Baron WealthBuilder Fund | Q3 2025

Baron WealthBuilder Fund® (the Fund) is an allocation strategy that invests exclusively in Baron Funds. Its investments span market caps, sectors, and geographies to provide growth equity diversification.

The Fund appreciated 3.20% (Institutional Shares) during the third quarter, trailing its primary benchmark, the S&P 500 Index (the Index), as well as the globally oriented MSCI ACWI Index (the Global Index), which were up 8.12% and 7.62%, respectively. The Fund also trailed peers in the Morningstar Aggressive Allocation Category (the Peers), which were up 5.67%.*

Despite experiencing intermittent bouts of underperformance in recent years, the Fund’s long-term track record remains solid. The Fund’s annualized return of 12.93% since inception is modestly below the Index (+14.44%) and ahead of the Global Index (+10.67%) and Peers (+8.08%). As a result, the Fund ranked in the top percentile of its Peer group since inception. While disappointed with recent relative returns compared to its indexes, we are proud of the Fund’s long-term absolute and relative performance compared to its Peers.

The recent quarter should not be viewed in isolation and should remind investors how the Fund has performed over the course of a full cycle. Results in 2025 follow a period of a surprise and drastic change in the U.S. political landscape. The business and investor euphoria experienced because of the Presidential election at the end of 2024 was met with the realities of policies enacted (and in some cases, enacted, paused, and/or withdrawn) at the start of 2025. Investors had believed that President Trump would usher in a pro-business era of less regulatory burdens, falling interest rates, and lower taxes. However, these same investors remain concerned about tariffs hindering international trade, inflation harming discretionary spending, and federal spending cuts, and the ongoing government shutdown impacting economic growth. It has been a whipsaw of forecasts.

We did not attempt to predict the 2024 election outcome, nor investor reaction to it. And we likewise are not attempting to predict current policy. We believe that our investments should achieve their goals regardless of political outcomes. Reduced regulatory burdens should enable our disruptive growth businesses to meet their objectives more quickly. And we find that more challenging economic environments tend to favor our core growth quality, competitively-advantaged businesses, which are well represented in the Fund. These businesses should face less competition from new entrants in such economies. And the executive teams should position their business to thrive. The portfolio turnover of most Baron Funds remained low throughout this period. A transitional period is often volatile, and that has once again been the case.

Against this backdrop, the Fund’s third quarter performance was bolstered by the high-conviction, non-diversified Baron Partners and Baron Focused Growth Funds, with most of the gains coming from electric vehicle (EV) manufacture r Tesla, Inc. and private rocket, satellite, and spacecraft manufacturer Space Exploration Technologies Corp. (SpaceX). Tesla’s share price increased 40% due to multiple factors. First, Tesla’s core automotive business is showing renewed strength, with expectations for rising third quarter delivery volumes across major markets following an enthusiastic consumer response to a new Model Y variant in China. Second, investor confidence in the company’s long-term vision and in Elon Musk’s leadership was reinforced by a newly proposed CEO compensation package and nearly $1 billion in personal share purchases by Musk. Finally, Tesla’s AI initiatives continue to advance rapidly, highlighted by the Austin robotaxi network’s expansion from 20 to over 170 square miles since its June 2025 launch and plans for rollouts to additional cities. The upcoming Full Self-Driving version 14 release is also expected to deliver a major leap in capability for the company’s consumer-owned fleet, while humanoid robot production is anticipated next year as Tesla finalizes its latest Optimus design.

SpaceX is a high-profile private company founded by Elon Musk. The company’s primary focus is on developing and launching advanced rockets, satellites, and spacecrafts, with the ambitious long-term goal of making life multi-planetary. SpaceX is generating significant value with the rapid expansion of its Starlink broadband service. The company is successfully deploying a vast constellation of Starlink satellites in Earth’s orbit, reporting substantial growth in active users, and regularly deploying new and more efficient hardware technology. Furthermore, SpaceX has established itself as a leading launch provider by offering highly reliable and cost-effective launches, leveraging the company’s reusable launch technology. SpaceX capabilities extend to strategic services such as human space flight missions. Moreover, SpaceX is making tremendous progress on its newest rocket, Starship, which is the largest, most powerful rocket ever flown. This next-generation vehicle represents a significant leap forward in reusability and space exploration capabilities. We value SpaceX using prices of recent stock transactions.

Double-digit gains from the sector-focused Baron Real Estate Fund and the non-U.S./global Baron Emerging Markets Fund also aided performance. Baron Real Estate Fund benefited from its unique exposure to non-REIT real estate-related companies, which were up 13.9% in the period owing mostly to strength in the casinos & gaming operators (Wynn Resorts, Limited and Red Rock Resorts, Inc.), homebuilders & land developers (Toll Brothers, Inc. and D.R. Horton, Inc.), and building products/services (CRH public limited company and Advanced Drainage Systems, Inc.) categories.

Baron Emerging Markets Fund performed well in a period when emerging market (EM) equities outperformed their developed market counterparts. The rally in Chinese equities was largely responsible for EM (and Baron Emerging Markets Fund’s) outperformance, with gains being driven by investor optimism about AI innovation, which bolstered Chinese technology and internet companies. Targeted government initiatives, easing trade tensions with the U.S., and significant domestic capital inflows also contributed to strength in China. In our view, global investors have started to appreciate the country’s AI potential as well as leadership in new age technologies such as EVs/batteries, autonomous mobility, humanoid robotics, and renewable energy. Taiwanese and Korean equities also performed well in the period, overshadowing weakness in India, where equity markets were pressured by underwhelming corporate earnings and concerns about the impact of new U.S. trade and visa policy announcements.

The higher growth portfolios Baron Global Opportunity, Baron Fifth Avenue Growth, and Baron Opportunity Funds also produced solid gains in the quarter, benefitting from exposure to strong-performing semiconductor (NVIDIA Corporation, Taiwan Semiconductor Manufacturing Company Limited, and Broadcom Inc.) stocks, which were up sharply in the period due to robust earnings results and intensifying investor enthusiasm around the AI secular growth theme.

Conversely, Baron Growth Fund and Baron Asset Fund were the largest detractors from performance as losses from perceived “AI losers” generally hampered performance . Syndicated research provider Gartner, Inc. was the largest detractor in both funds after reporting disappointing quarterly earnings. Contract value growth, a leading indicator of future revenue, decelerated by approximately 2%. We attribute most of the slowdown to ongoing cost cutting in the U.S. public sector, which represents about 5% of revenue, as well as more challenging business conditions in industries dependent on public sector funding. In addition, companies with meaningful exposure to tariffs appear to be reducing costs, resulting in longer sales cycles and slightly higher client attrition. While the market expressed concern about the impact of AI on Gartner’s insights business, we see no evidence that this is negatively impacting its value proposition. The company continues to benefit from a vast and expanding set of proprietary data generated through hundreds of thousands of interactions with buyers, sellers, and technology consumers. Gartner bought back approximately $800 million worth of stock in July and August and authorized an additional $1 billion in September, and we expect the company to continue repurchasing shares aggressively to capitalize on the discounted valuation.

Financial exchanges & data holdings FactSet Research Systems Inc., Morningstar, Inc., and MSCI Inc. were other perceived AI losers that hurt performance in these funds.

From a relative standpoint, the Fund underperformed the Index due to a combination of stock selection, style biases, and active industry exposures. Stock-specific weakness was largely driven by lower or lack of exposure to certain Magnificent Seven names that performed well in the period, namely Alphabet Inc., Apple Inc., Microsoft Corporation, and NVIDIA. The Magnificent Seven complex dominated market returns for a second consecutive quarter, accounting for nearly two-thirds of the Index’s third quarter gains. The group appreciated 15.5% in the period, outperforming all other securities in the Index, which were up 4.6%, by a double-digit margin. Outside of the Magnificent Seven, the Fund’s higher exposure to perceived AI losers Gartner and FactSet also detracted from relative performance.

In terms of styles, the Fund’s significant exposure to small-, smid-, and mid-cap stocks proved costly, as evidenced by underexposure to the strong performing Size (large caps) factor and overexposure to the weak performing Mid Capitalization factor weighing heavily on performance in the period. The Fund was also penalized for its underexposure to Momentum, which was one of the top performing factors for the quarter.

Lastly, active industry exposures were a drag on performance owing mostly to the Fund’s lower exposure to the better performing Computer Electronics and Semiconductors industries. The Fund’s overexposure to the lagging Hotels Leisure and Consumer Services, Diversified Financials, and Insurance Brokers and Reinsurance industries also hampered performance.

* Not annualized.
^† Performance is calculated from the time the Fund was added to Baron WealthBuilder Fund: Baron Durable Advantage Fund – 3/13/2018; Baron Global Advantage Fund - 1/9/2018; Baron FinTech Fund – 2/27/2020; Baron Health Care Fund – 10/18/2018; and Baron Real Estate Income Fund – 5/17/2021.
Performance data quoted represents past performance. Past performance is no guarantee of future results. The indexes are unmanaged. Index performance is not Fund performance. Investors cannot invest directly in an index.

The Fund is a compilation of our Baron Funds and provides broad equity exposure. All underlying Baron Funds follow a consistent investment philosophy and process. We do not try to mimic the indexes, and we do not alter our strategy to coincide with short-term macro events that we regard as unpredictable. We remain focused on underlying business fundamentals.

We believe small- and mid-cap growth stocks offer attractive return potential relative to their risk over the long term. Small- and mid-cap businesses represent 61.3% of the Fund (compared to only 19.2% for the Index). While our small- and mid-cap growth investments have been successful over our Firm’s 43-year history, these styles are occasionally out of favor. The past few years have been one of these environments. Large-cap growth companies are outperforming small-cap growth companies this year and in many instances over the last decade. Since the Fund’s inception almost eight years ago, the one-year rolling monthly returns of the Russell 1000 Growth Index have outperformed the Russell 2000 Growth Index 80% of the time including six out of the past seven calendar years.

Rather than only examining the Fund’s performance over a quarter or a year, we believe it is equally important to understand how the Fund has performed over the course of an economic cycle. The COVID-19 Pandemic and subsequent Macro-Induced Market Rotation has been very difficult for small- and mid-sized growth companies. Investors have favored larger-cap, value-oriented businesses that are deemed safer during a time of uncertainty. We believe this offers a great opportunity for long-term investors to invest in small- and mid-cap growth businesses at attractive prices. Markets first peaked in late February 2020 before rapidly dropping as the economy braced for the COVID-19 Pandemic. It recovered quickly, followed by another sizable drop based on macroeconomic factors. Over the three years of the COVID-19 Pandemic ended December 31, 2022, the Russell 2000 Growth Index, a small-cap growth index, gained only 1.96% on a cumulative basis. The Russell Midcap Growth Index fared better with a cumulative three-year return of 12.00%. With that backdrop, the Fund performed better and appreciated 28.11%. We believe protecting and growing clients’ assets during this challenging period positions long-term investors well for meaningful appreciation once the macro landscape changes. The table below provides a more complete look at how the Fund and various indexes performed during the pandemic and its aftermath.

Since the end of the COVID-19 Pandemic, volatility has remained high and new challenges have emerged. Global conflict has increased, geopolitics remains uncertain, and a global trade war is threatened. Given our weightings, the Fund’s performance has trailed the large-cap Index since the start of this cycle. However, the Fund’s return has continued to exceed the small-cap growth index.

Performance data quoted represents past performance. Past performance is no guarantee of future results. The indexes are unmanaged. Index performance is not Fund performance. Investors cannot invest directly in an index.

Source: FactSet SPAR.
Except for Standard Deviation and Sharpe Ratio, the performance based characteristics above were calculated relative to the S&P 500 Index.

* Represents less than 0.1%.

Thank you for joining us as fellow shareholders in Baron WealthBuilder Fund®. We continue to work hard to justify your confidence and trust in our stewardship of your hard-earned savings. We remain dedicated to giving you the information we would want if our roles were reversed. We hope this letter enables you to make an informed decision about whether this Fund remains an appropriate investment.

Respectfully,