, BFAM, BLD, CAKE, DRVN, FOXF, FROG, GDYN, GTLS, GWRE, HLI, HQY, IBP, ICLR, INTA, IT, JBT, KNSL, NEOG, NPO, PLNT, RRR, TDG, VRT | AI, Data centers, growth, industrials, long-term, small caps, technology | - | Baron Small Cap Fund's concentrated approach delivered 13.61% returns in 2024, led by AI beneficiary Vertiv Holdings and other quality growth companies. The manager maintains conviction in special small-cap businesses with competitive advantages, holding positions for the long term. While higher rates pose near-term headwinds, small caps appear relatively cheap and positioned for outperformance as growth accelerates. |
| Sep 30 2024 | 2024 Q3 | ASGN, AZPN, BFAM, BWIN, CHRT, CWT, DXCM, FA, FND, GWRE, IBP, ICLR, INSP, INTA, IT, JANUS, KNSL, RRR, SIMO, SITE, TDG, VRT | AI, Data centers, financials, growth, industrials, Rate Cuts, small cap, technology | - | Baron Small Cap Fund outperformed in Q3 2024 on strong tech and financial stock selection, particularly benefiting from AI data center buildout and Fed rate cuts. Despite Health Care headwinds and economic uncertainty, the concentrated portfolio of leading companies with durable advantages remains well-positioned for long-term growth acceleration. |
| Jul 27 2024 | 2024 Q2 | ASGN, BWIN, CHRT, DAY, DKNG, ENDV, EWCZ, EXPO, FND, GDOT, GWRE, IBP, INSP, KNSL, LOAR, PLNT, SITE, SPT, TREX, VRT | Cloud, consumer discretionary, Data centers, healthcare, industrials, Rotation, small cap, technology | - | Baron Small Cap Fund lagged in Q2 due to broad sector weakness despite strong fundamentals from holdings like Vertiv (data center AI demand) and Guidewire (cloud transition progress). Recent small-cap rotation driven by inflation cooling and rate cut expectations creates opportunity, though economic trajectory remains uncertain. Fund maintains quality-focused approach with selective new positions and disciplined position sizing. |
| Apr 15 2024 | 2024 Q1 | ASGN, BFAM, BRP, CHI, DKNG, ENDV, GWRE, HQY, IBP, ICLR, IT, KNSL, RPAY, RRR, SITE, TDG, TREX, TTD, VRT, WEX | Concentration, growth, industrials, Long Term, Outperformance, small cap, technology |
INTC EXPO |
Baron Small Cap Fund outperformed significantly in Q1 2024 with 11.81% returns driven by concentrated holdings in quality small-cap businesses. Strong performance from data center infrastructure and specialty insurance companies highlighted successful long-term stock selection. Despite interest rate volatility, the manager sees compelling opportunity in undervalued small-cap stocks positioned for economic improvement and rate cuts. |
| Jan 27 2024 | 2023 Q4 | ALTR, ASGN, CLVT, DPHC, DXCM, ENDV, ETWO, EWC, FND, FOXF, GTLS, GWRE, IBP, ICLR, IDXX, IT, KNSL, KTOS, NCNO, NEOG, ODD, PLNT, RRR, SBA, SHLS, SITE, SKIN, TDG, TREX, TTD, VRT | AI, consumer discretionary, Data centers, growth, industrials, rates, small caps, technology | - | Baron Small Cap Fund delivered strong Q4 performance driven by concentrated holdings in high-quality growth companies. Key winners included Vertiv Holdings benefiting from AI-driven data center demand and Gartner positioned for AI decision support. The fund's long-term approach of holding special companies has created substantial value with multiple five-fold winners. Fed pivot expectations and falling yields provided tailwinds for the concentrated portfolio. |
| Sep 30 2023 | 2023 Q3 | ASGN, AZPN, CGNX, CLVT, DXCM, FND, FOXF, GTLS, GWRE, ICON, INDI, INSP, IT, KNSL, LBRDA, PLNT, RRR, SITE, VRT, WASH | Automation, consumer discretionary, Data centers, healthcare, industrials, small cap, Specialty Insurance, technology | - | Baron Small Cap Fund outperformed significantly in Q3 2023 despite market weakness, led by data center infrastructure play Vertiv Holdings and strong stock selection across Industrials and Technology. While facing headwinds from rising rates and geopolitical tensions, the manager sees small-cap stocks as attractively valued for patient long-term investors willing to weather continued volatility. |
| Dec 31 2022 | 2022 Q4 | ASGN, DXCM, EWCZ, GDYN, GTLS, INSP, IT, NEOG, PLNT, TTD, VRT | - | - | |
| Sep 30 2022 | 2022 Q3 | AVNT, AXNX, AZPN, CAKE, CLVT, GDYN, HLLY, ICLR, IT, KNSL, MRCY, RPAY, TTD | - | - | |
| Jun 30 2022 | 2022 Q2 | ASGN, CGNX, COLD, DRVN, GDYN, GTLS, IT, SHLS, SPT | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
AIAI secular growth trade was the principal driver of market returns in Q2 2026, with gains concentrated in semiconductors and IT/Industrials stocks building AI infrastructure. The Fund holds sizable positions directly involved in AI buildout or benefiting from AI usage, including Vertiv, Legence, and JFrog. However, certain software and services segments suffered losses due to concerns that AI will negatively affect their businesses, including application software and IT consulting holdings. |
Semiconductors Data Centers Infrastructure Software Automation |
Data CentersData center-related holdings were among the Fund's strongest performers. Vertiv reported 83% earnings growth and 30% organic sales growth driven by AI infrastructure demand, with management projecting 20%+ revenue CAGR through 2030. Legence doubled revenue and cash flow year-over-year with record backlog. The Fund initiated a position in Blackstone Digital Infrastructure Trust to acquire stabilized data centers leased to hyperscalers. |
Hyperscalers Power Cooling Infrastructure Leasing | |
Small CapsSmall caps meaningfully outperformed large caps in Q2 2026, with the Russell 2000 up 21.5% versus 15.1% for large caps, extending small cap outperformance year-to-date. Small caps remain on track to outperform large caps for the first time since 2016. Despite recent gains, most small cap stocks remain unloved and undervalued, with relative valuations versus large caps attractive compared to long-term averages. |
Russell 2000 Valuation Outperformance Market Cap | |
DefenseDefense contractors Kratos Defense & Security Solutions and Karman Holdings gave back some of their large gains from the prior quarter as the U.S.-Iran war appeared to near an end in mid-June with a Memorandum of Understanding. The Fund initiated a position in Applied Aerospace & Defense during its IPO, attracted by the company's scarce IP-rich franchise with 87% sole source portfolio and exposure to defense aviation, space launch, and precision strike markets. |
Defense Contractors Aerospace Space Geopolitical | |
RestaurantsThe Fund initiated positions in two restaurant franchisors during the quarter. Shake Shack was purchased after a 30% selloff following Q1 earnings, presenting an opportunity to invest in a premium fast-casual brand with 1,500 domestic unit potential versus 390 today, 35% cash-on-cash returns, and double-digit revenue growth potential. Wingstop was re-purchased as a high-quality fallen angel at a discounted valuation. Cheesecake Factory was trimmed after strong performance. |
Franchisors Fast Casual Unit Economics Growth | |
MomentumMomentum ranked in the second percentile relative to history during the quarter, contributing to approximately 70% of the Fund's underperformance versus the Russell 2000 Growth Index. Many top-performing stocks in the Index had elevated exposure to Beta and Momentum factors, to which the Fund is and has always been underexposed. This condition has persisted over the last nine months. |
Factor Beta Underperformance Index | |
IndustrialsMany Industrial holdings performed well on strong results or rebounding from oversold conditions, including Enpro, First Advantage, and Andersen Group. The Fund is well overweight in Industrials as an outcropping of research to find the best long-term opportunities. The manager foresees stronger growth rates going forward as the industrial economy perks up after three years of subpar growth. |
Industrial Economy Recovery Overweight | |
SoftwareThe Fund suffered losses in application software and IT consulting segments where holdings were pressured by ongoing concerns that AI will negatively affect their businesses. Guidewire, Gartner, Everforth, Exponent, and Intapp were down again in Q2, building on Q1 losses. However, the manager believes Guidewire's deal slippage is purely timing and that AI will expand opportunities, and views Everforth as well-positioned despite near-term headwinds. |
Application Software IT Consulting AI Disruption Valuation | |
| 2026 Q1 |
AIAI applications disrupted software and services sectors, causing significant declines in the fund's software holdings. The fund maintains exposure to AI infrastructure buildout through data center companies like Vertiv. Manager views AI disruption concerns as creating opportunities in quality software companies trading at attractive valuations. |
Software Infrastructure Disruption Data Centers Applications |
Data CentersFund maintains sizeable investment in AI infrastructure buildout with capital spending continuing at breakneck pace. Large holdings Vertiv Holdings and Legence Corp posted tremendous results as data center infrastructure demand remains strong with no end in sight. |
Infrastructure Capital Spending AI Cloud Equipment | |
Small CapsSmall-cap stocks started strong but ended lower in Q1. Small value outperformed growth during the quarter. Manager believes small caps are poised for outperformance if geopolitical tensions resolve, with their stocks trading at low absolute multiples and cheap relative to other stocks. |
Value Growth Outperformance Valuations Relative | |
OilWar in Iran caused oil prices to spike dramatically, creating an 'oil shock' that drove commodity-oriented sectors higher while weighing on broader markets. Fund's lack of exposure to energy-linked industries hampered performance as oil-related stocks gained sharply. |
Geopolitical Energy Commodities Iran Shock | |
| 2025 Q4 |
AfricaFund delivered exceptional performance with 67.21% returns in 2025, significantly outperforming the 44.7% benchmark. Portfolio companies show strong fundamentals with forward PE of 6.1x, dividend yield of 8.0%, and expected EPS growth of 19.2%. Manager emphasizes this represents genuine earnings growth rather than multiple expansion. |
Frontier Markets Emerging Markets Equities Value Growth |
LiquidityManager addresses investor concerns about African frontier market liquidity, explaining structural factors affecting trading volumes. Notes that foreign investor participation, local retail involvement, and institutional demand all impact liquidity. Observes improving trading volumes in Nigeria and Kenya from recent lows. |
Market Structure Trading Institutional Foreign Investment | |
Capital MarketsDiscussion of African capital market development including recent IPO activity in Nigeria and privatization efforts in Kenya. Manager notes proliferation of new investment fund products in Tanzania creating equity demand. Highlights structural tailwinds from growing pension savings pools given Africa's young demographics. |
IPOs Privatization Pension Funds Demographics | |
| 2025 Q3 |
AIThe market was powered by continued excitement around AI, with significant investment in AI infrastructure driving GDP growth. However, market concerns about AI competition negatively impacted some software holdings, though the manager sees no evidence that AI is negatively impacting Gartner's value proposition. |
Artificial Intelligence Infrastructure Software Competition Investment |
Data CentersVertiv Holdings performed well as the outlook for massive expansion of data center capacity became evident, particularly benefiting from AI-related activity driving elevated demand. The company is well positioned for the ongoing buildout of AI data centers, especially through liquid cooling technologies. |
Infrastructure Capacity Cooling Technology Expansion | |
Defense SpendingKratos Defense & Security Solutions contributed to performance following strong earnings and continued momentum. The current defense spending cycle appears to be in a generational upswing amid heightened global conflicts, with the administration's openness to smaller, agile defense contractors strengthening opportunities. |
Contracts Global Conflicts Technology Spending Innovation | |
QualityThe Fund aims to avoid junk and invest in leading established businesses with strong earnings prospects and recurring cash flows, favoring presently profitable companies with years of compounding growth ahead. Higher-quality small-cap companies had their worst three months of relative performance on record during the quarter. |
Earnings Cash Flow Profitable Established Compounding | |
| 2025 Q2 |
AIAI remains the dominant and most compelling market theme. Vertiv Holdings, the fund's largest position, is a direct play on AI infrastructure buildout for data centers. The market became increasingly confident in the durability and longevity of AI growth during the quarter. |
Data Centers Infrastructure Growth Technology |
DefenseDefense stocks performed strongly due to innovative new products and geopolitical tensions. Holdings like Kratos Defense & Security Solutions benefited from accelerated multi-year growth driven by increased funding from the Department of Defense and global militaries for advanced solutions required for modern warfare. |
Geopolitical Government Technology Growth | |
Small CapsSmall-cap stocks rebounded nicely in the quarter and performed roughly in line with the broader market but are still meaningfully trailing larger caps this year. The Russell 2000 Growth Index is still 12% below the all-time high achieved four years ago, suggesting small caps offer great absolute value. |
Value Outperformance Russell 2000 Growth | |
| 2025 Q1 |
AIThe introduction of Chinese AI app DeepSeek disrupted expectations for AI infrastructure rollout, causing significant declines in AI-benefiting tech stocks. This raised investor concerns about reduced need for data center capital expenditures and slower growth for companies like Vertiv. Despite the disruption, the manager believes the complex roadmap for new chip introductions will still drive demand for advanced cooling solutions. |
Data Centers Infrastructure DeepSeek Chips |
Trade PolicyTrump's tariff implementation created maximum uncertainty in markets, with levels viewed as draconian and inflationary. The administration later paused tariff implementation to negotiate individually with trading partners, which was well received by markets. However, conflict with China escalated with far-ranging repercussions, making an amicable resolution unlikely anytime soon. |
Tariffs China Inflation Uncertainty | |
Small CapsSmall-cap stocks continued to meaningfully underperform larger market caps during the quarter. The fund maintained its approach of investing in small-cap stocks while trimming larger market cap holdings, buying stocks with $4.0 billion weighted average market cap and selling those with $19.3 billion weighted average market cap. |
Underperformance Market Cap Russell 2000 | |
InsuranceInsurance-related holdings provided relative stability in the risk-off market environment. Specialty insurer Kinsale Capital Group benefited from continued growth in end markets and elevated returns on equity. Insurance broker Baldwin Insurance Group showed strong revenue and EBITDA growth despite higher costs from California wildfires. |
Specialty Insurance Brokers Stability Growth | |
| 2024 Q4 |
AIAI-related data center buildout is driving extraordinary demand for Vertiv's power and cooling solutions. The company raised organic sales guidance to 12-14% CAGR for the next five years, benefiting from enormous capital investment in data centers to enable AI applications. JFrog is also positioned to benefit as generative AI adoption accelerates, driving the need to manage new binary types and increasing overall application complexity. |
Data Centers Infrastructure Software Growth Technology |
Data CentersData center infrastructure represents the fund's largest position through Vertiv Holdings, which provides critical digital infrastructure solutions. The company has leading market share in power and cooling applications and is seen as a prime beneficiary of AI-related data center buildout. Management raised guidance significantly based on multi-year growth expectations from this secular trend. |
Infrastructure AI Power Cooling Growth | |
SemiconductorsThe fund has exposure to semiconductor manufacturing through Enpro's Advanced Surface Technologies segment, which offers precision manufacturing, cleaning, and coating services to wafer fabrication equipment manufacturers and leading foundries. The company is positioned for strong above-market growth as leading-edge spend from Taiwan Semiconductor and others rises, especially in the U.S. |
Manufacturing Equipment Technology Growth Foundries | |
Small CapsSmall-cap stocks have underperformed larger caps and are relatively cheap and under-owned. The manager believes small caps will do better as their growth accelerates, though acknowledges higher interest rates are a hindrance. The fund's approach focuses on finding special small companies for long-term investment, with about three-quarters of assets in stocks held for 5+ years. |
Value Growth Underperformance Opportunity Long-term | |
| 2024 Q3 |
Data CentersVertiv Holdings leads data center equipment with significant share in power and cooling applications. The stock rebounded as investors gained confidence in massive AI data center buildout globally. Strong relationship with chip manufacturers and involvement in technology roadmap for increasing energy density solutions were catalysts. |
AI Infrastructure Power Cooling Energy Density Server Racks |
CloudGuidewire Software advanced after subscription gross margins improved by over 1,000 basis points as cloud migration is substantially complete. Cloud will be the sole path forward with annual recurring revenue benefiting from new customer wins and migration to InsuranceSuite Cloud. |
SaaS Migration Subscription Insurance Software Margins | |
RatesFederal Reserve began easing cycle with 50-basis point cut in late September, seen as aggressive and first of many cuts to come. Lower rates positive for future growth in housing, finance, and consumer spending. Small- and mid-cap stocks have historically benefited most when rate cuts begin. |
Fed Policy Rate Cuts Economic Growth Small Caps Valuations | |
| 2024 Q2 |
Data CentersVertiv Holdings Co, a leading provider of critical digital infrastructure for data centers, is positioned to benefit from AI-driven growth in data center spend. The company reported very strong results with orders up 60%, highlighting strong demand for its products in data center cooling and power management. |
AI Infrastructure Cooling Power Orders |
CloudGuidewire Software is transitioning insurance clients to the cloud, with the cloud transition substantially over. The company expects annual recurring revenue to benefit from new customer wins and migrations of existing customers to Insurance Suite Cloud, with subscription gross margin expansion improving by more than 1,000 basis points. |
SaaS Insurance Migration Recurring Revenue Margins | |
Small CapsThere has been a noticeable recent rotation into small-cap stocks, which the manager finds welcome and overdue. Small caps now trade at a valuation discount, which is unusual because they typically grow faster. The performance of small-cap stocks has significantly lagged larger caps for years. |
Rotation Valuation Discount Outperformance Lagging | |
| 2024 Q1 |
Data CentersVertiv Holdings Co, the leading provider of cooling solutions to data centers, continued strong performance with 70% of revenue from data center end market. The company benefits from rising demand for data center capacity and increasing adoption of generative AI, as GenAI-related servers have higher energy density requiring more sophisticated cooling solutions. |
Cooling Infrastructure GenAI Servers Thermal Management |
Small CapsSmall-cap growth stocks have significantly underperformed large caps for years and are priced well below their historical premium. Small-cap stocks usually perform better as the economy improves and interest rates are cut, both of which the manager believes are on the horizon. |
Underperformance Valuation Premium Economic Improvement Rate Cuts | |
IndustrialsHigh concentration in Industrials at 32.9% of fund assets consists of multiple investments in leading niche businesses with strong long-term growth prospects due to superior market positioning and secular tailwinds. This does not reflect near-term conviction in economic growth pace but rather structural advantages. |
Niche Positioning Secular Tailwinds Concentration | |
| 2023 Q4 |
Data CentersVertiv Holdings benefits from robust demand for data center cooling solutions, particularly as AI-related servers require more sophisticated cooling. The company held its first Analyst Day introducing long-term growth targets and margin expansion plans. |
AI Cooling Infrastructure Margins Growth |
AIArtificial intelligence is driving demand for data center infrastructure, particularly cooling solutions for AI-related servers which have higher energy density. Gartner is positioned as a critical decision support resource for companies evaluating AI opportunities and risks. |
Data Centers Servers Decision Support Technology | |
Small CapsSmall-cap stocks finished strong in Q4 after terrible relative performance for most of the year, with the rally tilted toward lower-quality issues and value-oriented names. Small caps remain well off their highs and relatively undervalued with room to run. |
Valuation Relative Performance Value Quality | |
RatesFed Chairman Powell indicated the Fed was likely done raising rates, igniting a decline in yields from 5% to under 4% on the 10-year government bond. Lower rates benefited interest rate sensitive stocks and those helped by lower borrowing costs. |
Fed Yields Borrowing Costs Monetary Policy | |
| 2023 Q3 |
Data CentersVertiv Holdings, the fund's largest position, benefits from AI-driven growth in data center infrastructure. The company provides critical thermal management solutions for increasingly energy-dense data centers required for artificial intelligence applications. |
AI Cooling Infrastructure Energy Thermal |
AutomationIndustrial automation represents a key investment theme through holdings like Aspen Technology and Cognex Corporation. These companies provide software and machine vision systems that drive productivity improvements and emissions control across manufacturing. |
Software Manufacturing Productivity Vision Robotics | |
GLP1Weight loss drugs like Ozempic and Wegovy are creating market disruption across multiple sectors. The fund holds companies potentially impacted by reduced obesity rates, including Inspire Medical Systems and DexCom, which management believes are oversold. |
Diabetes Obesity Medical Disruption Pharmaceuticals | |
SemiconductorsAutomotive semiconductor exposure through indie Semiconductor, which focuses on advanced driver assistance systems and connected car applications. The company has a $4.3 billion strategic backlog and expects significant revenue growth from automotive silicon content increases. |
Automotive ADAS Connected Silicon Electrification |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| May 1, 2026 | Fund Letters | Baron Small Cap Fund | VRT | Vertiv Holdings Co | Electrical Equipment & Parts | Electronic Equipment, Instruments & Components | Bull | New York Stock Exchange | AI infrastructure, data centers, digital infrastructure, electrical equipment, growth, liquid cooling, Modular Solutions, thermal management | Login |
| May 1, 2026 | Fund Letters | Baron Small Cap Fund | CGNX | Cognex Corporation | Scientific & Technical Instruments | Electronic Equipment, Instruments & Components | Bull | NASDAQ | Best-in-class, growth, Industrial automation, Machine vision, manufacturing, operating leverage, turnaround | Login |
| May 1, 2026 | Fund Letters | Baron Small Cap Fund | RBC | RBC Bearings Incorporated | Tools & Accessories | Machinery | Bull | NASDAQ | Aerospace, Bearings, Boeing, Cyclical Recovery, Defense, Industrial, Marine Programs, Top-tier Supplier | Login |
| May 1, 2026 | Fund Letters | Baron Small Cap Fund | PLNT | Planet Fitness, Inc. | Leisure | Hotels, Restaurants & Leisure | Bull | New York Stock Exchange | Category Leader, Cheap Valuation, Fitness Centers, franchise, Low cost, new management, same-store sales, secular growth | Login |
| May 1, 2026 | Fund Letters | Baron Small Cap Fund | IT | Gartner, Inc. | Information Technology Services | IT Services | Bull | New York Stock Exchange | AI disruption, Competitive advantages, Free Cash Flow, IT services, Large Addressable Market, Research Provider, share repurchases, Syndicated Research | Login |
| May 1, 2026 | Fund Letters | Baron Small Cap Fund | GWRE | Guidewire Software, Inc. | Software - Application | Software | Bull | New York Stock Exchange | AI Tailwind, Annual Recurring Revenue, cloud migration, cross-selling, Insurance-software, Property & Casualty, SaaS, Sticky Customer Base | Login |
| May 1, 2026 | Fund Letters | Baron Small Cap Fund | - | Once Upon a Farm, PBC | Other | Food Products | Bull | NASDAQ | Baby Food, Cold Pressure Technology, Distribution Expansion, Emerging Brand, High Growth, Natural Products, Organic Food, Premium Nutrition | Login |
| Mar 31, 2025 | Fund Letters | Baron Small Cap Fund | RADNQ | RadNet, Inc. | Health Care | Health Care Services | Bull | NASDAQ | Acquisitions, Aging demographics, AI, CT, diagnostic imaging, digital health, Healthcare services, joint ventures, Mri, Outpatient, Pet, Radiology | Login |
| Mar 31, 2025 | Fund Letters | Baron Small Cap Fund | PAR | PAR Technology Corporation | Information Technology | Application Software | Bull | NYSE | ARR, Digital transformation, Enterprise software, Foodservice Technology, operating leverage, Point of Sale, QSR, Restaurant technology, SaaS | Login |
| Mar 31, 2024 | Fund Letters | Baron Small Cap Fund | INTC | Intapp, Inc. | Software & Services | Application Software | Bull | NASDAQ | AI-Enabled Software, Cloud software, CRM, Deal Management, Legal Technology, Professional Services Software, regulatory compliance, SaaS, workflow automation | Login |
| Mar 31, 2024 | Fund Letters | Baron Small Cap Fund | EXPO | Exponent, Inc. | Commercial & Professional Services | Research & Consulting Services | Bull | NASDAQ | defensive business model, Engineering Consulting, Failure Analysis, high margins, premium services, risk management, Scientific Consulting, secular growth drivers | Login |
| TICKER | COMMENTARY |
|---|---|
| VRT | Vertiv Holdings Co provides power and cooling systems for data centers. Shares increased during the quarter as Vertiv reported strong Q1 financial results (adjusted earnings per share increased 83% year-over-year) and increased fiscal year guidance fueled by organic sales growth of around 30%. Vertiv is benefiting from the industry's shift toward integrated and modular solutions that help alleviate labor shortages and accelerate deployment timelines, supported by its market-leading product portfolio and service capabilities. The company is also well positioned to support key technology transitions, including liquid cooling and direct current power architectures. Management increased long-term financial projections to 20%-plus revenue CAGR and a 27%-plus EBIT margin out to 2030, with $24 billion of cash to deploy for M&A, offering a compelling investment from current levels. Though we have trimmed our position along the way, we maintain a large position believing strongly in the future success of the company. |
| CGNX | Cognex Corporation is a leading provider of machine vision solutions. Shares rose during the quarter following a robust earnings report, with the company experiencing accelerating, broad-based growth driven by improving industrial conditions. This top-line momentum, combined with material cost-cutting efforts, is enabling significant earnings per share expansion. We expect this elevated level of growth to persist, supported by a meaningfully improved cost structure and go-to-market sales approach. We believe that Cognex will benefit from new phone formats and consumer devices to access AI. |
| MSGS | Our position in Madison Square Garden Sports Corp. has been strong, as our beloved NY Knicks won the NBA Championship...Knicks in 5!! |
| GWRE | Shares of property and casualty insurance software vendor Guidewire Software, Inc. declined after a handful of deals slipped from the fiscal third quarter into the fiscal fourth quarter. We believe this is purely a timing issue, with these deals closed in the current period. Guidewire's InsuranceSuite platform serves as the core system of record for insurance carriers, functioning as the single source of truth for the policies an insurer writes, the claims it processes, the premiums it collects, and the payments it makes. We think the core-system opportunity alone represents nearly $20 billion of annual recurring revenue, or roughly 20 times Guidewire's current size. In our view, AI will meaningfully expand this opportunity by enabling automation and intelligence on top of the core system of record. |
| PLNT | Planet Fitness, Inc., the leading high-value, low-cost gym operator, detracted from performance in the second quarter after the company lowered full-year guidance following weaker-than-expected member additions in the first quarter. Member growth was pressured by a combination of unfavorable weather, macroeconomic headwinds, increased competition in certain markets, and marketing changes that did not resonate with certain customer segments. As a result, management reduced its outlook for the year to reflect the lower membership base and paused previously announced price increases. Despite the disappointing results, Planet Fitness remains the category leader, with scale advantages needed to capitalize on favorable long-term health and wellness trends. |
| KTOS | Defense contractors Kratos Defense & Security Solutions, Inc. gave back some of their large gains from the prior quarter, as the war in the Middle East appeared to near an end. |
| SITE | SiteOne Landscape Supply, Inc. detracted from performance in the quarter. It is listed as a Top 10 holding representing 3.7% of net assets. |
| TDG | TransDigm Group Incorporated is listed as a Top 10 holding representing 3.3% of net assets, acquired in 2006. |
| FWONK | Liberty Media Corporation - Liberty Formula One is listed as a Top 10 holding representing 2.7% of net assets. |
| CAKE | The Cheesecake Factory Incorporated rose over 30% in the quarter. During the quarter, our largest sales were trims of some of our largest and best performing stocks including The Cheesecake Factory Incorporated. |
| SHAK | During the quarter we initiated a position in Shake Shack Inc., a premium fast-casual burger chain, after the stock sold off almost 30% after its Q1 earnings call on a reported bad comp in April, and slightly lower fiscal year margin guidance from rising beef inflation. This presented a compelling opportunity to invest in a differentiated brand led by an experienced new management team, with stellar unit economics and balance sheet to fund growth for many years to come. 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 Shake Shack to open 60 to 65 company-operated restaurants in 2026, up from 44 in 2025 which is supported by improving unit economics (35% cash-on-cash returns) as the company has been able to expand restaurant-level margins while reducing build costs. Average unit volumes in domestic company-operated restaurants exceed $4 million, among the highest in the fast-casual peer set, with an attractive sales/investment ratio of roughly two times. Internationally, licensed partners in the Middle East, Asia, and Europe continue to expand, providing high-margin fee income to the company. 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 growth in the double digits and EBITDA mid-teens over the next several years, and that shares are attractively priced relative to that growth. |
| WING | Wingstop Inc. was a previous successful investment that remains a best-in-class franchisor with stellar unit economics and long growth runway. We are investing again in this high-quality fallen angel at what we think is a meaningfully discounted valuation. |
| CWST | We acquired shares of Casella Waste Systems, Inc., a well-entrenched market leader with high barriers to entry in an industry we understand well (after more than a decade owning Waste Connections, Inc.) at what we believe is an attractive entry point. We feel the issues leading to lower stock prices are temporary, creating long-term opportunities in the stocks. |
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