Portfolio Managers Q&A: Baron First Principles ETF | RONB

December 12, 2025 | Download PDF

There is an ongoing shift toward active solutions in the Exchange Traded Fund (ETF) market. Investors seek liquid, tax-efficient products that deliver alpha¹. Baron Capital launched a range of active ETFs on December 12, 2025 that meet this need. These ETFs apply our proven approach in a new format. With a long-term track record of outperformance and a disciplined investment process, we believe we are well positioned to meet this evolving demand.

Why are you launching the Baron First Principles ETF?

Michael: Investors today are seeking specialized managers with deep expertise and a proven ability to execute consistently over time. This focus on experience and disciplined research is at the heart of Baron Capital. For more than 40 years, we have concentrated on identifying growth equity companies through a rigorous, bottom-up process that defines our Firm.

Baron First Principles ETF brings this philosophy to life in its purest form. It reflects our first-principles mindset: breaking businesses down to their fundamentals, reconstructing them to understand their true drivers of growth, and investing with conviction for the long term based on original, in-depth analysis.

Since 1982, Baron Capital has applied this research-driven approach to generate strong results. The First Principles ETF makes this expertise accessible to a broader audience, giving more investors the opportunity to benefit from the philosophy and strategies we have honed over decades.

What is the investment philosophy of Baron First Principles ETF?

Ron: At its core, first-principles thinking means deconstructing a business… its culture, people, and strategy… down to its most essential elements. We take each potential investment apart piece by piece to understand how a company really works, then rebuild it with a clear picture of where we think it can go over the long term. If something is not clear, we ask questions repeatedly until every part of a company’s inner workings is fully understood.

We use this first-principles approach to evaluate a business’s opportunity for growth, competitive advantages, and durability. This ethos drives company-wide intellectual curiosity, challenging assumptions and uncovering opportunities that others may overlook. When we identify visionary leaders and differentiated businesses capable of enduring success, we are willing to take bold positions. Our process truly emphasizes deep understanding, long-term thinking, and investing alongside exceptional management teams.

Since we have such a long-term mindset, we follow companies for many years before investing. Across Baron Funds, the average holding period is six years, and for the portfolios I co-manage with my sons it is even longer. Once we identify compelling opportunities at attractive valuations, we hold them for extended periods, allowing compounding to work.

Could you provide a deeper dive into Baron First Principles ETF investment process?

David: Our process involves rigorous, continuous due diligence throughout the holding period to ensure that the original investment thesis remains intact. Position sizes reflect our level of conviction, and when we have exceptionally strong conviction, we may use leverage to increase our exposure. This reflects our confidence in our research and in our stock-specific, bottom-up approach.

However, “A good business is not always a good purchase.” We invest only when a company is available at a discount to our estimate of intrinsic value. Our valuation work blends traditional quantitative analysis with a qualitative assessment that considers things like total addressable market, durability of competitive advantage, and management mindset.

We initiate a position only if our analysis suggests the stock can double in value over four years. We generally have a bench of high-quality companies that do not yet meet our valuation threshold but may become investable over time. Our proprietary valuation models guide both entry points and ongoing position sizing.

Could you expand on your approach to risk management?

David: Although the ETF holds a concentrated set of high-conviction positions, it is not concentrated in one type of investment. Risk management is embedded in our portfolio construction process. We mitigate the potential volatility of a concentrated portfolio in two primary ways: we conduct extensive due diligence and diversify our assets across low-correlated categories.

First, we spend months or even years researching companies before initiating positions and continue that deep research throughout the life of every investment. We focus heavily on investing in visionary leaders who are aligned with our goal of long-term value creation.

Second, we conduct rigorous scenario analyses across a range of market environments to ensure holdings do not behave in a correlated manner. Our framework organizes stocks into multiple categories that respond differently across economic cycles, ensuring the portfolio is never overly concentrated in any one category or factor. This results in a portfolio that is diversified across four low-correlated growth categories–Disruptive Growth, Core Growth, Real Assets, and Financials–as well as three capital-allocation pillars: Growth Reinvestor, Cash Generator Capital Light, and Book-Value Anchored. This design helps reduce volatility while maintaining exposure to long-term growth trends.

As with all our Funds, we believe true risk management begins with knowing our companies better than anyone else.

What experience and expertise do you bring to Baron First Principles ETF?

Michael: David and I have spent our entire lives learning from our father. From an early age, we were exposed to how he thinks: how he evaluates businesses, engages with management teams, and builds concentrated portfolios. That foundation has shaped the way we analyze companies and invest today.

We have carried this experience and mindset into our professional careers. I bring 22 years of investment and research experience and currently manage Baron Partners Fund and Baron WealthBuilder Fund. David brings 23 years of experience and manages Baron Focused Growth Fund. Together, we have extensive hands-on experience managing concentrated, long-term growth portfolios.

Our depth of experience and commitment to the Baron Capital philosophy is reflected in a long-term track record of success—underscoring the effectiveness of our disciplined, research-driven approach¹.

How does Baron First Principles ETF stand out as a differentiated solution for investors?

Ron: We launched the suite of Baron Active ETFs to meet clients where they are. In recent years, ETFs have seen significant inflows, as many investors increasingly favor this structure for its accessibility, tax efficiency, and liquidity. Offering ETFs while maintaining our bottom-up, active approach allows us to remain true to our mission... changing lives through long-term wealth creation.

We see Baron Active ETFs as a complement to both active and passive strategies. We believe that portfolios benefit from an allocation to active, high-quality growth equities... the asset class most likely, in our experience, to deliver attractive long-term returns. Baron Capital has a proven track record of doing just that. By remaining disciplined and consistent in the philosophy that has served us so well for over four decades, we are confident we can continue to build generational wealth for our investors.