Baron International Growth Fund | Q3 2025

Dear Baron International Growth Fund Shareholder,

Baron International Growth Fund® (the Fund) gained 6.04% (Institutional Shares) during the third quarter of 2025, while its primary benchmark, the MSCI ACWI ex USA Index (the Benchmark), appreciated 6.89%. The MSCI ACWI ex USA IMI Growth Index (the Proxy Benchmark) gained 5.75% for the quarter. The Fund modestly underperformed the Benchmark while slightly bettering the Proxy Benchmark during a solid quarter for global equities, in our view driven by the onset of a Federal Reserve (the Fed) easing cycle and ongoing announcements of large-scale investment related to AI data center capacity and graphics processing unit (GPU) commitments. We were pleased with our quarterly results, and we remain comfortably ahead of the Proxy Benchmark on a year-to-date and one-year trailing basis.

As stated, the initiation of a Fed easing cycle and ongoing enthusiasm towards AI-related investments, in our view, were the principal drivers of strong global equity returns during the quarter. While there remains considerable uncertainty regarding the potential economic and inflationary impacts of U.S. tariffs, and we suspect this unknown should become clearer in the current quarter, it remains evident that a global central bank easing cycle is now underway. As we have remarked in previous letters, we believe that the vector change in U.S. trade and immigration policy, alongside accommodative monetary policy, likely shifts the epicenter of the global inflation impulse to U.S. shores, which would leave the Fed with less room to maneuver than many foreign counterparts for the first time in decades. In our view, the likely result would be steeper rate cuts and more earnings upside in most non-U.S. jurisdictions, which we expect, among several other factors, to help sustain related equity outperformance for longer than most investors currently expect. We remain encouraged by the solid absolute performance of the Fund over the recent quarter and past year, and particularly our relative performance versus our growth peer group and Proxy benchmark over such periods. We remain optimistic that our fundamental, theme-driven and bottom-up approach can continue to deliver results in this ongoing environment of significant technological and geopolitical change.

In the third quarter of 2025, we modestly underperformed the Benchmark, while slightly outperforming our all-cap international growth Proxy Benchmark. From a sector or theme perspective, poor stock selection effect in the Information Technology (IT) sector, primarily attributable to a material correction in the share price of Constellation Software Inc., owing to both the unexpected retirement (health reasons) of its legendary founder and President, Mark Leonard, as well as general market concerns over AI-related uncertainties for application software companies, was the largest detractor to relative performance during the quarter. Within IT, our exposure to WiseTech Global Limited and Park Systems Corporation also weighed on relative results as both stocks suffered corrections in an up market. In addition, adverse stock selection effect in the Communication Services sector, owing to double-digit declines from two holdings in our digitization (Universal Music Group N.V. and Bharti Airtel Limited) theme, also stood out as a key drag on relative performance. Lastly, weak stock selection in Consumer Staples (ODDITY Tech Ltd. and Dino Polska S.A.) was also a notable detractor during the period. Largely offsetting the above, favorable stock selection effect in the Materials sector, driven by several positions in our global security (Lynas Rare Earths Limited and Agnico Eagle Mines Limited) and sustainability/ESG (Lundin Mining Corporation and AMG Critical Materials N.V.) themes, was a positive contributor to relative performance during the quarter. Finally, solid stock selection in the Health Care and Financials sectors also supported relative results.

Poor stock selection effect in Poland (InPost S.A.), Japan, and Israel (ODDITY) were considerable drivers of country-specific relative underperformance. In addition, our overweight positioning in India was also a notable detractor during the period. Partially offsetting the above was favorable stock selection in Australia (Lynas) and China (Contemporary Amperex Technology Co., Limited), along with positive allocation effect and good stock selection in Germany (Deutsche Bank AG) and the Netherlands (argenx SE and AMG). We are encouraged by the resilience and outperformance of Chinese equities year-to-date and believe a critical mass of global investors are beginning to appreciate the country’s AI potential and leadership in new age technologies such as electric vehicles (EVs)/batteries, autonomous mobility, robotics, and renewable energy. Despite recent underperformance, we remain excited about India’s structural growth story and believe the market is entering a potential earnings upgrade cycle, driven by a rebound in government infrastructure spending, tax relief, benign inflation, and central bank easing. From a trade perspective, we view the current impasse between the U.S. and India as temporary and are encouraged that both sides have recently reengaged in active discussions regarding a bilateral trade agreement and lower tariffs.

Lynas Rare Earths Limited is an Australia-based mining and exploration company focused on rare earth minerals. Shares nearly doubled during the quarter as geopolitical and trade tensions underscored the strategic importance of supply sources outside China, which controls more than two-thirds of global rare earth production and roughly 80% of processing and refining capacity. Prices for rare earth minerals and related equities surged after the U.S. signaled support for establishing price floors to encourage non-China mining and production. We retain long-term conviction in Lynas’ earnings potential and strategic value and remain shareholders.

Argenx SE is a biotechnology company best known for developing Vyvgart, the leading FcRn inhibitor for the treatment of autoimmune conditions. Shares rose after second-quarter Vyvgart sales meaningfully exceeded investor expectations, rebounding from prior weakness linked to 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 generalized myasthenia gravis, and its launch in chronic inflammatory demyelinating polyneuropathy is off to a strong start. Over time, we expect Vyvgart to demonstrate efficacy across an expanding range of autoantibody-driven autoimmune conditions, and we are encouraged by argenx’s progress with its next pipeline candidate, ARGX-119, in neuromuscular diseases.

Lundin Mining Corporation is a high-growth, global mining operator with an emphasis on copper and gold. Shares rose markedly during the quarter, initially following solid operating and financial results. The stock advanced further after competitor Freeport-McMoRan Inc. suspended production at the world’s second-largest copper mine due to a tragic mudslide, tightening global supply and triggering a market imbalance expected to persist for some time. Lundin Mining’s earnings have also benefited from the strong rise in gold prices over the past year. We retain conviction in the company's capital allocation, production growth, and earnings potential.

Constellation Software Inc., a holding company that owns and operates a large portfolio of vertical-market software businesses, detracted from performance. The company reported solid quarterly financial results, but shares declined due to broader uncertainty around the impact of AI on software and the unexpected announcement that President Mark Leonard would step down for health reasons, though he will remain on the board. We retain conviction that Constellation can continue compounding free cash flow per share at a solid rate. While the company is not immune to macroeconomic headwinds, it benefits from a strong balance sheet, robust profitability and free cash flow generation, and a diversified end-market mix.

InPost S.A., Poland’s leading logistics operator with a rapidly expanding pan-European presence, detracted from performance during the quarter. Allegro, Poland’s top e-commerce platform and InPost’s largest customer—contributing around 15% of group revenue—has begun exploring alternative logistics solutions and partnering with multiple providers. This has raised concerns about potential volume pressure in Poland and further market share erosion once the current Allegro–InPost contract expires in 2027. Despite worst-case fears, we believe a full exit by Allegro is unlikely. InPost controls roughly 70% of parcel lockers and 90% of out-of-home delivery volumes in Poland, making a complete transition away from its network highly disruptive to service quality. We remain positive on InPost’s market leadership, expanding international footprint, and growing client diversification.

ODDITY Tech Ltd. intends to transform the beauty and wellness market by using proprietary technologies to sell exclusively online and launch innovative new products. The company is uniquely positioned at the intersection of beauty, wellness, and technology, and is poised to capitalize on the consumer shift toward e-commerce in categories that have historically relied on wholesale and high-touch retail models. While ODDITY’s second-quarter results exceeded management and Street expectations, the magnitude of the beat was smaller than investors anticipated, prompting shares to fall. Management also provided additional detail on costs related to the launch of its third brand and the anticipated pressure on first-half 2026 EBITDA margins. We remain shareholders. ODDITY continues to invest heavily in growth while outperforming its long-term targets of 20% top-line growth and a 20% EBITDA margin. We maintain conviction in the company’s value creation potential across its IL MAKIAGE and SpoiledChild lines, as well as its new METHODIQ brand.

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 third 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 increased exposure to our Japan interest rate normalization theme by initiating a position in Nomura Holdings, Inc., Japan’s leading financial services conglomerate with operations in wealth management, global markets, investment banking, and asset management. Nomura’s strong domestic franchise gives it unique access to the country’s vast household savings pool, while its established corporate and institutional relationships support cross-selling across businesses. The firm is also diversifying internationally, recently expanding its global asset management platform and strengthening its trading capabilities to capture rising market volatility. We believe Nomura is well positioned to benefit from structural growth in Japanese household investment flows, global assets under management expansion, and resilient wholesale earnings, making it an attractive long-term investment.

During the quarter, we also initiated a position in EssilorLuxottica SA, the world’s leading eyewear company with unmatched scale and vertical integration across lenses, frames, retail, and distribution. The company’s dominance stems from its global portfolio of iconic brands (Ray-Ban, Oakley, and luxury fashion licenses), its extensive retail network, and its stronghold in prescription lenses where it commands an industry-leading market share. This integration provides pricing power, recurring demand, and high margins. Beyond its core business, EssilorLuxottica is innovating into new addressable markets: Ray-Ban Meta smart glasses position it as a pioneer in wearable technology; Stellest myopia control lenses address a massive global health challenge affecting children; and Nuance Audio hearing-enhancement eyewear opens a large underserved market in mild-to-moderate hearing loss. Together, these initiatives add significant optionality and growth potential to an already dominant eyewear franchise.

As part of our China value-added theme, we initiated positions in Pony AI Inc. (Pony.ai) and GDS Holdings Limited. Pony.ai is a global leader in autonomous mobility. We expect China’s robotaxi market to evolve into a multi-billion-dollar industry over the next 5 to 10 years, fueled by advancing AI technology, supportive government policies, and a superior user experience. The company is well positioned as an early mover, becoming the first corporate entity to secure regulatory licenses to operate fully driverless vehicles in all four Tier-1 cities in China. This achievement reflects Pony.ai’s industry-leading technology and exceptional safety track record, backed by millions of accumulated driverless miles. Pony.ai’s latest-generation autonomous vehicle, set to roll out in the second half of 2025, delivers a 70% bill-of-materials cost reduction, which we believe will allow the company to rapidly scale robotaxi commercialization. Leveraging strategic partnerships with automotive giants like Toyota, GAC, and BAIC for mass production, Pony.ai’s robotaxi fleet is projected to scale to tens of thousands of vehicles over the next five years. In our view, this expansion will enable the company to achieve strong network effects and highly profitable unit-level economics. Over the long run, we expect Pony.ai to maintain dominant market share and strong pricing power, given the robotaxi industry’s formidable barriers to entry, including cutting-edge technological requirements, substantial capital investment, and extensive regulatory approvals. While Pony.ai’s near-term focus remains on the vast China market, the company has already forged collaboration agreements to extend its robotaxi services worldwide, including in Europe, Asia, and the Middle East. In our opinion, Pony.ai’s cost advantages and technological leadership will make it highly competitive against global peers in these new markets.

GDS operates mission-critical data center facilities in China and internationally with core customers such as Alibaba, Tencent, Baidu, ByteDance, and Kuaishou. In our view, China is in early innings of scaling its AI ecosystem which along with rising penetration of cloud computing, digital payments, and short-form video should provide secular growth tailwinds for data center operators like GDS. The company’s core competitive advantages are under-pinned by access to large-scale power in Tier-1 cities in China that can support latency sensitive applications, a long track record of development to meet customer time-sensitive deployments, and leading market share within the third-party carrier-neutral data center space. We have a long history with GDS since its IPO in 2017. We recently traveled to Asia to tour the company’s newly developed data center campus in Malaysia and interacted with GDS International’s (renamed “DayOne”) executive team. We also conducted extensive market due diligence by meeting with several global competitors based in Singapore. In our view, DayOne, which recently completed an impressive private capital raise, will continue to see its valuation rise given its attractive growth outlook. Ultimately, the value of this business should yield $15 to $20 per share to GDS over the next 12 to 18 months with a planned public listing over the next year. The contracted nature of cash flow growth is under-appreciated with cash flow ramping from approximately $200 million to $1 billion over the next two years based on definitive contracts. This implies we are investing in GDS’ mainland China business at only 11 to 12 times EBITDA, a steep discount to global peers, suggesting considerable upside. Furthermore, GDS recently listed a subset of its assets into a public REIT vehicle, which is now valued at more than 20 times cash flow.

We added to our digitization the me by initiating a position in Kuaishou Technology, China’s second largest short video platform with over 400 million daily active users. While often perceived as an inferior version of Douyin/TikTok, Kuaishou is in fact differentiated by its unique community-driven ecosystem and deep engagement among users from lower-tier cities. We believe the short-video economy has room for multiple players as creator and audience segmentation deepens, and market concerns over user fatigue or competition are overstated. The company’s monetization engine continues to strengthen, increasingly aided by AI, with steady improvements in ad efficiency, engagement, and margins, alongside accelerating contributions from e-commerce. We expect mid-to-high-teens earnings growth for its core business over the next few years and see the stock as materially undervalued. In June 2024, Kuaishou introduced Kling, an AI video generation model comparable to OpenAI’s Sora, which benefits from Kuaishou’s proprietary short-video database - with over 40 million videos uploaded daily - giving it a unique edge in training and fine-tuning. We see Kling as an emerging growth driver with strong platform synergies and long-term monetization potential.

Lastly, we increased our exposure to several existing positions during the quarter, including Lundin Mining Corporation, Japan Exchange Group, Inc., Tokyo Electron Limited, Mitsubishi UFJ Financial Group, Inc., Airbus SE, and TotalEnergies SE. We exited a few positions during the quarter consistent with our efforts to seek greater concentration in our higher conviction investments. Disposals included LY Corporation, Dino Polska S.A., China Mengniu Dairy Co. Ltd., and Indus Towers Limited.

The best performing global markets/regions on a year-to-date and U.S. dollar basis are Korea (+57%), Latin America (+43%), China (+42%), and Europe (+28%). As Europe constitutes roughly 40% of the Fund’s exposure, a similar weight to the Benchmark, this region represents by far the largest contribution to total return. As referenced in our previous letter, we remain enthusiastic regarding enhanced potential GDP growth and particularly earnings growth, as Europe is embarking on a material increase in defense and infrastructure spending, funded by a vector change in fiscal and credit expansion. This change in funding is further supported by the Savings and Investment Union (SIU), which is facilitating the continent’s transition to securitization financing, a potential sea change in our view for capital access and credit pricing. Further, we believe an increase in bank debt, bond issuance, and securitization will lead to enhanced growth potential throughout the broader economy. Our investments in China and Korea, while much less in aggregate weight, also stand out as the next largest drivers of aggregate contribution to returns, and we believe both jurisdictions remain early in their respective growth and productivity cycles, with many of our holdings in these markets experiencing a step-function improvement in earnings and growth potential.

Global equities added to solid year-to-date gains during the recently ended third quarter, with the initiation of a Fed easing cycle and ongoing enthusiasm towards AI-related investments in our view being the principal catalysts. While there remains considerable uncertainty regarding the potential inflationary impact of U.S. tariffs, and we suspect this factor should begin to become clearer in the current quarter, it remains evident that a global central bank easing cycle is underway. As we have remarked in previous letters, we believe that the paradigm shift in U.S. trade and immigration policy, alongside accommodative monetary policy, likely shifts the epicenter of the global inflation impulse to U.S. shores, leaving the Fed with less room to maneuver than many foreign counterparts for the first time in decades. In our view the likely result would be steeper rate cuts and more earnings upside in non-U.S. jurisdictions, which we expect to help sustain related equity outperformance for longer than most investors currently expect.

A second major driver of global equities during the recent quarter was continued optimism regarding the transition from AI training to inferencing, evidenced by a succession of announcements related to large-scale AI data center, GPU, and power sector commitments. The promise of AI productivity gains continues to dominate investor attention, and we have remarked in recent letters that non-U.S. jurisdictions also offer many attractive candidates in which to invest. While the developing AI ecosystem led by U.S. hyperscalers and GPU designers such as Microsoft/OpenAI, Alphabet, Meta, Amazon, NVIDIA, and Broadcom is well appreciated, we have commented for over a year that less recognized or accepted are the impressive advances China has been making in its technology arena, though handicapped and against the odds, particularly related to AI, semiconductors, automated driving, EV battery technology and humanoid robotics. Though as we have consistently stated, we believe 2025 would prove to be the year that global investors finally realize they can no longer ignore what is happening there. First was the “DeepSeek moment” early in the year, and then Alibaba’s “AI moment” late in the third quarter. Suddenly, it appears the China AI ecosystem – the only potential rival to that of the U.S. – is finally gaining respect and investor recognition.

The American hyperscalers are set to invest nearly $400 billion in data center infrastructure this year alone, marking the third consecutive year of frenzied expansion in what appears an AI arms race. By contrast, China's technology giants are only beginning their buildout, about two years behind their U.S. counterparts, with annual spending still under $50 billion. China’s ambition and capabilities have now become clear – to achieve global relevance and market share while driving domestic productivity and economic growth. The U.S. of course retains a solid lead in cutting-edge GPUs and frontier model development, but concerns about capital intensity, overcapacity, and the shrinking useful life GPU design/productivity advantage are mounting. China, by contrast, is navigating this cycle with discipline, perhaps out of necessity, as sweeping U.S. export restrictions have pushed Chinese firms to adopt a “do more with less” mentality. Indeed, they have doubled down on open-source large language models—where Chinese companies have emerged as global leaders—and pioneered architectural breakthroughs that enable performance comparable to top U.S. models at a fraction of the computing cost.

Beyond increasingly competitive hardware and software, China possesses four structural advantages. First, data: with 1.1 billion internet users, the world’s largest digital population, Chinese AI models benefit from unmatched user interaction data essential for training generative systems. Second, talent: China is home to roughly half the world's AI researchers. Third, power: China is expected to add over 500 gigawatts of new capacity in 2025—nearly ten times U.S. additions—providing the vast energy resources needed for AI data centers, at a time when the U.S. faces growing power constraints. Fourth, cost: China’s large pool of skilled, low-cost engineers, combined with unmatched manufacturing scale and supply chain efficiency, enables it to build and operate AI infrastructure far more economically than the U.S. and Europe.

Our investment approach reflects conviction across the entire AI stack. Our holding in Alibaba Group Holding Limited captures the infrastructure and model layers, as the company is a principal provider of cloud computing resources for AI workloads, from chip design to model training to enterprise deployment. Our position in Tencent Holdings Limited offers exposure to the application layer, with the company uniquely positioned to apply AI across its dominant platforms in social networking, gaming, and digital services—areas where AI integration is already boosting engagement and monetization. We expect our investments in Pony AI Inc., a global leader in autonomous mobility, to benefit from the emergence of robotaxi services, an example of “physical AI.” Finally, we believe other holdings such as GDS Holdings Limited, Kingdee International Software Group Company Limited, Kuaishou Technology, and Zhejiang Shuanghuan Driveline Co., Ltd. are also well-positioned to capture significant upside from China’s AI and broader technology transformation. In addition, as we look forward, our research suggests an increasing possibility of a marked improvement in economic relations between the Trump administration and China. We do not believe the market currently expects any “grand compromise” and will not elaborate until more concrete evidence and/or details become clear, however we would consider any such development as upside to our current base case for both China and non-U.S. equities in general.

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

Sincerely,