Baron International Growth Fund | Q4 2025

Baron International Growth Fund® (the Fund) retreated 2.96% (Institutional Shares) during the fourth quarter of 2025, while its primary benchmark, the MSCI ACWI ex USA Index (the Benchmark), appreciated 5.05%. The MSCI ACWI ex USA IMI Growth Index (the Proxy Benchmark) gained a more modest 2.44% for the quarter. For the full year 2025, the Fund gained 21.16%, while the Benchmark appreciated 32.39% and the Proxy Benchmark again gained a more modest 25.74%. While disappointed with our fourth quarter results, which in our view resulted largely from a healthy correction in several strong performing stocks heading into the quarter, we are content with our full-year results as measured by our outperformance against the Morningstar Foreign Large Growth Category average, in what proved a difficult relative performance year for quality growth investors. *

In our view, the dominant theme of AI continued to captivate attention and drive returns during the fourth quarter, though we highlight that during the recent quarter the market was increasingly segmented into AI haves and have nots. We believe a broad universe of quality growth businesses traditionally viewed as competitively advantaged and protected by barriers to competition due to intellectual capital, proprietary data, and/or deep client entrenchment began to be viewed as vulnerable to AI disruption – triggering material multiple compression. Examples include software developers, data-centric and information service businesses, e-commerce operators, online advertising and travel-related businesses. While we believe companies that do not invest or move quickly enough to leverage AI to protect and enhance their strategic position will be at some risk, we also believe many competitively advantaged businesses will successfully maneuver to gain market share and improve customer experience while maintaining or expanding profitability. We believe the widespread weakness in these traditional quality growth stocks is excessive, and quite likely to mean revert, particularly if concerns grow regarding the availability of funding and/or power necessary to accommodate the historic increase in AI capital spending that is already discounted in market expectations. We are encouraged by the strong absolute and relative performance of international equities over the past year and continue to believe that we have entered a sustainable outperformance cycle which will also offer tailwinds for fundamental investment strategies such as the Fund.

For 2025, we underperformed the Benchmark, while to a lesser extent also trailing our all-cap international growth Proxy Benchmark. Broadly, as referenced above, the underperformance was in our view attributable to an abrupt but material correction in several holdings over the potential exposure of quality growth franchises with historic competitive moats to AI disruption. From a sector or theme perspective, adverse stock selection effect in the Information Technology (IT) sector, driven by a few positions across multiple themes (Wix.com Ltd., Constellation Software Inc., Kaynes Technology India Limited, WiseTech Global Limited, Keyence Corporation), was the largest detractor to relative performance for the year. In addition, poor stock selection in the Consumer Discretionary sector, owing largely to meaningful drawdowns in eDreams ODIGEO SA and Trent Limited, also stood out as a detractor. Finally, weak stock selection effect in the Industrials sector, relating to select investments in our digitization (InPost S.A., Full Truck Alliance Co. Ltd.), fintech disruption (Experian plc), and Japan staffing (Recruit Holdings Co., Ltd., SMS Co., Ltd.) themes, also weighed on relative results. Partially offsetting the above, favorable allocation effect combined with good stock selection in the Materials (Lundin Mining Corporation, Lynas Rare Earths Limited, Agnico Eagle Mines Limited) and Energy (Waga Energy SA) sectors was a positive contributor to relative performance during the year.

From a country perspective for calendar year 2025, poor stock selection effect in Spain, Poland, and Israel, and a combination of weak stock selection and an overweight position in India, primarily attributable to the above-mentioned investments, drove the majority of relative underperformance. Partially offsetting the above was a combination of strong stock selection effect and/or favorable allocation in Australia, Ireland, Canada and France.

Adverse stock selection effect across multiple themes within the IT, Consumer Discretionary, Industrials, and Consumer Staples sectors was the key detractor to relative results, largely as described above. From a country perspective, poor stock selection effect in Spain, China, Korea, India, and Israel was the primary detractor to relative performance during the quarter. While we are disappointed by our fourth quarter performance, we remain confident about our investment process and portfolio holdings and further, as we believe the broad-based sell-off in quality growth franchises is overdone, we anticipate that some mean reversion and recovery of lost performance going forward is quite reasonable.

Lundin Mining Corporation is a base metals producer with a portfolio primarily focused on copper and gold. Shares rose meaningfully during the fourth quarter after the company raised its 2025 copper production outlook and lowered its cash cost guidance. A sharp rally in copper and gold prices also supported performance. We remain constructive on Lundin Mining due to its healthy growth profile, driven by its greenfield Josemaria and Filo del Sol copper projects in Argentina, as well as near-term production growth initiatives at existing mines. Lundin Mining has a solid acquisition track record and a history of expanding production and extending the operating lives of its acquired mines. The founding family retains meaningful oversight of the business, with the founder’s grandson serving as President and CEO.

Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (TSMC) contributed to performance during the quarter, driven by robust demand for AI chips. We retain conviction that TSMC’s technological leadership, pricing power, and exposure to secular growth markets—including AI and high-performance computing, automotive, 5G, and Internet of Things—will allow the company to sustain strong double-digit earnings growth over the next several years.

Bank of Ireland Group plc is one of the largest banks in the Republic of Ireland and Northern Ireland. Shares rose during the quarter following strong quarterly results and an upward revision to net interest income guidance, which drove higher earnings expectations. Management highlighted solid loan and deposit momentum in Ireland, disciplined cost control, and continued organic capital generation, supporting earnings durability. Bank of Ireland’s margins are more resilient than those of EU peers as interest rates ease, benefiting from a sizeable structural hedge that locks in higher yields from prior rate increases and cushions the impact of lower policy rates. Strong capital ratios and confidence around ongoing capital returns further reinforce our positive view.

eDreams ODIGEO SA is a Spain-based online travel agency that offers a subscription-based travel savings program, Prime, covering flights and hotels. Shares declined during the quarter following the company’s decision to pursue a significant growth investment plan, a pivot toward monthly and quarterly subscription offerings, and near-term inventory access issues with supplier Ryanair. In a departure from prior targets, eDreams now plans to invest more heavily in new markets and in European rail. While the company has previously tested various subscription durations, the broader shift toward shorter subscription terms is expected to pressure cash flow over the next several years. Longer term, we believe Prime’s underlying value proposition remains compelling for customers, particularly as the product roadmap expands into hotels and incorporates generative AI-driven enhancements. As Prime matures, profitability has continued to improve, supported by lower marketing spend on customer acquisition. We continue to research and monitor the company’s newer investment plans and progress across these initiatives.

Japanese multinational food company Ajinomoto Co., Inc. detracted from performance due to weaker-than-expected growth in its Seasonings business. We believe this slowdown is temporary and that long-term growth will be supported by Ajinomoto’s high-quality products and strong brand, along with increasing demand from Southeast Asia’s emerging middle class. We are particularly optimistic about the prospects for Ajinomoto Build-up Film (ABF), an insulating material used in the packaging of high-performance semiconductors. Ajinomoto invented ABF in the late 1990s and has since maintained a near-monopoly position in this material, which plays a critical role in electrical isolation, signal routing, and heat dissipation. We expect high-margin ABF revenue to surge over the next five years, driven by robust demand for AI accelerators. As a result, we believe Ajinomoto has the potential to double earnings per share over this period, with ABF accounting for the majority of profit growth.

ODDITY Tech Ltd. intends to transform the beauty and wellness market by using proprietary technology to sell and launch products exclusively online. Shares declined amid investor concerns around category strength following cautious commentary from industry peers, as well as credit card data indicating a potential deceleration at the company’s largest brand, Il Makiage. ODDITY is also launching its third platform, MethodIQ, which required incremental upfront marketing investment during the year. Management expects MethodIQ to ramp quickly and deliver strong financial results in the coming years. Overall, the business remains well positioned to achieve its full-year target of approximately 20% revenue growth at a 20% margin. ODDITY has demonstrated an ability to create innovative products and successfully launch new brands by leveraging its molecule formulation and marketing capabilities. We continue to own the stock given its attractive valuation relative to future earnings, strong cash flow generation, solid balance sheet, and long-term growth opportunity in a large, underpenetrated e-commerce category.

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 fourth quarter, we added a handful of new investments toward existing themes, while also increasing exposure to several positions that we established in earlier periods. We continue our endeavor to add to our highest conviction ideas.

As part of our EU mutualization theme, we initiated a position in in Euronext N.V., the leading pan-European market infrastructure operator, which runs the primary equity, fixed income, and derivatives exchanges across key European economies including France, the Netherlands, Belgium, and Italy, while also operating clearing, settlement, data, and technology services. Euronext is unique in Europe for its vertically integrated model, combining multiple national markets on a single trading and technology platform while increasingly controlling more of the post-trade value chain. This gives it direct leverage to Europe’s Savings and Investment Union (SIU), as policies aimed at channeling household savings into capital markets should drive higher retail participation, deeper equity and bond issuance, and greater cross-border activity, all of which benefits the company’s business activities. The SIU also seeks to simplify and harmonize rules across European markets, which should reduce regulatory fragmentation, lower compliance complexity, and ultimately decrease operating costs for a pan-European operator like Euronext. Beyond these structural tailwinds, the company is pursuing several high-value opportunities, including bringing settlement and depository services in-house for its largest markets (currently outsourced), which would meaningfully expand recurring, high-margin post-trade revenues, and growing its MTS fixed-income franchise, particularly in French government bond trading, alongside related data and index products. Euronext’s scale, regulatory alignment with EU priorities, capital-light economics, strong competitive advantages, and multiple internal growth levers make it an attractive investment within the European financials landscape.

Adding to our advanced semiconductors/AI theme, we established a position in Samsung Electronics Co., Ltd., the world's largest memory semiconductor manufacturer and a leading global technology conglomerate with diversified operations spanning memory chips, foundry services, and consumer electronics. Samsung holds the number one position in both DRAM and NAND flash memory markets, giving it unparalleled scale advantages in an industry characterized by high barriers to entry, stemming from technological complexity and intensive capital requirements. We believe the memory industry's unprecedented upcycle will continue at least over the next couple years, with a massive supply/demand mismatch driven by insatiable AI training and inference demand and disciplined capital allocation by the leading memory suppliers. Structurally, memory demand continues to benefit from the proliferation of data-intensive applications across cloud computing, mobile devices, and automotive electronics. Critically, we view Samsung as exceptionally well positioned to capitalize on the explosive growth in AI infrastructure spending, including through its high-bandwidth memory (HBM) offerings. While Samsung has lagged SK hynix Inc. in HBM commercialization, we believe the company has achieved substantial progress in closing the performance gap. Given Samsung's superior manufacturing scale and extensive R&D capabilities, we expect the company to gain meaningful share in the rapidly expanding HBM market over the coming years. Beyond memory, Samsung's foundry business represents an increasingly important growth vector, as the company positions itself as a credible alternative to Taiwan Semiconductor Manufacturing Company Limited for cutting-edge logic chip production, supported by significant investments in advanced process nodes and strategic customer partnerships. We anticipate Samsung will deliver robust earnings growth over the next several years, driven by a surging memory market, growing HBM revenue contribution, and improving foundry profitability, complemented by its leading global positions in smartphones and OLED display panels.

During the quarter, we initiated a position in Brunello Cucinelli S.p.A., a best-in-class luxury apparel company with a solid position at the top of the luxury pyramid. Brunello designs and sells high-quality clothing and accessories, carefully managing its brand, distribution, and volumes to maintain exclusivity for a highly discerning global customer base of roughly 500,000 clients. This positioning in the ultra-luxury segment creates high barriers to entry, limited direct competition, strong pricing power, and demand that is structurally less cyclical than for broader luxury. Shares dropped abruptly during the quarter following a short report with allegations the company has since refuted, providing an attractive entry point into a company that has delivered consistent double-digit revenue growth across economic cycles. Looking ahead, we expect at least 10% annual revenue growth driven by disciplined retail expansion, particularly in China, selective product extensions, and modest price increases, all driving gradual margin expansion. Given its exceptional brand equity, scarcity value, and long runway for high-quality growth, we view Brunello Cucinelli as a compelling long-term investment.

We increased exposure to our Japan interest rate normalization theme by initiating a position in Mitsui Fudosan Co., Ltd., Japan’s largest diversified real estate developer. The company develops, owns, and manages high-quality office buildings, mixed-use urban districts, retail complexes, residential projects, hotels, and logistics assets. The company is also increasingly expanding overseas, particularly in the U.S., Europe, and Asia, where it partners with local operators to access higher-growth markets, diversify earnings, and deploy capital at attractive risk-adjusted returns. Mitsui Fudosan’s competitive advantages include its scale, deep tenant relationships, and long track record of creating integrated, mixed-use districts that drive durable demand and long asset lives. This positions the company to benefit from the structural macro changes underway in Japan, particularly the transition from deflation to modest inflation alongside ever tightening vacancy rates, which supports rising rents and higher net operating income across its portfolio. In addition, Mitsui’s strong balance sheet and stable cash flows provide flexibility to enhance shareholder returns over time through higher dividends and potential share buybacks. We view Mitsui Fudosan as an attractive long-term investment benefiting from structural rent growth, global diversification, and improving capital returns.

Finally, we added to several of our existing positions during the quarter, most notably Japan Exchange Group, Inc., Nestle S.A., TotalEnergies SE, Reliance Industries Limited, Kuaishou Technology, and Keyence Corporation.

In our endeavor to concentrate on our holdings where we have highest conviction in quality and return potential, during the quarter, we also exited a few positions, including Waga Energy SA, Godrej Consumer Products Limited, and DSM-Firmenich AG.

During the final quarter of 2025, global equities extended prior year gains and delivered solid full-year returns. Notably, international and emerging market (EM) equities significantly outperformed their U.S. and global counterparts for first time in several years. We believe the year 2025 likely represented the beginning of a sustainable period of international and EM equity outperformance. The year was marked by a largely unexpected U.S. withdrawal from the decades-long multilateral security and trade equilibrium, which triggered a variety of defensive policy responses around the world. When the U.S. subsequently negotiated new bilateral trade agreements, or relented, and materially diluted tariff and other protectionist measures, the monetary, fiscal and reform stimulus already in the pipeline led to solid global economic growth and, as the year progressed, various signs of excess liquidity and speculation. While geopolitics and financial markets exhibited volatility throughout the year, political, economic and financial constraints reigned in tail risks and, in our view, ultimately resulted in a much more constructive backdrop for international equities than was envisioned entering the year.

While international equity returns were quite impressive for the year, fourth quarter returns were more modest, particularly for growth-related equities. China, a large and top-four weight in the Benchmark, consolidated year-to-date gains in a “sell the news” reaction after a significant summer rally in anticipation of the scheduled October meeting between Presidents Trump and Xi, as the immediate meeting readout did not reference the potential resumption of technology/semiconductor/WFE flow into China. As we stand in early 2026, signs of renewed technology flow have emerged in recent weeks, and Chinese equities tied to technology/AI/robotics/semiconductors are recovering. We continue to believe that global investors are underestimating the capabilities and potential of China’s emerging technology/AI ecosystem, which appears particularly advantaged in terms of power supply and cost, open-source large language models, and overall capital requirements.

On this point, during the quarter, U.S.-based hyperscaler capex commitments continued to rise, with an estimated $550 billion to be spent in 2026 on AI data center (AIDC) development (up from earlier estimates closer to $450 billion). This arms race has captivated the attention of global investors while dominating equity market returns, though during the quarter we believe some yellow flags have surfaced. First, Google/Gemini’s momentum and market share gains vs. OpenAI/ChatGPT, while relying on lower cost TPUs, has raised questions around the sustainability of competitive advantage and NVIDIA’s longer-term market share and pricing power. Second, this uncertainty may challenge what has been a largely open-ended debt and equity funding environment for AIDC development, which calls into question whether current expectations for over $3.0 trillion in cumulative capex through 2030 will be met. While we do not have a particular view, we simply note that expectations are high, and that given the current S&P 500 Index weighting and disproportionate share of global equity portfolios represented by this broader U.S. AI ecosystem, any downward estimate revision would likely result in further outperformance by non-U.S. equities.

Just a few days into the new year, the U.S. conducted a military operation in Venezuela termed “Operation Resolve,” which involved extracting sitting President Nicolas Maduro and his wife and transporting them to the U.S., where they had been indicted on multiple charges. This operation evidences the Trump Administration’s foreign policy pivot away from global/multilateral peace, security, and trade towards an “America First” agenda, with an emphasis on bilateral negotiations, raw power, and the Monroe Doctrine, prioritizing the consolidation of U.S. interests within its “sphere of influence” in the Western Hemisphere. In our view, coupled with its previous and unconventional moves regarding Europe/NATO and apparent appeasement of Russia’s pursuit of territory from the Ukraine, we believe the weight of evidence likely points to less direct intervention in Russia and China’s respective spheres of influence, potentially diminishing the near to intermediate-term risk of geopolitical conflict. At the same time, we believe this action highlights rising global defense spending, as well as the value of strategic commodities/minerals and real assets, directly supporting our Global Security theme. Further, we are intrigued by the U.S. emphasis on the Monroe Doctrine and believe that any wholesale “rightward shift” by Latam countries could unlock material gains in the region’s bonds, equities, and currencies as risk premium would likely materially adjust.

We see solid global economic and market performance as we enter the new year as an indication that financial conditions remain constructive. The U.S. Federal Reserve (the Fed) confirmed a global central bank easing cycle during the third quarter of 2025, with additional rate cuts anticipated. Last year, authorities around the globe rolled out monetary, fiscal, and reform measures as emergency/insurance policies out of fear of the impact of aggressive U.S. trade policy. While in most cases the threat was later dialed down as a byproduct of both bilateral trade negotiations and political and economic constraints, the insurance policy support remained in the pipeline. This led to better-than-expected global economic and earnings momentum, and by late in the year, various signs of robust liquidity if not exuberance. In the U.S., the Trump Administration has shifted emphasis towards this year’s mid-term elections, also sparking incremental fiscal and policy easing as well as ongoing “national service” by large corporates. We believe 2026 could likely represent a major test of Fed independence, as we are getting late in a global economic expansion cycle, implying less slack in the system, with the forward-looking path for inflation expectations in our view more likely higher than lower. Normally, this would trigger a more hawkish Fed, though should this scenario present in the year ahead, a yet to be determined new Fed Chairman may have difficulty in delivering on expectations given the Trump Administration’s clear bias for lower rates. Should inflation tick up and longer-term bond yields rise/steepen, any waiver by the Fed would near certainly set off a new round of dollar weakness, and if history is any guide, extend or amplify international equity outperformance.

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

Sincerely,