Portfolio Managers Q&A: Baron Technology ETF | BCTK

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.

Could you outline the key pillars that underpin the ETF’s investment philosophy?

Ashim: The ETF, BCTK, is a conversion of the Baron Technology Fund, which we have managed since its launch at the end of 2021. Its investment philosophy closely aligns with that of the mutual fund and with the Baron Capital investment approach.

First, we seek out major secular growth changes that are taking place across industries but are driven by technology. These should be durable, long-term shifts driven by disruptive innovation that is reshaping the global economy. Examples include the internet, mobile telephones, cloud computing, and most recently, AI. While identifying these themes is not hard, the more challenging task is finding the companies best positioned to benefit from them over the long term.

This represents the second pillar of our process: seeking out businesses with economic moats and sustainable competitive advantages. We look for companies whose products deliver more meaningful value than substitutes, create high customer switching costs, and benefit from unique or proprietary data assets. These businesses often maintain direct and persistent customer relationships, exhibit network effects, and build strong brands. When combined with a rapid pace of innovation, high customer adoption and retention help support durable long-term advantages.

The third tenet of our process is the quality of management teams. We want to hold companies led by exceptional entrepreneurs and leaders, with a proven track record of long-term value creation. When we talk about leadership, we mean more than just the CEO and CFO. We dedicate time to actively engage with other key members of the broader executive team who are driving the strategic direction of the company.

Finally, potential investments must offer compelling value. We seek out stocks with favorable risk-reward profiles that we deem capable of doubling over a four-to-five-year timeframe.

Could you outline the structure of the ETF and touch on some of its key holdings?

Mike: We fish in a larger pond than our peers. Rather than focusing solely on information technology (IT), we search for technology-related opportunities across a range of sectors and sub-industries. Currently, around 60% of the ETF is invested in IT, but it also has sizeable exposure to the consumer discretionary sector (e-commerce, electric vehicles, autonomous navigation, and online education), as well as the communication services space (digital advertising, entertainment, and advertising). Industrials are also represented, particularly in areas like robotics, AI and machine learning, and energy transition. The portfolio also has exposure to fintech and innovators within the health care space.

This expansive investable universe allows us to unearth opportunities often overlooked by investors. Many of these businesses lie within the small- and mid-cap segments, whereas our peers tend to focus on the larger end of the scale. Moreover, we express our high conviction through a concentrated, focused portfolio, typically consisting of around 45 stocks.

There has been a massive wave of capital flowing into the Magnificent Seven stocks, leading to significant concentration in equity markets. While five of our top 10 holdings fall within this group, we size positions based on research-driven conviction, not market capitalization. The top 10 investments also include innovators such as digital audio streaming leader Spotify Technology S.A., and the worlds first dedicated semiconductor manufacturing company Taiwan Semiconductor Manufacturing Company. These types of businesses are often overlooked or underrepresented in passive indexes that base their allocations on market capitalization, whereas our stock selection strategy aims to balance exposure between proven leaders and emerging innovators, managing concentration risk while also targeting sustainable growth.

Where do you see key opportunities in the technology space?

Ashim: It is impossible to answer that question without mentioning AI. AI frontier model builders and hyperscalers continue to invest enormous amounts in training and inference infrastructure, but this is only the start. Industry leaders recognize that the potential opportunity is measured in trillions, not billions. As NVIDIA’s CEO Jensen Huang recently stated, “No technology has ever had the opportunity to address a larger part of the world’s GDP than AI.”

We are living in an unprecedented era of technological innovation. Trends such as cloud computing, autonomous transportation, robotics, cybersecurity, digital commerce, and media and services are shaping the future, disrupting existing industries, and driving long-term investment returns.

But we must emphasize that companies risk disruption and eventual irrelevance if they fail to continuously innovate. The demise of businesses such as Nokia and BlackBerry during the smartphone revolution serves as a stark reminder of this reality.

As such, we manage the ETF with an unwavering emphasis on identifying and investing in a portfolio of technology winners with durable competitive advantages, relentless focus on maintaining a high rate of innovation, and outsized growth prospects.

What are the main advantages of the ETF over its peers?

Mike: Turning again to market concentration, the Magnificent Seven occupies seven of the top nine positions in the Nasdaq 100 Index. We believe this level of concentration, especially given the portfolio weights are rooted in historical returns and current market capitalizations instead of future growth prospects and expected returns, exposes investors to considerable risk, particularly as the lion’s share of the asset class is now made up of passive technology investors. However, Baron Technology ETF seeks to offer a differentiated, more balanced, active solution that benefits from greater diversification and an unrelenting focus on identifying long-term winners. This active approach not only can mitigate the risks of market concentration found in indexes and passive funds but also allows us to uncover compelling opportunities beyond the typical dominant names.

We believe another key advantage is our ability to leverage Baron Capital’s deep experience in the small-cap space. We seek companies in the early stages of their development and hold them over many years, which allows the significant returns they may generate to compound over time—something many passive strategies and indexes in this sector may often miss out on. A good example is AXON Enterprise, Inc., a near-monopoly provider of tasers to core U.S. state and local law enforcement agencies, and a leading developer of body and in-car cameras as well as cloud-based storage platforms. Since we first added AXON to our portfolio in 2022, when it was considered a small- to mid-cap company, it has delivered 25% revenue growth for 12 consecutive quarters, while consistently improving its free cash flow. When we refer to the rate of innovation, this is precisely the type of execution we seek across our investments. Another notable ETF position includes Amazon.com, Inc, which has been a Baron Capital holding for over 16 years. Meanwhile, Taiwan Semiconductor Manufacturing Company Limited, Tesla, Inc., and ServiceNow, Inc. were first purchased just over a decade ago.

Experience, expertise, and continuity are also key differentiators. We are both industry veterans. I have been at Baron Capital for 24 years and am Head of Technology Research, while Ashim joined the firm around 15 years ago and has 26 years of research and investment experience. Over this time, we have witnessed the emergence of numerous technology-related trends. Accordingly, we have gained considerable expertise in identifying long-term secular shifts and the companies that should be best positioned to capitalize on them, while remaining disciplined in avoiding being dragged into shorter-term cyclical swings.