Baron Global Durable Advantage ETF | Q1 2026

Dear Baron Global Durable Advantage ETF® Shareholder,

Welcome to the Baron Global Durable Advantage ETF®!

Baron Global Durable Advantage ETF® (BCGD or the Fund) declined 7.3% (NAV) during the first quarter, compared to the 3.2% decline for the MSCI ACWI Index (the Index), the Fund’s benchmark.

We are so excited to introduce BCGD to you. Our goal is to invest in (or to collect) the highest quality businesses for the long term, where we have built high conviction in their duration of growth, while minimizing the probability of permanent loss of capital.

This is our inaugural shareholder letter since BCGD’s launch on December 12, 2025, so in addition to reviewing the quarter, we want to take the opportunity to introduce BCGD to investors, explain our investment philosophy, what makes BCGD unique, describe what we own and why, and set expectations for how the Fund is likely to perform across different market environments.

What is BCGD and why did we launch it?

BCGD launched as the global corollary to the domestic Baron Durable Advantage Fund®, which was our initial foray into the lower-risk quality growth universe (launched in 2017), and has since compounded at 14.6% on an annualized basis, outperforming the S&P 500 Index and Morningstar Large Growth Category Average by 130bps and 177bps per year, respectively.* BCGD applies a similar philosophy and process, executed by the same team, only to the global stock universe with a target to outperform the MSCI ACWI Index by 100 to 200bps per year, net of all fees and expenses, over a full market cycle.

What is long term? 

For some, investing is a sprint. For others, it’s a marathon. For us, there is no finish line – our goal is to own businesses in perpetuity. For us, fundamentally, there are only four reasons to sell: 1) we realize we have made a mistake; 2) to reallocate to a higher conviction idea; 3) if business fundamentals have deteriorated such that our thesis is no longer valid; and 4) if valuation is expensive compared to the intrinsic value of the business (valuation can never be assessed in a vacuum. A 35x P/E can be cheap or expensive depending on the business and its prospects).

What is high quality? 

A company that can compound earnings for a long time, while generating high returns on invested capital. We focus on the number of years (‘N’) that the company can grow rather than the actual growth rate (‘g’). For this to be the case, the opportunity needs to be large enough, the company must solve real problems for customers in a unique way with durable competitive advantages that are strong enough to withstand the challenges of the disruptive change inevitably posed by upstarts and new technologies. Management must think like owners of the business and optimize for the long term. They need to be both excellent operators and astute capital allocators.

We segment all businesses into one of two buckets – either high quality or not. We have no interest in the lower quality businesses in any of our strategies as we don’t believe it is worthwhile to be a long-term owner of a mediocre business – the longer you own it, the worse your margin of safety becomes as intrinsic value doesn’t grow (and might deteriorate) – time is the friend of the wonderful business and the enemy of the mediocre³ .

We then segment each business into one of two buckets – Big Ideas and Quality Growth. Big Ideas are companies that are growing rapidly, penalizing short-term profits, and can become significantly larger in the future. These companies are going through the steep part of their growth s-curves. Naturally, with earlier stages of growth lifecycles comes bigger upside, and a wider range of outcomes. The other bucket, which BCGD is focused on, includes companies that are past the steepest part of their s-curves – they emerged from the rapid disruptive change period as the leaders – their risk profile is lower, the range of outcomes narrower, and yet they can still compound earnings for years at above average, attractive rates. While for Big Ideas we are looking to hit home runs and as a result really focus on our slugging percentage, in BCGD we are looking for singles and doubles. Home runs are included only if/when valued as singles or doubles.

What makes BCGD unique?

Baron’s legacy and reputation for investing in the highest-quality, fast-growing companies for the long term creates a structural pipeline of new ideas for BCGD. From the aerospace and defense aftermarket parts supplier, TransDigm, which we have owned at Baron for over 20 years since IPO, to ASML (held since 2012). We study, follow and invest in these companies for years. BCGD is a home for the best of them.

Additionally, Baron’s focus on long-term investing and our central research enables broad purview of disruptive change – from private companies to public, small cap to large cap, domestic to international. For BCGD, this enables us to build conviction on why every business we own won’t get disrupted in the future.

We spend the majority of our time forecasting long-term fundamentals of businesses. Baron Capital has been focused on that for over 40 years. We will take advantage of the market’s short-termism – which we think is only getting worse due to the rise in passive investing, high frequency trading, and quant strategies – when our view of long-term fundamentals diverges from stock prices.

We define risk differently – while risk is commonly thought of and measured as volatility or relative volatility, long-term investors can define it, and consequently, manage it differently – as the probability of absolute or relative permanent loss of capital (relative means underperforming the index over the long-term). Understanding its drivers and pricing risk appropriately across the entire range of outcomes is critical.

Imagine you owned 100% of a private family business that’s been around for 50 years and every day you get a call from a broker offering to buy your business. Every day, he offers you a vastly different price. One day it’s $10 million and the next it’s $15 million and then it’s $5 million. Does that change the business’ worth in a decade? Would it be worth more if that broker was less volatile, offering $10 million and the next day $10.1 million or $9.9 million?

Permanent loss of capital is driven by fundamentals underperforming expectations (earnings compounding at a slower rate or for fewer years than expected) or the multiple getting impaired. Because compounding is an exponential function, the longer the N, the less important the change in multiple. We therefore focus on the risk to fundamentals. Forecasting multiples requires predicting external factors such as macro and investor psychology, where we have no edge:

• Companies with a low probability of being disrupted – think Hermes, which has been around for nearly 200 years, or CME Group, the largest derivatives exchange which benefits from strong network effects.
• Low financial/leverage risk – BCGD’s average debt to market cap ratio is 8.7% compared to 25.1% for the Index.
• No liquidity risk – our companies don’t require outside capital.
• Low business risk – leaders in their industries selling critical products or services to their customers that cannot be replaced; gaining market share during challenging times (as customers consolidate budgets on critical vendors); pricing power that enables passing on the cost of inflation. Think Visa, whose revenues are tied to notional (higher inflation leads to higher revenues), or Taiwan Semiconductor (TSMC), whose approximate 90% market share in advanced semiconductor manufacturing, enables it to raise prices offsetting input cost increases. 
   

What should you not expect?

Our investment decisions will not be impacted by macro forecasts, geopolitics, or outcomes of elections – no edge there. We won’t rotate geographies or sectors, acquire gold or crypto, engage in short-term cyclical trades, “play” different themes, or trade around positions – all of these would require us to get the timing right on both sides of the trade, not something we believe can be done well consistently.

Despite striving to be a sleep-well-at-night strategy, our goal is not to minimize our short-term beta as that would require us to give up some long-term alpha, a trade that we believe is not in the best interests of the long-term owners of BCGD. Yet, tracking error and beta are expected to be reasonable due to the Fund’s focus on singles and doubles.

We don’t expect to outperform the benchmark every quarter or even every year. We are not optimizing for short-term performance.
 

What should you expect?

We expect BCGD to compound in line with the earnings power of our businesses (in the mid-teens range), over full market cycles, all else being equal.

While past performance is no guarantee of future results, our process has resulted in fairly predictable risk characteristics with a positive active weight to the following Barra risk factors: Beta, Growth (though both not as high as in our Big Idea funds), and Profitability (for example – BCGD companies have 33.8% operating margins on average compared to 25.8% in the Index, and 28.5% return on equity compared to 19.7% in the Index, even though BCGD’s leverage is lower). We expect to have a negative exposure to various valuation factors such as Earnings Yield or Dividend Yield, since higher quality companies trade at higher near-term multiples.

Short-term performance would be driven by factor performance – we should outperform when Beta, Growth, and Profitability factors do well and underperform otherwise. Overall, we expect to underperform in two market extremes – when investors only care about the here and now (value stocks should do best) or when it’s all about go-go growth (aggressive growth could do best). We expect our businesses to be resilient during both times. We expect to do well whenever the pendulum is not closer to one of these extremes and most importantly, over the long term, we expect our returns to mirror the growth in earnings power of the companies we own.
 

Now back to the first quarter

After three years in which the Index compounded at 16.6%, and a quiet January (the Index was up 3.0%), the rest of Q1 saw a sharp reversal due to AI disruption fears and the war in Iran. Anthropic’s launch of Claude Cowork (an AI agent capable of autonomously performing business workflows) and Citrini’s viral “The 2028 Global Intelligence Crisis” report sparked a massive sell-off in software (IGV declined 24%) and across a broad range of quality and growth sectors – alternative asset managers, information services, rating agencies, credit card networks, insurance, and wealth management. Compounding this, the war in Iran pushed oil past $100 per barrel, while the Fed held rates steady, and the 10-year Treasury yield, which had started the year at 4.2%, climbed to approximately 4.3% by quarter end. Consequently, BCGD declined 7.3% (NAV) while the MSCI ACWI Index declined 3.2%, and the growth-oriented MSCI ACWI Growth Index declined 7.7%.

Apart from using the sell-off to add to some of our highest conviction ideas (with Amazon and NVIDIA as our largest increases), we did not make any big moves, didn’t rotate sectors or geographies, or go into cash. In general, we do not make investment decisions based on timing or predicting the outcomes of wars or the price of oil. Not only because macro-driven events are notoriously difficult to predict with any consistency, but more so because we believe they will work themselves out. In the 20^th century, the Dow Jones Industrials Average advanced from 66 to 11,497 – an increase of 17,391% (excluding dividends) despite four costly wars, a Great Depression, and countless recessions. Not to be cavalier about the increased geopolitical risks and their consequences but in an unlikely scenario we are wrong – beating an Index will be the least of our problems. So, with rationality and pragmatism prevailing as our default setting, we focus on separating the signal from the noise and identifying the statistically significant events that help us build conviction in the investment thesis for a long-term success of a business.

From a performance attribution perspective, sector allocation drove 260bps of underperformance while stock selection detracted 155bps. Information Technology (IT) was our best sector with 249bps of relative outperformance as our holdings increased 4.1% compared to a 6.7% decline for IT stocks in the Index. Consumer Staples and Real Estate also contributed 42bps.

On the other side of the ledger, Financials was our worst sector, at 233bps of underperformance, driven by alternative asset managers (Brookfield and KKR), our two international banks (Nu in Latin America and HDFC Bank in India), our payments network (Visa) and our rating agency (S&P Global), all of whom declined double digits. Consumer Discretionary cost us 84bps, driven by the double-digit declines in our luxury and e-commerce holdings, and Communication Services and Health Care cost us another 110bps. We also lost 82bps in Industrials, driven by our aerospace and defense compounders (HEICO and TransDigm), and our Swedish serial acquirers (namely Lifco and Indutrade). We don’t expect these to result in a permanent loss of capital. Lastly, having no investments in Energy (+33.6%), Utilities (+8.4%), and Materials (+6.6%), the three best sectors in the Index, cost us 185bps.

From a stock specific perspective, 10 contributors against 31 detractors was not surprising in a down 7% quarter. Our biggest contributor was the Polish logistics company, InPost, which received an acquisition offer, driving the stock up 47.5%, contributing 76bps to absolute results. Three additional stocks contributed at least 50bps each: TSMC, ASML, and Ajinomoto – all benefiting from the AI buildout. On the negative side, six stocks detracted more than 50bps due to broader AI and macro concerns causing a sell-off in growth stocks. We do not believe it is a permanent loss of capital.

“AI has moved from being a novelty to becoming something that is really useful! Inferencing is exploding and we are standing smack in the middle of this tornado.” 
– Andrew Feldman, CEO of Cerebras⁴

One of the main investor concerns over the last six months has been that the mammoth increases in capex and capacity buildouts were not accompanied by the clear evidence of revenue generation. This is no longer the case. The most significant development in the quarter, in our opinion, was the dramatic acceleration in AI adoption and usage. Witness the curious case of Anthropic, the maker of Claude Code and Claude Cowork, which reported annualized recurring revenues (ARR) of $9 billion at the end of 2025, projecting to reach $30 billion in ARR exiting 2026. The company then proceeded to add $4 billion in ARR in January, $6 billion in February, and a mind-boggling $11 billion in five weeks through the first week of April⁵ , surpassing the $30 billion target for 2026. Anthropic added over $21 billion in net new ARR in just over one quarter. Think about that for a minute… Dario Amodei, the company’s CEO, disclosed that a majority of revenues is coming from enterprise customers with over 1,000 companies paying over $1 million in ARR. These are the most coveted customers in the world that every business dreams of getting. When will AI revenue finally show up? Well… it just did! While clearly the most impressive, Anthropic is not alone. OpenAI’s ARR surpassed $25 billion⁶ from $20 billion at the end of 2025. As of the writing of this letter, hyperscalers have not reported first quarter results, but we did get a glimpse from Amazon’s CEO, Andy Jassy, who released his 2025 Letter to Shareholders on April 9⁷ . Amazon AI is now at a $15 billion revenue run rate (260 times larger than original Amazon Web Services (AWS) at the same point), their custom chips business (Graviton, Trainium, and Nitro) is now at a $20 billion ARR, growing triple-digit percentages year-over-year. And that number is understated since they are also using the chips internally. If it was a standalone business selling to third parties, ARR would be $50 billion. AWS continues to be capacity constrained – growth would be higher if they could serve it. At 6.0% of net assets, Amazon is the Fund’s third largest holding. It was our largest addition during the quarter.
 

Culture, Structural Moats, Adaptability to Change & What’s Not Going to Change
 

“I very frequently get the question: 'What's going to change in the next 10 years?' And that is a very interesting question; it's a very common one. I almost never get the question: 'What's not going to change in the next 10 years?' And I submit to you that that second question is actually the more important of the two -- because you can build a business strategy around the things that are stable in time.” 
– Jeff Bezos⁸

We have often used this quote when analyzing the companies we invest in. What attributes of successful businesses will not change in the world of AI?

• Solving real problems for customers.
• Doing it in a way that is unique – with competitive advantages that are durable.
• Being adaptable to change.
• Management that thinks and acts like owners of the business, optimizing for the long term.
• Management that is willing to make big bets when inflection points (a disruption) become clear.

Here too, Amazon’s shareholder letter is instructive. Jassy begins with what won't change: "We believe that customers will always care deeply about massive selection, low prices, very fast delivery, ease of use, and how they're treated." Many of our businesses solve problems for customers that are not going away in the world of AI – planes would still require maintenance and spare parts (TransDigm and HEICO), the number of people over 80 in the U.S. will still grow dramatically due to demographics (Welltower) and the growing number of retirees will need investment solutions (LPL, Brookfield, and KKR), the growing amount of capital invested in AI will require grid modernization (Quanta Services), and the debt to finance it would be rated by S&P Global.

Jassy then describes what adaptable culture looks like in practice – when Amazon's Bedrock team realized it needed an entirely new inference engine, rather than patching the existing one, it spun out a group of six engineers who rebuilt the architecture from scratch in 76 days. The result – an engine called Mantle – became the backbone of Bedrock, which nearly doubled month-over-month in March and processed more tokens in Q1 2026 than in all prior years combined. We see the same willingness to go back to the drawing board at Meta, where Founder and CEO, Mark Zuckerberg last summer recruited Scale AI founder Alexandr Wang to rebuild Meta's AI program from the ground up, restructured the entire organization around a new Meta Compute initiative, and is now flattening teams as AI makes it possible for "projects that used to require big teams" to be "accomplished by a single, very talented person"⁹. Output per engineer at Meta rose 30% in 2025, with power users up 80%. On April 8, Meta released its new AI model, “Muse Spark”¹⁰ that seems to have taken a massive step forward in capabilities.

Many successful long-term compounders have management that thinks and acts like long-term owners. Jensen Huang has led NVIDIA for 33 years since founding it in a Denny's in 1993. Mark Zuckerberg has run Meta since founding it at age 19. As Jeff Bezos wrote in his original 1997 shareholder letter – which Amazon still appends to every annual report as a statement of enduring values – "We will continue to focus on hiring and retaining versatile and talented employees... each of whom must think like, and therefore must actually be, an owner."

And when the inflection is big enough, Jassy argues, you must bet disproportionately. Amazon guided 2026 capex to $200 billion. "If you believe you've found one of these disproportionate shifts, you want to invest as aggressively as you responsibly can. This will create investment spikes that will invite scrutiny, but the game-changers don't typically accommodate smoother investment horizons… Inflections aren't usually smooth or calm. They favor the bold and adaptable."  This is exactly what Alphabet did with its custom AI accelerators, the TPUs, early version of which was unveiled in 2016, long before the ChatGPT moment, or when it started the autonomous driving project in 2009. Just like Amazon’s chips above, Alphabet’s TPUs are a huge driver of Google Cloud Platform’s growth and Waymo was recently valued at $126 billion.

What does AI mean for the durability of competitive moats?

Does AI accelerate disruptive change? Yes. Does it reduce barriers to entry? Yes. Does it make it easier to copy features and functionality from competitors? Yes. Does it mean that competitive advantages are no longer sustainable? Not in our view. Instead, we would argue that AI changes the nature of competition, increasing the importance of structural competitive moats while reducing the durability of simple, product/feature/workflow-based moats. Some of the structural competitive moats that in our view remain durable include the following:

• Platform businesses with network effects – Amazon is the poster child for network effects where a high number of loyal consumers (repeat buyers) attracts the highest numbers of merchants who offer the widest variety of products at very competitive prices, which attracts more loyal consumers and so on. Meta offers over 3.5 billion active users with consistently high engagement and some of the best returns on ads spent, that made it indispensable to advertisers. Visa operates the world’s largest payments network connecting tens of millions of merchants globally with billions of consumers. CME Group is the world's largest derivatives exchange, and the more traders it has, the better its liquidity, which benefits traders, attracting more of them to the platform. Nu (131 million customers) runs a data flywheel where the more users it has, the better its credit models become, enabling lower defaults, cheaper credit, and yet more users.
• Proprietary data – In the age of AI, continuously generated proprietary data that enables ongoing product improvement is an important moat. It cannot be replicated from public sources by foundation models. S&P Global generates over 95% of its revenue from proprietary benchmarks, differentiated data, and critical workflow tools. Similarly, MSCI has vast amounts of proprietary data and analytics, and nearly everything MSCI sells to customers is proprietary in nature. For both companies, the index business is further insulated by its benchmark status – serving as a trusted common language for industry participants. CME Group generates proprietary data from every trade executed on its platform - derivatives pricing, volume, and open interest across interest rates, equities, energy, and agriculture. This data is indispensable for risk management and is licensed to financial institutions globally.
• Economies of scale – MercadoLibre is a great example of how scale creates a self-reinforcing cycle. Greater volume drives lower shipping costs per package, enabling the company to reduce its free shipping threshold, which drives higher purchase frequency, expands the addressable market to lower-cost everyday items, and attracts more buyers and sellers, which further improves logistics density, reducing unit shipping costs and so on. In the Summer of 2025, MercadoLibre lowered its free shipping threshold in Brazil and the results were striking: items sold accelerated from 26% growth in Q2 to 42% in Q3 and 45% in Q4. Unique buyers crossed 80 million for the first time, and the company achieved record market share gains in both Brazil and Mexico. Similarly, Coupang’s scale in South Korea, and Amazon’s scale in the U.S. (and other international markets in which it is a leader) similarly provides the density needed to have fast delivery at low-per-unit shipping costs that are hard for competitors to replicate.
• Physical and time-based moats – TSMC manufactures approximately 90% of the world’s leading-edge semiconductors. Cutting-edge fabs cost over $20 billion and take years to build, but the real barrier is yield – the percentage of functional chips per wafer. TSMC has spent decades perfecting yields at each successive process node through continued manufacturing iterations, accumulating institutional knowledge that is proprietary and can NOT be replicated by AI models. Acceptable (i.e. high) yield is becoming increasingly more important and harder to achieve as chip complexity and prices increase over time. While Samsung and Intel also spend large amounts of capital building advanced fabs, they serve a fraction of TSMC’s customer base, which means they cannot amortize fixed costs as efficiently and cannot accumulate yield-learning data as quickly. This creates a self-reinforcing cycle: higher yields attract more customers for TSMC, which enables it to earn higher cross-cycle returns on its investment, which funds more R&D, which enables TSMC to reach the next node quicker and with higher yields than competitors, which widens the lead further. ASML is the sole manufacturer of extreme ultraviolet (EUV) lithography machines, the equipment required to “print” transistors at the most advanced nodes. There is no alternative supplier. Each machine costs approximately $350 million, takes over a year to build, is extremely complex (it took ASML over 20 years to develop), and combines cutting edge technologies from a whole ecosystem of global supply chain from Cymer’s lasers that shoot laser pulses at a rate of 50,000 times per second at liquid tin droplets, to Zeiss’ optics with mirrors that boast sub-atomic level smoothness. Hermes has spent nearly two centuries building the most exclusive luxury brand in the world. Its scarcity, vertical integration, artisan-based production, heritage, craftsmanship, and generational brand loyalty cannot be replicated by AI.
• Regulatory moats and switching costs – rising chip complexity increases the switching costs for customers of TSMC such as Apple, NVIDIA, Advanced Micro Devices (AMD), and Broadcom, as changing suppliers would take years, add major costs, and risk product delays (which could in turn negatively impact their competitive positioning). HEICO and TransDigm sell after-market aerospace parts that are critical to their customers even though they represent a small fraction of the overall cost. Additionally, they undergo a rigorous approval process by regulators – this drives pricing power and high switching costs. Eli Lilly holds FDA approvals for GLP-1 drugs (injectables and oral) with patents, clinical data, and physician trust that cannot be replicated by an AI algorithm.

We analyzed the current valuation multiples for our companies and compared them to the average valuation multiples over the last five years.¹¹ The weighted average multiple for the portfolio at the end of the quarter was 15.5% below its average over the last five years. We believe that the current geopolitical tension, combined with apprehension and uncertainty created by AI disruption have created an attractive buying opportunity for long-term investors. BCGD’s 7.3% correction (on NAV) experienced in the first quarter was driven entirely by multiple contraction (which declined by 10.5%), which bodes well for the Fund’s prospective returns.

InPost S.A. is Poland’s leading logistics operator with an expanding pan-European footprint. Shares rose 47.5% after the company announced it had received an indicative acquisition proposal in early January, a recommended all-cash offer of €15.60 per share from a consortium comprising Advent International, FedEx, A&R Capital, and PPF Group, representing a 50% premium to the undisturbed share price. We have long believed that InPost’s logistics infrastructure, dominant Polish franchise (generating nearly 50% EBITDA margins), and rapidly scaling international operations across Europe together represent a compelling and underappreciated asset. We sold our position as the stock approached the offer price.

Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (TSMC) shares rose 11.4% during the first quarter, as revenue growth of 20.5% (25.5% in USD) exceeded expectations due to surging demand for AI chips. TSMC dominates the advanced semiconductor foundry market, controlling over 90% share of cutting-edge sub-7 nanometer (nm) nodes that power AI servers, flagship smartphones, and autonomous vehicles. The company benefits from a virtuous cycle in which its massive scale and profitability generate the capital necessary to fund industry-leading R&D and capex, in turn widening its technological moat and reinforcing its pricing power. As the ultimate picks-and-shovels provider of the AI era, TSMC remains insulated from the competitive dynamics of the AI chip design ecosystem. Whether hyperscalers develop custom accelerators or deploy merchant GPUs from companies like NVIDIA and AMD, nearly all advanced AI accelerators are manufactured exclusively at TSMC’s 3nm and 5nm nodes. We believe TSMC will deliver 20% earnings growth over the next several years, supported by secular AI-driven demand for leading-edge manufacturing capacity.

Shares of semiconductor equipment company ASML Holding N.V. increased 22.3% in the first quarter due to robust demand for its lithography systems amid a strong AI-driven semiconductor capex cycle. ASML holds a monopoly on extreme ultraviolet (EUV) lithography, the indispensable technology required to manufacture the world's most advanced chips at 7nm and below. Without EUV, chipmakers cannot economically achieve the transistor densities needed to power AI accelerators, flagship smartphones, and autonomous vehicles. As leading chipmakers including TSMC, Samsung, and Micron race to expand advanced manufacturing capacity to meet surging AI demand, ASML sits at the center of the global semiconductor ecosystem as an indispensable enabler. Moreover, we expect a strong product cycle over the next five years as High-NA EUV – the next-generation platform delivering superior resolution and continued transistor scaling – enters high-volume manufacturing. We also project significant gross margin expansion, driven by ASML's pricing power and increasing scale, supporting strong double-digit earnings growth.

HDFC Bank Limited is one of India’s largest and most recognized private sector banks, offering a broad range of financial services to retail and commercial clients. Shares fell 31.3% during the quarter due to both company-specific and macroeconomic concerns. The unexpected resignation of HDFC Bank’s chairman created a governance overhang as investors sought clarity on his departure. Subsequent communication from the board and management helped restore confidence by emphasizing that there were no underlying wrongdoing issues and that governance standards remain strong. On the macro side, given India’s heavy reliance on imported energy, higher crude prices have raised inflation expectations, widened the current account deficit, and increased the likelihood of tighter monetary policy, all of which have dampened loan growth and credit outlooks across the banking system. Despite these near-term headwinds, HDFC Bank remains a compelling long-term investment, supported by its best-in-class underwriting, strong liability franchise, and long runway for growth in an underpenetrated banking market, positioning it well to compound earnings as liquidity conditions normalize and macro pressures ease.

Shares of global payment network Visa Inc. declined 13.3% due to investor concerns about adverse regulatory changes and broader economic uncertainty. Shares fell in January after President Trump showed support for a proposed 10% cap on credit card interest rates and for a payment routing bill that that could reduce Visa’s market share. The stock was further pressured by geopolitical tensions related to the war in Iran, higher energy prices, and persistent inflation. Even so, Visa reported solid quarterly financial results that exceeded Street expectations, delivering 15% growth in both revenue and earnings, with management reaffirming annual guidance projecting continued double-digit growth. We believe near-term concerns are overblown and continue to own the stock given Visa’s long runway for growth and significant competitive advantages.

Shares of iconic luxury company Hermes International S.A. declined 25.9% during the quarter due to a combination of sector-wide derating, macroeconomic uncertainty, and rising geopolitical risks, which weighed on sentiment despite the strength of the business. The escalation of the Iran conflict introduced uncertainty around demand from Middle Eastern clients, an important and fast-growing cohort of ultra-high-net-worth luxury consumers. More broadly, demand for ultra-premium luxury is showing signs of moderation as even wealthy consumers become more cautious amid softer equity and property markets. With Hermès trading at a significant valuation premium, these concerns pressured the stock despite fundamentals remaining largely intact. That said, we believe Hermes should remain less susceptible to economic cycles over time given its unique demand-supply dynamics, where tightly controlled production, long waiting lists, and a deeply loyal client base structurally support pricing power and resilience even in weaker economic conditions.

The Fund is constructed on a bottom-up basis with the quality of ideas and level of conviction playing the most significant role in determining the size of each investment. Sector weights tend to be an outcome of the portfolio construction process and are not meant to indicate a positive or a negative view.

As of March 31, 2026, the top 10 holdings represented 47.4% of the Fund, and the top 20 represented 72.1%. We exited the quarter with 40 investments, up from 37 as of the end of 2025.

Financials and IT represented 49.5% of the Fund, while Communication Services, Consumer Discretionary, Health Care, Industrials, and Real Estate represented another 47.6%, with the remaining 2.9% held in Consumer Staples (Ajinomoto) and cash.

During the first quarter, we initiated four new positions: the electrical, and fiber optic equipment provider, Amphenol, the drug packaging provider, Stevanato Group, the specialty contracting provider, Quanta Services, and the gaming and e-commerce advertising platform, AppLovin. We added to our other 36 names as we put inflows to work and sold InPost.

This quarter, we initiated a position in Amphenol Corporation, a leading provider of high-technology interconnect, sensor, and antenna solutions. Amphenol operates in seven end markets: Industrial, Automotive, Mobile Devices, IT Datacom, Communications Networks, Defense, and Commercial Aerospace. The company’s mission-critical products are used in electrical systems to move data and transmit signals. As the world electrifies and more systems move from analog to digital, Amphenol’s content opportunity grows.

The hallmark of the company is its unique, decentralized “Amphenolian” culture in which over 140 general managers each have autonomy over their individual business units. This leads to a highly agile organization that can quickly respond to market trends (speaking of adaptability to change) with best-in-class products and deliver them on a global scale. This culture has enabled the company to compound growth in revenue and cash flow over many years through both above-market organic growth and a long history of successful M&A.

Recently, Amphenol’s growth algorithm has accelerated thanks to its IT Datacom segment (now roughly 40% of sales), which sells connectors and cables to AI servers, having grown from less than $3 billion annual run rate to $10 billion run rate. The stock sold off recently due to concerns around AI racks moving from copper to optical networking and the company’s strong products in copper. We believe the market underestimates Amphenol’s ability to innovate and adapt both organically and through acquisitions. Additionally, while we expect IT Datacom to continue leading growth, other end markets have grown steadily (about 10% organic growth in 2025 despite a weak global industrial spend environment), once again reflecting Amphenol’s unique franchises. Through a combination of organic growth, continued margin expansion, and accretive M&A, we believe the company has a long runway for growth.

We also bought Stevanato Group S.p.A., which sells glass vials, cartridges, and syringes for injectable drugs. The industry is benefiting from a growing number of high value injectable biologic drugs targeting chronic conditions such as metabolic diseases, autoimmune disorders, and oncology. Stevanato is one of four leading global companies in this industry, which is protected by significant barriers to entry including massive capital requirements and long-standing reputation for uncompromising quality and reliable supply, along with high switching costs, with products representing only a fraction of the drug’s price while quality is paramount. They are also included in drug regulatory filings. Among its peers, we think Stevanato is the best positioned to benefit from a product mix shift towards higher value, higher priced, higher margin products such as EZ-Fill, their ready-to-fill platform that delivers pre-washed, pre-sterilized, and depyrogenated packaging directly to biopharma companies.

CEO Franco Stevanato said¹²: "Innovation across the industry continues to advance patient care, and we remain mission critical to the delivery of biologics, supporting new therapeutic areas, expanding global access to treatments, and improving standards of care. Demand for innovative drug products remains strong. There are more than 9,000 injectable assets in the global drug pipeline undergoing clinical evaluation or being registered, and more than 60% are biologics. We believe we are well positioned to serve this demand through our integrated value proposition, differentiated portfolio, and long-standing commitment to science and technology-driven innovation."

Although not the primary growth driver, Stevanato benefits from the sale of cartridges and syringes used in injectable GLP-1s. Shares have underperformed recently as investors fear the emergence of oral GLP-1s will cannibalize injectables. However, we think oral GLP1s will expand the market, as injectables maintain superior efficacy. We think this is an attractive entry point to establish a position in this stable growth business with top line growth of high single to low double digits and additional upside to EBITDA margins over time.

We also initiated a position in Quanta Services, Inc., the leading energy-focused specialty contracting company. Quanta provides engineering, procurement, construction, and maintenance services for electric and gas utilities, renewable energy, telecom, and other infrastructure. The company has compounded revenues and EPS at 14% and 18% CAGRs, respectively, over the last 15 years. What makes this even more impressive is that Quanta achieved those results in a relatively flat electric load environment, driven by material market share gains rather than industry tailwinds.

Going forward, we believe Quanta will increasingly benefit from secular growth in energy-related infrastructure. While AI data centers and the resulting increase in electricity demand are a material part of the story, additional tailwinds include grid modernization and resilience investments, electrification, industrial reshoring, and communications infrastructure buildout. Management believes 15%-plus EPS growth per annum through at least 2029 is achievable, and we believe it can sustain beyond that time frame.

Quanta’s competitive differentiation is grounded in its self-perform model: it handles design, procurement, construction, and maintenance in-house, minimizing risk and providing greater certainty on complex, multi-year projects, meeting planned budget and schedules significantly more often than peers. This model only works with the right workforce, and Quanta’s 68,000 craft-skilled workers represent twice its nearest competitor. This labor force, built over decades through sustained investment in training and apprenticeship programs, is the binding constraint on energy infrastructure buildout and is effectively irreplicable.

Lastly, we bought AppLovin Corporation, a performance-driven advertising technology company dominant in mobile gaming. The company benefits from a self-reinforcing flywheel rooted in its majority share of mobile gaming ad supply, which gives it a unique view of the ad conversion funnel. This proprietary data has informed its Axon machine-learning algorithm, which helps mobile game developers acquire users at a highly attractive return on investment (ROI); Axon’s effectiveness has led to AppLovin now commanding over half of the demand side as well. For a mobile game developer looking to acquire users or monetize their game through ads, we think AppLovin is the best place to do both.

We have strong conviction in the durability of growth across both core and new businesses. Within mobile gaming, the Axon algorithm currently converts only around 1% of impressions – meaning continued algorithmic improvements, which have compounded rapidly in recent years, have significant runway to drive conversion higher. Beyond gaming, AppLovin’s proprietary conversion data and transferability of the Axon algorithm have given the company a differentiated starting position in e-commerce as well. Early results for e-commerce advertisers show competitive ROI, leading to a billion dollar revenue run rate in less than 18 months. We believe that e-commerce advertising could potentially become as large as gaming in the future, as the e-commerce market is multiples larger than gaming. Longer term, we see additional optionality in markets such as Connected TV, where AppLovin's performance-driven approach could be meaningfully differentiated.

Finally, AppLovin is operationally excellent with a visionary founder CEO at its helm. The company generates greater than 80% adjusted EBITDA margins, which are unprecedented at this scale in the industry, and its performance-based model allows costs to scale predictably against revenue. Taken together, AppLovin's durable competitive moats, long runway for demand expansion, and highly profitable business model make it an attractive long-term investment.

"Superior outcomes are rarely the result of doing the same things incrementally better; rather, they come from doing completely different things. The light bulb did not emerge from the continuous improvement of candles." 
– Welltower CEO, Shankh Mitra, 2025 shareholder letter¹³

Doing the same things incrementally better is not enough when the pace of disruption keeps accelerating as in the world of AI. To outperform over the long term, a business must do things differently. We constantly ask our companies – what makes you unique? Why can’t others copy what you do? Long-term investing is all about finding competitive moats that will endure the test of time.

To get a glimpse into prospective returns, we analyzed the change in its weighted average multiple and in consensus expectations for 2026 (for revenues and operating income). While the weighted average multiple for the Fund contracted 10.5% during the first quarter¹⁴ (driving over 100% of the Fund’s decline), fundamentals are improving, making the stocks more attractive. Weighted average revenue expectations for the Fund for 2026 increased by 3.5% and operating income expectations increased by 2.7%, with an increase in revenue expectations across all invested sectors and an increase in operating income across all but Consumer Discretionary and Financials.

Our goal is to invest in companies with strong and durable competitive advantages, proven track records of successful capital allocation, high returns on invested capital, and high free cash flow generation. It is our belief that investing in great businesses at attractive valuations will enable us to earn excess risk-adjusted returns for our shareholders over the long term. We are optimistic about the prospects of the companies in which we are invested and continue to search for new ideas and investment opportunities.

We thank you for your trust and for being our partners on this journey.

Sincerely,