Baron International Growth Fund | Q2 2025

Dear Baron International Growth Fund Shareholder:

Baron International Growth Fund^® (the Fund) gained 16.91% (Institutional Shares) during the second quarter of 2025, while its primary benchmark, the MSCI ACWI ex USA Index (the Benchmark), appreciated 12.03%. The MSCI ACWI ex USA IMI Growth Index (the Proxy Benchmark) gained 14.41% for the quarter. The Fund solidly outperformed both the Benchmark and the Proxy Benchmark during a strong quarter for global equities marked by a tempering of the Trump Administration’s tariff aggression. We were pleased with our quarterly results and have now notably exceeded both the Benchmark and Proxy Benchmark on a one-year trailing basis.

In our view, the principal catalyst driving global capital markets during the past quarter was the deferral and perceived pivot the U.S. trade/tariff policy, combined with strong momentum towards Congressional passage of a comprehensive and pro-growth tax reduction and fiscal spending bill. This, in effect, reversed the pattern established in the first quarter where isolationist foreign policy and global trade protectionism appeared to be prioritized over domestic spending and tax reform. From our perspective, while the near-term transactional pivot is a relief, we believe the U.S. remains committed not only to a withdrawal from the decades-long and multilateral security and trade equilibrium, but also to a meaningful reduction in the U.S. current account deficit. Thus, we remain of the view that regardless of final tariff rates, there is ongoing risk of retaliation and/or compromised demand for U.S. goods and services, as well as a meaningfully weaker U.S. dollar and an associated paradigm shift in capital flows in the direction of non-dollar assets. We are encouraged that notwithstanding the tariff deferral, passage of key pro-growth U.S. legislation, and a global equity recovery, the U.S. dollar made fresh lows and international  and emerging market equities outperformed during the quarter, supporting in our view the likelihood that non-U.S. equities have entered a sustainable outperformance cycle. Of course, we are even more encouraged by the strong absolute and relative performance of the Fund over the recent quarter and past year, and remain optimistic that our fundamental, theme-driven and bottom-up approach is well-suited to the foreseeable environment of significant technological and geopolitical change.

In the second quarter of 2025, we comfortably outperformed the Benchmark, as well as our all-cap international growth Proxy Benchmark. From a sector or theme perspective, favorable allocation effect together with solid stock selection in the Energy sector, primarily attributable to our investment in Waga Energy SA, which received a buyout offer from private equity firm EQT AB, was the largest contributor to relative performance during the quarter. In addition, strong stock selection in the Consumer Staples sector, owing to select holdings in our digitization (ODDITY Tech Ltd. and Ajinomoto Co., Inc.) theme, was also a notable contributor to relative results. Lastly, our overweight positioning combined with favorable stock selection effect in the Industrials sector, driven by our Korea shipbuilding positions (HD Korea Shipbuilding & Offshore Engineering Co., Ltd. and HD Hyundai Heavy Industries Co., Ltd. (HHI)), which forms part of our sustainability/ESG theme, also bolstered relative performance during the period. Partially offsetting the above, adverse allocation effect in the Health Care sector and our modest cash position in a rising market environment were detractors to relative performance during the quarter.

From a country perspective, our overweight positioning together with solid stock selection in Korea, driven by the above-mentioned holdings, contributed the most to relative performance this quarter. We remain optimistic about our investments in Korea shipbuilders that are entering a multi-year growth cycle with attractive profitability metrics, while also benefiting from geopolitical tailwinds leading to increased collaboration with the U.S. Navy, among other global defense related opportunities. In addition, favorable stock selection effect in France (Waga Energy and Eurofins Scientific SE), India (JM Financial Limited, Nippon Life India Asset Management Limited, Kaynes Technology India Limited, and Jio Financial Services Limited), and Israel (ODDITY and CyberArk Software Ltd.) also bolstered relative results. We are encouraged with the continued recovery of Indian equities from the lows of February and have growing conviction that many of our holdings are entering an earnings upgrade cycle, owing to an economic recovery that is being driven by a rebound in government infrastructure spend, recent tax cuts, and favorable monetary policy enacted by the Reserve Bank of India. Partially offsetting the above was modest adverse stock selection effect in China, though the country remains a positive contributor year-to-date, and our active exposure to the U.S., via our holdings in Arch Capital Group Ltd. and Agilent Technologies, Inc.

HD Korea Shipbuilding & Offshore Engineering Co., Ltd. is the shipbuilding and offshore engineering sub-holding company of HD Hyundai, overseeing key affiliates including HHI, a leading global shipbuilder and engine manufacturer. Shares rose during the quarter on improving profit margin visibility, backlog growth, and increasing evidence of a sizable long-term opportunity in the naval and defense business. The stock also benefited from broader strength in Korean equities—particularly among chaebol-affiliated companies  (large family-controlled conglomerates)—following the Korean presidential election outcome, which is expected to lead to shareholder-friendly corporate governance reforms. We continue to hold shares and remain confident in the company's long-term outlook.

Waga Energy SA is a technology-based clean energy company that has developed and commercialized its proprietary “WAGABOX” system, which captures landfill methane and converts it into renewable natural gas. Shares appreciated sharply during the quarter, fully recovering losses from the prior quarter, supported by strong project execution and a series of positive pipeline announcements. Late in the quarter, Waga received a takeover offer at a sizable premium from EQT AB, a leading private equity firm based in Sweden. While we are disappointed that the company will be taken private—given its strong positioning for long-term, sustainable, and profitable growth—we are maintaining our position as the transaction develops.

ODDITY Tech Ltd. intends to transform the beauty and wellness market by using proprietary technologies to sell exclusively online and launch innovative new products. ODDITY is uniquely positioned at the intersection of the beauty and wellness, technology, and health care technology spaces, and is poised to capitalize on the consumer shift toward e-commerce in categories that have historically relied on the wholesale model and high-touch retail environments. Shares of ODDITY increased following better-than-anticipated quarterly results, with double-digit revenue growth from both IL MAKIAGE (its prestige cosmetics brand) and SpoiledChild (its wellness brand offering skincare, haircare, and supplements). ODDITY also remains on track to launch its third brand in the second half of the year. Building on this momentum, management raised full-year guidance for 2025. We like ODDITY’s unique molecular discovery platform and think the company is well positioned to deliver strong, profitable growth through its use of AI and machine learning to drive customer conversion and repeat purchase behavior.

Alibaba Group Holding Limited is the largest retailer and e-commerce company in China. Alibaba operates shopping platforms Taobao and Tmall, and has businesses spanning logistics, local services, digital media, and cloud computing. Shares of Alibaba were pressured by quarterly results that were solid but fell short of elevated investor expectations, as well as heightened macroeconomic and geopolitical uncertainty impacting international stocks following Liberation Day. Alibaba is actively pursuing Artificial General Intelligence, ramping its capital expenditures over the next three years to build out its cloud infrastructure layer and add AI capabilities to existing apps (e.g., consumer search). Within its commerce business, the core market is showing continued positive signs of stabilization, and improved profitability should follow. We retain conviction that Alibaba is well positioned to benefit from China's ongoing growth in e-commerce and cloud, although competitive concerns remain.

Full Truck Alliance Co. Ltd. (FTA), China’s leading digital freight platform, detracted from performance during the quarter. While FTA delivered strong quarterly results, with solid revenue growth and margin improvement, the company reported muted earnings guidance and revised its full-year profit forecast lower to reflect increased AI investment and anticipated losses from planned acquisitions, which disappointed the market. Shares were also pressured by growing concerns over the potential delisting of FTA’s American Depositary Receipts from U.S. exchanges, fueled in part by fears that the Trump administration could take a harder stance on Chinese listings. This is particularly concerning for FTA, which does not yet have a Hong Kong listing, though the company is actively preparing for one. We retain conviction in FTA’s growth outlook, supported by expanding market share, higher take rate potential, and long-term benefits from its strategic investments in AI and logistics technology.

Argenx SE is a biotechnology company best known for developing Vyvgart, the leading FcRn inhibitor for the treatment of autoimmune conditions. Shares declined after Vyvgart sales came in below elevated investor expectations due to a combination of seasonal factors (such as insurance reverification) and higher Medicare Part D utilization and associated discounts. Our conversations with management and neurologists continue to reinforce Vyvgart’s value as an important treatment option with strong long-term growth potential. The drug continues to launch well in both generalized myasthenia gravis and chronic inflammatory demyelinating polyneuropathy. Over time, we expect Vyvgart to demonstrate efficacy across an expanding range of autoantibody-driven autoimmune conditions, supported by encouraging Phase 2 myositis data recently presented by argenx at a major medical conference.

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.

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

We increased exposure to our global security theme by initiating a position in Centum Electronics Limited, a leading electronics manufacturing services provider in India. Centum offers engineering research and development, manufacturing services, and build-to-specification solutions for mission-critical applications across a variety of industries, including defense, aerospace, industrial, automotive, and health care. With over three decades of expertise and a core emphasis on quality control, the company has established strong relationships with marquee global clients, such as Thales, as well as key Indian government entities, including the Defense Research and Development Organization and the Indian Space Research Organization. In our view, Centum is well positioned to benefit from the government’s “Make in India” initiative, which encourages import substitution of electronic products and components by providing attractive tax subsidies and manufacturing infrastructure. In addition, amid escalating geopolitical tensions, we see further upside from India’s accelerated efforts to indigenize the design, development, and manufacturing of defense equipment and surveillance satellites, an area where electronic system providers such as Centum stand to benefit. We are also encouraged by the company’s commitment to restructure its loss-making Canadian subsidiary and enhance operational efficiency at its French division. We expect Centum to deliver 18% to 20% compound revenue growth and 25% to 30% compound EBITDA growth over the next three to five years.

As part of our fintech disruption theme, we established a position in XP Inc., a technology-driven financial services platform in Brazil offering retail brokerage, asset management, fund distribution, institutional trading, investment banking, and financial education. The company is disrupting a highly concentrated industry where the incumbent oligopoly has historically charged high fees, provided limited product access, and delivered poor customer service. We see a long-term growth opportunity as Brazilian household assets remain heavily allocated to traditional products such as savings accounts. As financial literacy improves and access to a broader range of investments expands, we expect a gradual shift toward equities, mutual funds, and other higher-yielding instruments. XP is well positioned to capture this structural shift through a user-friendly, multi-product platform that serves investors across income levels. In the near term, we see earnings momentum recovering, supported by a more stable macro environment, lower interest rate expectations, and a potential inflection in capital markets activity.

During the quarter, we also added to our digitization theme by initiating an investment in Eternal Limited, India’s largest food delivery and quick commerce platform. In our view, Eternal, with a dominant 55% market share, is well positioned to capitalize on the structural growth of online food delivery, a duopoly market in India that remains significantly underpenetrated relative to global peers. This industry structure supports a rational pricing environment with increasing visibility into long-term profitability. We are also excited about Eternal’s fast-growing quick commerce segment, which is disrupting India’s offline retail and e-commerce industries by offering delivery of groceries, apparel, packaged food, and electronic goods within 15 minutes of ordering. Consumers can now get an iPhone or Samsung smartphone delivered in under 15 minutes versus more than a day if purchasing from other e-commerce platforms. India’s total addressable retail market for quick commerce players is expected to exceed $400 billion, with current penetration less than $10 billion, providing a significant multi-year growth opportunity. Eternal has emerged as the market leader in quick commerce, with approximately 40% market share, driven by its superior logistics infrastructure, focus on customer experience, and visionary management team. We believe the company will continue to benefit from structural growth opportunities in online food delivery and quick commerce, with the potential to triple revenue while improving profitability over the next five years.

Lastly, we increased our exposure to several existing positions during the quarter, including AMG Critical Materials N.V., SK hynix Inc., Credicorp Ltd., Mitsubishi UFJ Financial Group, Inc., Airbus SE, and Piraeus Financial Holdings S.A. We exited several positions during the quarter consistent with our efforts to seek greater concentration in our higher conviction investments. The Fund sold Meituan, Samsung Electronics Co., Ltd., Techtronic Industries Co. Ltd., Japan Airport Terminal Co., Ltd., EQT AB, B&M European Value Retail S.A., Li Auto Inc., and BE Semiconductor Industries N.V.

Sincerely,