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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Baron Financials ETF gained 1.82% in Q2 but trailed the index as AI infrastructure dominated market returns. Financial software and exchange operators faced disruption concerns and slower trading activity."
The Baron Financials ETF rose 1.82% in Q2 2026, underperforming the MSCI USA Financials Index which gained 8.93%, as narrow market leadership concentrated in AI infrastructure stocks overshadowed most sectors. The Fund's underweight position in Banks, which rose 15.1% and represent over 40% of the index, detracted from relative performance. Financial software and information services holdings faced pressure from AI-driven disruption fears, with Intuit and Guidewire declining on concerns about market share losses and deal timing. Capital Markets holdings including Tradeweb and CME fell on slower trading activity and competition concerns from crypto-based derivatives. The manager believes holdings are oversold, trading at less than 18 times forward earnings—the lowest multiple since inception—despite stable growth prospects. The Fund initiated positions in JPMorgan Chase, Bank of America, American Express, and AerCap Holdings at attractive valuations. With favorable economic conditions including 2% GDP growth, 4% unemployment, and accelerating bank lending, the manager expects continued earnings growth to drive favorable returns ahead.
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