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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Baron Generational Growth Fund's high-quality, founder-led portfolio delivered mid-teens earnings growth but declined 2.51% as investors rotated into riskier stocks. The portfolio now trades at 25-36% discounts to historical valuations despite superior profitability."
Baron Generational Growth Fund declined 2.51% in Q2 2026, trailing the Russell 2000 Growth Index which gained 25.71%, as portfolio-level earnings grew at mid-teens rates but were offset by severe valuation compression. Investors rotated from high-quality stocks into riskier businesses in a historically notable shift, with the Earnings Quality factor performance in the 98th percentile since 1975. The portfolio, concentrated in founder-led businesses with recurring revenue and strong competitive advantages, now trades at a 25% discount to its 5-year average valuation and 36% discount to its 10-year average despite profitability being meaningfully above historical levels. Key headwinds included P&C insurance market softening affecting Arch Capital and Kinsale Capital, and AI disruption fears compressing valuations of information services holdings by 43% despite 22% profit growth. Management teams have responded by more than doubling share repurchases. The manager views current valuations as extremely attractive and expects the combination of continued earnings growth and multiple expansion to drive strong future returns as the market recognizes the quality embedded in the portfolio.
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