Baron Emerging Markets 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 Emerging Markets Fund (the Fund) declined 3.39% (Institutional Shares) in the third quarter, trailing the MSCI Emerging Markets Index (the Index), which fell 0.37%. It was a challenging quarter as the Fund faced headwinds from country, industry, and style factors according to MSCI's Barra factor attribution. Higher exposure to lagging Indian equities, lower exposure to banks, which benefited from the rising global rate environment, limited exposure to gold, energy, and other commodity-oriented segments as prices spiked, and the outperformance of value-leaning factors were among the many obstacles during the period. Given its growth bias, the Fund managed to perform similarly to the MSCI Emerging Markets IMI Growth Index, which declined 3.10%.

On a country level, stock selection in Taiwan and China was especially costly, detracting 230-plus basis points combined. Weak stock selection in Korea was another source of weakness but was largely offset by the Fund’s modestly lower exposure to this lagging country. Korean equities fell 9.6% in the Index as heavyweight memory chip stocks sold off amid heavy foreign investor selling, rising global bond yields, and concerns that the memory upcycle may be peaking. The Fund's significantly higher exposure to India detracted another 50-plus basis points. Sentiment toward Indian equities remained subdued, as the market continued to be a source of funds for global investors amid elevated oil prices and continued momentum in the AI trade, a combination that largely kept capital flowing toward direct AI infrastructure beneficiaries such as Taiwan at India's expense. Stock selection in India was neutral despite this difficult backdrop. Somewhat offsetting the above was unique exposure to Russia, where we exited our last remaining position at a significant premium to depressed levels at the start of the quarter. Solid stock selection in Mexico (Grupo Mexico, S.A.B. de C.V.) and Greece (Piraeus Bank S.A.) also added value.

From a sector or theme perspective, stock selection in Information Technology (IT) was a 150-plus basis point drag on relative performance, with losses concentrated in the semiconductors and technology hardware, storage & peripherals sub-industries. Within the semiconductors/AI theme, Chinese semiconductor company Montage Technology Co., Ltd. was the principal detractor because of a company-specific overhang rather than fundamentals, as South Korean prosecutors investigated its Korean offices in July over suspected price coordination (the company is cooperating, and no charges have been filed). The business itself accelerated, with second-quarter revenue up 33% and ahead of expectations, and Montage proposed a share buyback. We retain conviction in Montage as a core long-term holding given its leading market share, rising interconnect content per AI server, and broadening product portfolio. The Fund’s sizable positions in Samsung Electronics Co., Ltd. (-11.4%), SK hynix Inc. (-26.7%), and Taiwan Semiconductor Manufacturing Company Limited also weighed on results, overshadowing strong gains from fellow semiconductors/AI holdings ISC Co., Ltd. (+30.1%), HPSP Co., Ltd. (+31.6%), and ASPEED Technology Inc. (+22.5%).

Industrials was another headwind, as higher exposure to this lagging sector was compounded by weakness from Contemporary Amperex Technology Co., Limited (sustainability/ESG), Cummins India Limited (global security/supply chain diversification), and Jiangsu Hengli Hydraulic Co., Ltd. (China value-added). Stock selection was also unfavorable in Financials, led by India wealth management/consumer finance holdings Bajaj Finance Limited and Nippon Life India Asset Management Limited, and in Utilities, where Indian global security/supply chain diversification holdings JSW Energy Limited and Power Grid Corporation of India Limited declined. Stock-specific weakness in Financials was compounded by lower exposure to diversified banks, which powered the sector higher and cost roughly 50 basis points. Lower exposure to the better performing Materials and Energy sectors, up more than 6% and 10% in the Index, respectively, also detracted a combined 30-plus basis points.

Partly offsetting the above was strength in Health Care, owing to strong performance from China value-added holding Zai Lab Limited and higher exposure to life sciences tools & services stocks, which were up nearly 50% in the Index.