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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Crashing intelligence costs are igniting Jevons paradox across enterprise workflows, driving accelerating token consumption and sustainable multi-year earnings power for accelerated computing leaders, mission-critical interconnect enablers, and proprietary distribution platforms."
Baron Fifth Avenue Growth Fund gained 6.55% net of fees (Institutional Shares) in the third quarter of 2026, generating 561 basis points of alpha against the Russell 1000 Growth Index's 0.92% gain and outperforming the S&P 500 Index's 2.30% return. Year-to-date, the strategy has returned 19.04% net of fees compared to 6.30% for its primary benchmark. Outperformance was predominantly driven by stock selection, which accounted for 476 basis points of relative gains, led by Information Technology (adding 277 basis points) and strong selection in Health Care and Consumer Discretionary. Zero exposure to Industrials, Consumer Staples, Utilities, and Real Estate contributed an additional 178 basis points of relative return. Portfolio concentration remained high, with the top 10 positions representing 66.3% of net assets across 26 total investments, while cash was held at 0.7%. Management's macroeconomic posture rejects prevailing fears of an artificial intelligence bubble, emphasizing that the ongoing rapid expansion across AI tokens reflects Jevons paradox, where collapsing costs per intelligence unit accelerate enterprise consumption. While acknowledging near-term data center power constraints, elevated ten-year Treasury yields hovering near 5.3%, and geopolitical friction that briefly pushed crude oil above $100, the manager views technological innovation as inherently structural and disinflationary. Underlying portfolio company revenue and operating income forecasts for 2026 continued to revise higher across all sectors, even as weighted-average valuation multiples contracted 6.1% in the quarter and sat 12.6% below their five-year average. Active capital allocation centered on scaling high-conviction infrastructure and healthcare enablers, with net purchases directed into Amphenol Corporation, Eli Lilly and Company, and fast-inference provider Cerebras Systems Inc. To fund these additions and manage valuation risk after sharp price appreciation, the fund trimmed software compounders Cloudflare, Datadog, and CrowdStrike, alongside genomics leader Illumina, while fully liquidating its stub position in Coupang. Core foundational holdings NVIDIA, Meta Platforms, and Taiwan Semiconductor Manufacturing Company were maintained with high conviction.
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