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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Baron Asset Fund outperformed by 443 basis points in Q2 2026 despite headwinds from narrow AI-driven market leadership, powered by SpaceX's historic IPO and 3,000%+ appreciation. Software and services holdings trade at 47% discounts to historical multiples after indiscriminate AI disruption fears drove 46% multiple compression despite 27% fundamental growth."
Baron Asset Fund rose 18.98% in Q2 2026, outperforming the Russell Midcap Growth Index by 443 basis points despite significant headwinds from Beta and Momentum factors that posted exceptional performance. The Fund's outperformance was driven primarily by its large SpaceX position, which completed the largest IPO in history raising over $85 billion and appreciated more than 3,000% since initial investment. Market returns were driven by a narrow group of AI beneficiary stocks, with semiconductors nearly doubling during the quarter. The manager believes many of the Fund's software and services holdings have been unfairly penalized by AI disruption fears, now trading at a 47% discount to 10-year average multiples despite 27% fundamental growth and only 3% multiple compression in other holdings. These businesses lost 37.6% over the past year due to 46% multiple compression, not fundamental deterioration. The manager expects valuations to re-rate higher as market leadership broadens, supported by evidence of reversal since late June with software and services holdings rallying 12% while semiconductors corrected 30%. The Fund maintains concentrated positions in businesses benefiting from secular trends in infrastructure spending, medical devices, and AI infrastructure, with the top 10 holdings representing 65% of assets and six held for over a decade.
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