Baron Asset Fund: Latest Insights and Commentary

CONTRIBUTORS

• The contributors to performance for period ending September 30, 2026 is not yet available

DETRACTORS

• The detractors to performance for period ending September 30, 2026 is not yet available

When reviewing performance attribution on our portfolio, please be aware that we construct the portfolio from the bottom up, one stock at a time. Each stock is included in the portfolio if it meets our rigorous investment criteria. To help manage risk, we are aware of our sector and security weights, but we do not include a holding to achieve a target sector allocation or to approximate an index. Our exposure to any given sector is purely a result of our stock selection process.

Baron Asset Fund (the Fund) declined 6.22% (Institutional Shares) in the third quarter, performing similarly to the Russell Midcap Growth Index (the Index), which fell 5.84%. The quarter marked a sharp reversal of the conditions that defined the first half of the year. The so-called “AI winners” cohort that had powered the Index higher in recent quarters, including semiconductor, data center, and power companies, sold off. Software and other higher-quality, lower-beta businesses led amid heightened market volatility. According to MSCI’s Barra factor attribution, style factors were a substantial tailwind for the first time in several quarters. The Fund’s persistent underexposure to Momentum and Beta paid off as both factors reversed, and its larger-cap positioning within the mid-cap universe added further value. Many of the Fund’s software and services holdings also performed well, helping partly offset stock-specific weakness associated with the Fund's large position in rocket, satellite, and spacecraft manufacturer Space Exploration Technologies Corp. (SpaceX).

From a sector perspective, Industrials contributed approximately 170 basis points of relative gains, driven by strong stock selection and lower exposure to this lagging sector. Notable declines in aerospace & defense and construction & engineering stocks pressured the Index’s Industrials. The Fund’s Industrials holdings held up better, thanks largely to double-digit gains from financial software and services provider SS&C Technologies Holdings, Inc. and defense and government consulting firm Booz Allen Hamilton Holding Corporation. Both companies delivered solid fundamental results and benefited from the broader rebound in software, information services, and consulting stocks as concerns about AI disruption eased.

Solid stock selection in Health Care and Real Estate also added value, led by precision instruments provider Mettler-Toledo International Inc. and health care REIT Welltower Inc. Mettler-Toledo’s stock performed well as a result of strong second-quarter results and a raised full-year outlook. Local-currency sales grew 6%, exceeding prior guidance of 3%, supported by better-than-expected growth in China and strength across other emerging markets. Earnings per share of $11.46 also exceeded sell-side estimates of $10.80. In addition, positive commentary on business trends from life sciences tools peers, including Thermo Fisher Scientific and Agilent, contributed to Mettler-Toledo’s share price appreciation. Welltower’s shares held up well in the quarter, posting modest gains against a challenging backdrop in which most real estate securities declined. This extended what was already very strong performance in the first half of the year. The company continued to execute well, delivering robust cash flow growth driven by strong occupancy gains, healthy rent growth, and ongoing margin expansion, all of which reflect the powerful demographic tailwinds underpinning demand for senior housing.

Lastly, the Fund benefited from being overexposed to Financials, one of the better performing sectors in the Index, as well as its lack of or lower exposure to the lagging Consumer Discretionary and Utilities sectors. Together, these contributed nearly 150 basis points of relative gains.

Partly offsetting these gains was overexposure to the lagging Communication Services sector via a sizable position in SpaceX, which detracted approximately 160 basis points from relative performance. Underexposure to Information Technology and Energy, two of the best performing sectors in the Index, also proved costly, detracting more than 170 basis points from relative results.