Baron International Growth Fund | Q1 2026

Baron International Growth Fund® (the Fund) declined 1.03% (Institutional Shares) during the first quarter of 2026, while its primary benchmark, the MSCI ACWI ex USA Index (the Benchmark), retreated 0.71%. The MSCI ACWI ex USA IMI Growth Index (the Proxy Benchmark) declined by a more significant 3.24% for the quarter. The Fund modestly trailed the Benchmark while handily outperforming the Proxy Benchmark during a quarter marked by substantial volatility. We were comfortable with our final result, particularly in light of the ongoing challenging period for particular growth sub-sectors such as software, e-commerce, and other digital/online and data-driven businesses, though the unwelcome and abrupt March correction in equities in general reversed what had been a very promising quarter through February.

As noted, for the first two months of the quarter international and emerging market (EM) equities extended prior year outperformance while logging solid, double-digit returns, in our view largely on the strength of AI-related technology names as well as broad-based strength in industrials/defense and commodities. While the war in Iran triggered a steep rise in oil prices and an inflection point in global equities, international equities still comfortably outperformed the S&P 500 Index (down 4.33%) for the quarter, and we maintain our optimism regarding the outlook for both relative forward earnings and performance for the asset class. For international equity investors, the principal near-term risk is an extended disruption to oil flows and a further spike in energy prices, as much of Asia is reliant on Middle East imports, and many European nations are reliant on imports. As of now, we are not materially adding to nor reducing investments in such jurisdictions as we calibrate the likely path forward, though we maintain confidence that the longer-term fundamentals for the companies in which we are invested are quite sound, which allows us to maintain conviction in periods of heightened volatility and short-term earnings risk. We remain quite encouraged by the strong absolute performance of the Fund over the past year and the solid outperformance of EM equities in general, and remain optimistic that our fundamental, theme-driven and bottom-up approach can continue to deliver solid results in the ever-evolving technological and geopolitical environment.

In the first quarter of 2026, we modestly underperformed the Benchmark, while outperforming our all-cap international growth Proxy Benchmark. From a sector or theme perspective, poor stock selection effect in the Health Care and Communication Services sectors was the largest detractor to relative performance during the quarter. Within Health Care, select holdings in our biotechnology/ diagnostics (argenx SE and Stevanato Group S.p.A.) theme along with exposure to Agilent Technologies, Inc. and EssilorLuxottica SA weighed on relative results as these positions suffered declines during the period. Weak stock selection effect in Communication Services was primarily driven by some of our digitization-related investments (Universal Music Group N.V., Bharti Airtel Limited, and Tencent Music Entertainment Group). Lastly, our underweight positioning in the Energy sector, during a period of rising oil/energy prices in the aftermath of the Middle East conflict, was also a notable detractor. Mostly offsetting the above was strong stock selection in the Materials sector, driven by a handful of positions across multiple themes (Lynas Rare Earths Limited, Lundin Mining Corporation, Linde plc, and AMG Critical Materials N.V.). Finally, positive stock selection effect in the Information Technology and Financials sectors also supported relative results.

From a country perspective, adverse stock selection effect in the Netherlands, Israel, and China was the largest detractor from relative performance during the quarter. In addition, our overweight positioning in India also weighed on relative results. Partially offsetting the above was favorable stock selection effect in Japan, France, Taiwan, Australia, and Poland. We are encouraged by the resilience and outperformance of our investments in Taiwan, Korea, and Japan that are key beneficiaries of increasing global AI application development and capex. While markets have questioned the likely return on capital for such investments by the U.S. hyperscalers, supply constraints in critical AI infrastructure such as memory and other bottleneck technologies are likely to continue to benefit the most strategically positioned and important companies. Despite the recent underperformance, we remain excited about India’s structural growth story, while in the nearer term, a rebound in government infrastructure spending, targeted tax relief for the middle class, and more recently the announcement of the U.S.-India trade deal is in our view supportive of an earnings upgrade cycle.

Lynas Rare Earths Limited is an integrated rare earths producer based in Australia. Lynas' Mt Weld mine contains one of the highest-grade and largest rare earth deposits globally. Shares rose significantly during the quarter as benchmark prices for the company’s rare earth products rallied sharply. Lynas also signed a long-term offtake agreement that includes a price floor mechanism set at an attractive level, in our view, underscoring the critical value of its products. We remain constructive on Lynas’ outlook as the leading commercial-scale producer of refined rare earths outside China. The company is expanding its downstream processing facility in Malaysia and advancing production assets in Australia, supporting an attractive long-term production growth profile.

TotalEnergies SE is an integrated oil company with operations spanning exploration and production, liquefied natural gas, refining and chemicals, power, and marketing. Shares increased significantly in the first quarter as spot and forward prices across its primary commodities rose, particularly following the start of the Middle East conflict. After the effective closure of the Strait of Hormuz, several hydrocarbon suppliers were forced to declare force majeure and limit customer deliveries, while TotalEnergies was able to maintain its commitments, underscoring the resilience of its diversified portfolio. We remain constructive on TotalEnergies’ outlook, supported by strong production growth and peer-leading reserve lives. We find this combination particularly attractive in the context of plateauing U.S. shale production growth and a re-emerging supply-risk premium in energy commodities.

Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (TSMC) contributed to performance as revenue growth 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 graphics processing units from companies like NVIDIA and Advanced Micro Devices, 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.

ODDITY Tech Ltd. is a consumer tech platform transforming the beauty and wellness market. Shares fell after a recent Meta algorithm update proved incompatible with the company’s “Try Before You Buy” model, steering ads toward low-intent audiences. Because the model’s higher return rates skewed the algorithm, customer acquisition costs rose from $60 to $75 to over $100 to $150. Management spent several weeks diagnosing the problem before concluding it stemmed from the auction layer rather than the creative content fed into the algorithm. By the time the cause was identified in late January, ODDITY had already entered its peak first-quarter acquisition window with unit economics that made new customer acquisition unprofitable. As a result, the company pulled back on growth marketing. With no firm timeline for resolving the algorithm issue, we reduced our position, though ODDITY remains inexpensive on normalized earnings and METHODIQ (its new teledermatology platform) continues to track well. We continue to own the company given its long-term growth opportunity in a large, underpenetrated e-commerce category.

Deutsche Bank AG, a leading global bank headquartered in Frankfurt, detracted from performance during the quarter due to a combination of company-specific concerns and a more challenging macroeconomic backdrop for European banks. The stock was pressured by scrutiny around the bank’s exposure to private credit markets and expectations for softer near-term trading revenues, while broader sector weakness reflected new inflation pressures and geopolitical tensions stemming from the war in the Middle East. Slowing economic momentum in Germany and parts of Europe raised concerns about more subdued loan growth, tighter financial conditions, and the potential for a gradual normalization in credit costs as higher interest rates filter through to borrowers. Despite these near-term headwinds, Deutsche Bank remains an attractive investment in our view given its improved capital position, ongoing cost discipline, and leverage to structurally higher interest rates. The company is also well placed to benefit from Germany’s fiscal expansion plans, which should support domestic investment activity and credit demand.

Universal Music Group N.V. is the world's leading music company. Shares fell as AI-related concerns persisted, though we view them as overstated. Management provided concrete data showing that AI-generated content is not cannibalizing streams, and the Udio licensing deal positions Universal Music Group as a direct economic participant in the AI music ecosystem. In addition to addressing these concerns, the company delivered solid fundamental execution. 2025 revenue grew 9% in constant currency, EBITDA grew 9%, and discretionary free cash flow grew 8%, marking the sixth consecutive quarter of subscription growth above 8%, even before the benefits of the new Streaming 2.0 pricing model have fully taken effect. The associated agreements include 4% to 5% annual per-subscriber pricing step-ups that are expected to begin contributing meaningfully in 2026. The stock's multiple has de-rated from over 25 times EBITDA at IPO to under 12 times—a level at which catalogue value alone arguably exceeds the current market cap. We continue to hold and are monitoring whether 2026 subscription growth rises above 10% as Streaming 2.0 pricing kicks in, a clear near-term validation of our thesis.

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

The table above does not include the Fund’s exposure to Russia (less than 0.1%) because the country falls outside of MSCI’s developed/emerging/frontier framework.

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

During the first quarter, we added several new investments to existing themes and increased our weighting in certain positions established in prior periods. We endeavor to increase concentration in our highest conviction ideas.

We were active in adding to our global security theme by initiating positions in The Japan Steel Works, Ltd. (JSW), Cummins India Limited, and Power Grid Corporation of India Limited (PGCIL). JSW is a diversified industrial equipment manufacturer. The company's Materials & Engineering (M&E) segment is a market leader in specialty steel components with end use in power generation facilities. Owing to rising global electricity demand, downstream manufacturers of large gas turbines have seen significant order backlog expansion. We view the M&E segment as a key beneficiary as these companies are now meaningfully expanding capacity to address growing demand visibility. The segment is also a critical supplier in the construction of nuclear power plants where we see unprecedented U.S. investment in nuclear energy as a secular growth driver. In addition, the company's Industrial Machinery Products segment has a broader set of end markets, and we are constructive on the diversified growth opportunities for these businesses as well. For the Defense Equipment division, we see an expanding defense budget in Japan and potential export opportunities driving top-line growth. In the Plastics Machinery Business, we see both top-line and margin upside from expanding aftermarket services for its Plastics Processing equipment, and a potential refresh cycle for the battery separator equipment it supplies. We expect the company to grow earnings at a compound rate of over 20% for the next three to five years.

Cummins India, a subsidiary of U.S. based Cummins Inc., is a leading power generation engine manufacturer in India. The company is a dominant player in power generators, with approximately 60% market share in the highly profitable high horsepower range. The company also has a distribution and aftermarket vertical along with an export division that caters to regions including North America, Europe, the Middle East, and Africa. In our view, the company’s key competitive advantages include best-in-class technology and product quality, wide product range across categories, high penetration with channel partners, and leading aftermarket services. We believe Cummins India is well positioned to benefit from rising demand for backup power supply in India, driven by higher capital expenditure by the government and private enterprises in segments such as infrastructure, real estate, and manufacturing. In addition, the company’s dominance in the high horsepower range favorably positions it in new growth verticals such as data centers. India’s current data center capacity at approximately 1.5GW is expected to scale to over 8GW over the next five to seven years, creating significant growth potential for the market leader. We expect Cummins India to generate at least mid-teens earnings growth over the next three to five years.

PGCIL is a leading energy distribution company in India, controlling approximately 85% of the country’s interstate power transmission capacity. Being majority owned by the Government of India, the company is deemed a sovereign entity, which serves as a competitive moat from a cost and access to capital perspective. In our view, given India’s robust economic growth and accelerating industrial capacity expansion, significant investment in power generation and transmission infrastructure will be required, creating a multi-year growth opportunity for PGCIL. Additionally, as India targets to double electricity generation capacity through non-fossil fuel sources by 2030, PGCIL will be a key enabler of the country’s power transition toward renewable energy. We expect the company to deliver low to mid-teens total shareholder returns over the next three to five years alongside an attractive dividend yield.

During the quarter, we also increased exposure to our semiconductors/AI theme by initiating a position in HPSP Co., Ltd., a South Korean semiconductor equipment company and the world's sole supplier of high-pressure hydrogen annealing tools — mission-critical equipment used in the manufacturing of leading-edge logic, DRAM, and NAND chips. HPSP's monopoly position is the product of two decades of highly specialized R&D, an extensive patent portfolio, and deep process integration with every major chipmaker in the world. According to the company, as transistors have shrunk to just a few nanometers, the insulating layers within them have become so thin that even microscopic structural defects cause electrical leakage, degrading chip performance and power efficiency. The legacy solution to curing these defects — blasting wafers with extreme heat — worked for older chip generations, but today's most advanced transistors contain metal components so delicate that conventional thermal annealing would destroy them. HPSP's approach uses highly concentrated hydrogen gas at elevated pressure and far lower temperatures, delivering superior defect repair without damaging surrounding structures. The result is a tool that solves a problem its competitors cannot — and as the sole supplier of indispensable equipment, HPSP commands margins among the highest of any semiconductor company in the world. We believe HPSP is at the beginning of a significant multi-year revenue inflection, driven by a combination of surging AI-driven demand for leading-edge chips and the broadening adoption of high-pressure hydrogen annealing across chip types.

In logic, penetration is deepening as chipmakers migrate to gate-all-around transistor architectures, which demand greater annealing intensity. In DRAM, adoption is accelerating as the industry transitions to smaller node sizes where legacy annealing tools can no longer be used. In NAND, penetration is increasing as additional customers qualify the technology. Looking further out, HPSP is applying its core annealing technology to advanced packaging — particularly hybrid bonding, where chips are fused face-to-face, demanding the atomically clean, defect-free surfaces that hydrogen annealing is well-suited to deliver. Separately, the company is leveraging its proprietary high-pressure platform to expand into oxidation, a novel process step that could open a substantial incremental market. We expect HPSP to compound earnings growth at over 20% over the next three to five years.

Lastly, we increased our exposure to several existing positions during the quarter, including XP Inc., Samsung Electronics Co., Ltd., Mitsui Fudosan Co., Ltd., BAE Systems plc, SMS Co., Ltd., and Universal Music Group N.V. We exited a few positions during the quarter consistent with our efforts to seek greater concentration in our higher conviction investments. Disposals included Compagnie Financiere Richemont SA, Coupang, Inc., Novo Nordisk A/S, Jio Financial Services Limited, Tencent Music Entertainment Group, Wix.com Ltd., Recruit Holdings Co., Ltd., and Pernod Ricard SA.

The first quarter of 2026 began on solid ground, with international equities impressively extending prior year outperformance while logging solid, double-digit returns through the end of February, in our view largely on the strength of advanced semiconductor and other AI-related technology names as well as broad-based strength in industrials and commodities. Then, on Saturday, February 28, the U.S. and Israel launched an initiative in Iran that was soon termed a war, triggering an inflection point in global equities and a leadership reversal. Oil and the U.S. dollar rallied and international equities trailed the S&P 500 Index into quarter end, closing the full quarter down modestly. By the end of the quarter, only technology and energy-related stocks held on to material gains. Notwithstanding this turn of events, international equities still comfortably outperformed the S&P 500 Index for the quarter, and we maintain our optimism regarding the outlook for both relative forward earnings and performance for the asset class.

Regarding the Iran war, we note that while volatility has spiked in the short term, longer-dated oil prices and inflation expectations remain fairly contained – suggesting that markets currently anticipate a de-escalation in the relatively near term. We would agree that this is the most likely outcome given the considerable economic, financial, and political pressure that applies to all parties. For now, we are monitoring progress as the stakes are high and a wide range of outcomes remain possible. For international equity investors, the principal risk is an extended disruption to oil flows and a further spike in energy prices, as much of Asia, including Japan, Taiwan, Korea, China, and India, are reliant on Middle East oil imports, while most of Europe is also reliant on imports in general. As of now, we are not materially adding to nor reducing our investments in such jurisdictions as we calibrate the likely path forward, though we maintain confidence that the longer-term fundamentals for the companies in which we are invested are quite sound, which allows us to maintain conviction in periods of heightened volatility and short-term earnings risk. Further, while the war has triggered near-term disruption and risk to equity and credit markets, we believe there is a reasonable likelihood that on the other side is a significant improvement in Middle East stability, normalization of relations, and generally lower global risk premium given that the threat of Iran and its proxies is likely to be substantially diminished.

Perhaps most important, the war in Iran does not in our view impact either the long-term improvement in earnings growth potential across the international and EM landscape or the structural dollar weakness that we anticipate, both of which we often elaborate on. Both phenomena, which support international and EM equity outperformance, have been catalyzed by a geopolitics-first, national security driven environment that has marked the end of the age of globalization. We believe the Iran war does support our worldview of geopolitical priorities superseding economic and corporate optimization and triggering a global industrial renaissance – a principal catalyst for improving international earnings growth. As such, we see the recent retracement of international equities on both an absolute and relative basis as likely an attractive opportunity for investors who are underweight the asset class to begin to rebalance. We will of course monitor longer-dated oil prices and inflation expectations because economic growth would be at risk should oil as a share of global GDP sustain at above 7% (a historic level which precipitates demand destruction), though our base case remains that the stress of high oil prices is likely to be a short-lived phenomenon.

As mentioned, international returns were again buttressed during the quarter by positive fundamental developments in AI. What began as a training-led buildout is increasingly being validated by surging inferencing workloads and revenue, while the emergence of agentic AI and multi-modal applications has enhanced visibility of demand for compute capacity. Memory and leading-edge logic, the two most critical enabling technologies, are disproportionately supplied by international/EM companies, which is driving “ex-US share” of AI spend higher. While Taiwan Semiconductor Manufacturing Company Limited, SK hynix Inc., and Samsung Electronics Co., Ltd. have become household names, we have also invested in several niche companies with critical or enabling technologies that are beneficiaries of the tightness in both memory and leading-edge logic: Tokyo Electron Limited of Japan is among the world leaders in semiconductor production equipment and is particularly well positioned to benefit from significant capacity expansion required in the memory markets. Virtually every leading-edge logic chip — from CPUs to GPUs to AI ASICs — is packaged using Ajinomoto Co., Inc.’s build up film (ABF), a proprietary insulating material in which the company has maintained a near-monopoly for decades. Beyond surging AI chip volume, rising die sizes, more dense interconnects, and more build-up layers per package are driving ever higher ABF consumption. Leading-edge process complexity is driving adoption of HPSP Co., Ltd.'s high-pressure hydrogen annealing technology, while Park Systems Corporation’s atomic force microscopes are among the few tools capable of characterizing features at sub-nanometer tolerances. On the testing side, ISC Co., Ltd.'s test sockets benefit from surging GPU and AI ASIC shipments as well as rising pin count per chip. All five companies were solid contributors to performance in the recent quarter.

We look forward to our next communication and thank you for investing in the Baron International Growth Fund®.

Sincerely,