Baron FinTech Fund | Q1 2025

Dear FinTech Fund Shareholder:

In the quarter ended March 31, 2025, Baron FinTech Fund® (the Fund) fell 1.31% (Institutional Shares) compared with a 7.52% decline for the FactSet Global FinTech Index (the Benchmark). Since inception, the Fund has risen at an 11.27% annualized rate compared with 2.22% for the Benchmark.

U.S. equities ended the first quarter down almost 5% following a sharp decline in March. Markets started off well to begin the year with the S&P 500 Index reaching a new high in mid-February. Investors were enthusiastic at the start of President Trump’s second term about anticipated deregulation, tax cuts, strong corporate earnings, and interest rate cuts. Market sentiment began to shift in February due to concerns about tariffs, persistently high inflation, and softer economic growth, leading to fears of stagflation. Perceived cracks in the AI secular growth theme, waning consumer sentiment, and cautious commentary from the Federal Reserve also contributed to risk-off conditions late in the quarter.

Small caps bore the brunt of the market sell-off, declining by almost 10% in the quarter, while mid- and large-cap stocks fell 3% and 4%, respectively. Value meaningfully outperformed growth across all market caps, reflecting strength in defensive, commodity-centric, and yield-oriented sectors including Energy, Utilities, and Real Estate. After two years of dominant performance, the Magnificent Seven faltered during the quarter, accounting for all the losses in the S&P 500 Index. These seven mega-cap technology stocks fell 15% during the quarter and 19% from their December 2024 peak due to the emergence of Chinese AI competition combined with lofty growth expectations. Excluding the Magnificent Seven, the S&P 500 Index managed a small 1% gain for the quarter. Beyond the U.S., both developed and emerging market equities rose, benefiting from a shift away from U.S. equities.

During the first quarter, the Fund outperformed the Benchmark and the S&P 500 Index. Relative strength versus the Benchmark was mostly driven by strong stock selection in Payments, E-Commerce, Enterprise Software, and Tech-Enabled Financials. Leaders outperformed Challengers (flat versus down 4%, respectively). The Fund’s lack of exposure to the Magnificent Seven was a tailwind to performance against the broader market. The Fund also benefited from higher exposure to the strong-performing Financials sector, which rose more than 3% in the S&P 500 Index.

Strength in Payments was mostly due to gains from the Fund’s sizeable positions in global payment networks Visa Inc. and Mastercard Incorporated. Both companies reported strong quarterly results with accelerating payments volumes. The defensiveness of their business models also likely proved attractive to investors in a risk-off market. Global payments and bank technology company Fiserv, Inc. also performed well after reporting strong quarterly results and providing a favorable outlook for the following year with an expectation for continued mid-teens earnings growth.

Performance in E-Commerce and Enterprise Software was bolstered by double-digit gains from Latin American e-commerce marketplace MercadoLibre, Inc. and insurance software vendor Guidewire Software, Inc., respectively. MercadoLibre was a top contributor after reporting strong quarterly results, with better-than-expected revenue and a meaningful improvement in margins. Guidewire’s stock rebounded as revenue benefited from new customer wins and migrations of existing customers to a modern cloud-based offering. The company’s subscription-based gross margin also expanded by more than 10 percentage points in the recent quarter.

The Fund’s insurance, brokerage, and financial exchange holdings benefited from market volatility and contributed to performance in Tech-Enabled Financials and Capital Markets. The Progressive Corporation, Arch Capital Group Ltd., and Primerica, Inc. were among several insurance-related holdings that outperformed due to a market rotation into defensive stocks. Independent broker-deal LPL Financial Holdings Inc. and retail broker The Charles Schwab Corporation also performed well in the Tech-Enabled Financials category. Within Capital Markets, electronic trading platform Tradeweb Markets Inc. and leading derivatives marketplace CME Group, Inc. benefited from robust trading activity in more volatile markets.

Somewhat offsetting the above was weakness in Information Services and Digital IT Services where investment research company Morningstar, Inc. and outsourced software developer Globant S.A. were the largest detractors. Morningstar’s shares declined in response to disappointing quarterly results in which margins contracted following several quarters of improvement. We believe this margin pressure was a temporary hiccup attributable to unusual costs that should soon abate. Globant’s shares fell after the company reported weaker-than-expected financial guidance amid challenging demand trends for the IT services industry.

The Progressive Corporation is a leading auto insurance company. Shares increased as the company continued to perform well, growing its auto policy count more than 20% with underwriting margins well above its 4% target. We don’t think these growth rates and margins are sustainable due to the inevitable return of pricing pressure in a competitive insurance market. However, Progressive continues to gain market share and has now surpassed Geico to become the second largest auto insurer in the U.S. behind State Farm. Shares also benefited from the relative defensiveness of insurance stocks in a risk-off market. We remain shareholders because we view Progressive as a best-in-class insurer that should continue gaining share in a large market.

Tradeweb Markets Inc. operates electronic marketplaces for fixed income securities. Shares rose during the quarter due to strong volume trends driven by favorable market conditions and share gains in key products. Credit products saw accelerating growth with trading volume up 39%, while rates products saw stable trends with 14% growth. In credit, Tradeweb continued to grow faster than the market and its primary electronic trading competitor. We believe Tradeweb can achieve solid growth in a variety of macroeconomic conditions and expect further market share gains to drive long-term upside. We continue to own the stock due to Tradeweb’s strong network effects, long track record of innovation, and significant growth opportunities from the ongoing electronification of the capital markets.

MercadoLibre, Inc. is the leading e-commerce marketplace and fintech provider in Latin America. Shares rebounded from weakness in the prior quarter after the company reported strong financial results that exceeded Street expectations. In the fourth quarter, revenue grew 37% and operating income grew 44% on an adjusted basis. Margins surprised to the upside, reversing a decline in the prior quarter and alleviating concerns around investment-driven impacts on near-term profitability. MercadoLibre continues to post above-market growth with gross merchandise volume up 56% and total payment volume up 49%, both on a constant-currency basis. In 2024, the company had 100 million marketplace customers and 61 million monthly fintech users with rising engagement due to the company’s compelling value proposition. We believe MercadoLibre remains a prime beneficiary of the secular growth of e-commerce and digital banking in Latin America.

We seek to invest in competitively advantaged, growing fintech companies for the long term. We invest in companies across all market capitalizations and geographies. The quality of the ideas and level of conviction determine the position size of each investment.

As of March 31, 2025, the Fund held 45 positions (37 excluding those smaller than 1%). The Fund’s 10 largest holdings represented 42.0% of net assets, and the 20 largest holdings represented 70.2% of net assets. International stocks represented 10.2% of net assets. The market capitalization range of the investments in the Fund was $804 million to $704 billion with a median of $34 billion and a weighted average of $120 billion.

We segment the Fund’s holdings into seven investment themes. As of March 31, 2025, Tech-Enabled Financials represented 27.9% of net assets, Information Services represented 22.1%, Payments represented 15.1%, Enterprise Software represented 14.6%, Capital Markets represented 12.4%, E-Commerce represented 5.5%, and Digital IT Services represented 1.1%. Relative to the Benchmark, the Fund remains underweight in Enterprise Software, Payments, and Hardware, and has overweight positions in Tech-Enabled Financials, Capital Markets, Information Services, E-Commerce, and Digital IT Services.

We also segment the Fund’s holdings between Leaders and Challengers. Leaders are generally larger, more established companies with stable growth rates, higher margins, and moderate valuation multiples. Challengers are generally smaller, earlier-stage companies with higher growth rates, lower margins, and higher valuation multiples. As of March 31, 2025, Leaders represented 76.2% of net assets and Challengers represented 22.5%, with the remainder in cash.

* Individual weights may not sum to the displayed total due to rounding.

There was relatively little trading activity during the quarter with no new purchases and the sale of two small positions. Below we discuss some of our top net purchases and sales.

We added to our position in online broker Robinhood Markets, Inc., which was a new purchase in the prior quarter. The company reported very strong financial results for the fourth quarter with elevated trading volumes and robust growth in accounts and deposits. Client trading activity has moderated since the start of the year but remains elevated overall and the number of Gold subscribers grew 20% in the first quarter alone. At its Gold Summit in March, the company released three new products, including a low-cost advisory service, an AI-powered research tool, and a digital banking service. Robinhood is building out new products at a rapid clip yet still has a long runway to reach parity with other brokers. Additional service offerings should support continued market share gains.

We also added to our position in ServiceTitan, Inc., a provider of business management software for the field service industry, which was another new purchase in the prior quarter. The company reported strong financial results with 29% revenue growth and solid margin expansion in the recent quarter. Management provided guidance for this year that exceeded Street expectations yet still leaves room for upside. Key focus areas include targeting enterprise customers (especially private equity-backed consolidators), upselling higher-value services, and expanding in the commercial and roofing markets. We expect the company to continue growing 20%-plus with significant margin expansion and free cash flow growth over time.

We sold payment companies WEX Inc. and Global Payments Inc. due to concerns about competitive positioning, slowing growth, and disappointing capital allocation decisions. We modestly trimmed Visa Inc., Mastercard Incorporated, and Intuit Inc. on strength to manage position sizes and fund purchases elsewhere in the portfolio.

The near-term outlook is more uncertain today than it was three months ago. Higher trade tariffs are expected to increase costs, crimp profits, and temper economic growth. Beyond these direct effects, trade policy is also constantly shifting, which creates uncertainty and slows decision-making.

We believe the Fund is insulated but not immune from tariffs and trade wars. Our holdings are service-based businesses that don’t rely on imported goods and shouldn’t see a material change in operating costs. Financial exchanges and trading platforms are experiencing a surge in trading volumes from elevated market volatility. Payment companies earn fees based on nominal payment volumes, so their revenues should benefit from higher prices. A weaker U.S. dollar provides an earnings translation tailwind for our multinational and foreign companies, with non-U.S. revenue exposure of 34% across the Fund. Nevertheless, our holdings are indirectly impacted by trade policy due to their reliance on consumer confidence and the performance of other businesses that incur higher tariffs. While still early, our conversations with management teams indicate greater caution and concerns about a slowdown if trade tensions persist. The Fund’s relatively defensive positioning with over three-quarters exposure to Leaders with wide moats and durable earnings should serve investors well in an uncertain environment.

During periods of market turbulence, many people feel an urgency to act. When share prices are moving quickly, market participants trade more frenetically in response to breaking news flow. Investors desperately attempt to model the earnings impacts from tariffs and update their valuation estimates despite constantly shifting policy. We take the opposite approach. We construct the portfolio with an expectation of economic fluctuations. We seek to invest in companies that can endure inevitable but unpredictable downturns and will thrive over a full economic cycle. We tend to trade less, not more, during periods of market dislocation when we think investors are more likely to make mistakes. Because we invest with conviction in high-quality, durable businesses, we can be more sanguine than most and confidently hold our positions during market pullbacks.

Our research team focuses on gathering information with a long shelf life while ignoring information with a short shelf life. We’re all bombarded with news every day, most of which has little value and quickly becomes stale. This information overload shortens our attention spans and distracts us from more valuable pursuits. Instead of obsessively monitoring the latest headlines, our team is focused on more durable insights by continually researching existing holdings and potential new investments. During the quarter, we attended the AIFA Insurance Conference where we met with over a dozen companies and learned about evolving market trends. We attended a multi-day retreat hosted by a prominent venture capital firm where we learned about the challenges and opportunities in growing early-stage fintech companies. We met in our offices with several late stage, privately held fintech companies that intend to go public soon. We also maintained regular contact with the management teams of our portfolio companies to evaluate their competitive positions and growth prospects. We believe these efforts are more likely to generate insights with long shelf lives that should lead to better decision-making and continued outperformance.

Thank you for investing in the Fund. We remain significant shareholders alongside you.

Sincerely,