Baron Global Opportunity Fund: Latest Insights and Commentary

Global equity markets overall declined during the first quarter, though performance across regions was uneven. U.S. equities reached record highs in January but reversed course amid heightened AI-related volatility and geopolitical tensions, ending the quarter in negative territory. Emerging market (EM) equities, however, continued to generate lead performance.  

U.S equities began the year with positive momentum, supported by easing inflation, resilient economic trends, strong corporate earnings, and investor optimism about the Trump administration’s stimulative economic strategy. Market sentiment began to shift in February, with the early catalyst being widespread losses across a range of industries due to fears about AI-driven disruption. Technology and software companies experienced notable pressure as investors worried AI agents could directly replace human-led business workflows. The sell-off worsened after the U.S. and Israel attacked Iran on February 28. Investors became concerned about the potential for sustained inflation and reduced economic growth from surging oil prices and supply chain disruptions. 

Beyond the U.S., EM equities continued their strong run of performance, beating U.S. equities for a fifth straight quarter. EM performance was once again bolstered by sharp gains in Korea and Taiwan, where ongoing investor demand for AI "picks and shovels" technology, memory chips, and foundry services contributed to market strength. 

Looking ahead, we remain focused on well-managed companies with durable competitive advantages and attractive growth prospects. While macroeconomic and policy uncertainty persist, we believe maintaining a disciplined, long-term perspective and emphasizing company fundamentals will be essential to navigating the evolving landscape. 

CONTRIBUTORS

• Space Exploration Technologies Corp. (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 spaceflight 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 financing transactions.
• Dutch semiconductor equipment company ASML Holding N.V. contributed to performance due to robust demand for its lithography systems amid a strong AI-driven semiconductor capex cycle. ASML holds a complete monopoly on extreme ultraviolet (EUV) lithography, the indispensable technology required to manufacture the world's most advanced chips at 7 nanometers and below. Without EUV, chipmakers cannot achieve the transistor densities needed to power AI accelerators, flagship smartphones, and autonomous vehicles. As leading chipmakers including TSMC, Samsung, and Micron race to expand advanced manufacturing capacity to meet surging AI demand, ASML sits at the center of the global semiconductor ecosystem as an indispensable enabler. Moreover, we expect a strong product cycle over the next five years as High-NA EUV—the next-generation platform delivering superior resolution and continued transistor scaling—enters high-volume manufacturing. We also project significant gross margin expansion, driven by ASML's pricing power and increasing scale, supporting strong double-digit earnings growth.
• Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (TSMC) contributed to performance as revenue growth exceeded expectations due to surging demand for AI chips. TSMC dominates the advanced semiconductor foundry market, controlling over 90% share of cutting-edge sub-7 nanometer (nm) nodes that power AI servers, flagship smartphones, and autonomous vehicles. The company benefits from a virtuous cycle in which its massive scale and profitability generate the capital necessary to fund industry-leading R&D and capex, in turn widening its technological moat and reinforcing its pricing power. As the ultimate "picks and shovels" provider of the AI era, TSMC remains insulated from the competitive dynamics of the AI chip design ecosystem. Whether hyperscalers develop custom accelerators or deploy merchant graphics processing units from companies like NVIDIA and AMD, nearly all advanced AI accelerators are manufactured exclusively at TSMC’s 3nm and 5nm nodes. We believe TSMC will deliver 20% earnings growth over the next several years, supported by secular AI-driven demand for leading-edge manufacturing capacity.

DETRACTORS

• Shopify Inc., a leading global commerce operating system, detracted from performance as a broader software selloff compressed high-multiple growth stocks. The business delivered an exceptional year: gross merchandise volume (GMV) grew 30% (adding $86 billion of incremental volume), revenue grew 30%, and free cash flow increased 26% to over $2 billion. Management guided to low-thirties revenue growth to open 2026, above the roughly 25% most analysts had modeled, and to first-quarter free cash flow margins in the low-to-mid teens, reflecting deliberate investment. Enterprise penetration remains in the early innings: merchants generating over $25 million in GMV are growing faster than the broader business, while Shopify maintains low-single-digit share of the $2.4 trillion enterprise e-commerce market. Shop Pay GMV of $121 billion grew 62% and now exceeds 50% of U.S. payments volume, serving as a strong consumer trust signal with advertising optionality via the Shopify Product Network. We view the drawdown as an opportunity to own an exceptional business at a more attractive entry point. We added to the position and see a path for attractive multi-year compounding from current levels.
• Snowflake Inc. is a cloud data platform primarily used for data analytics. Shares declined as the market reacted negatively to softer software sector sentiment and heightened fears that AI-native competitors could disrupt traditional software vendors. Even so, the company posted solid results, with product revenue growth of approximately 30%, best-in-class 125% net revenue retention, record new customer wins, and robust cash generation. Backlog continued to build momentum, with accelerating growth as the company inked its largest contract ever, valued at over $400 million. Snowflake’s product innovation also remains strong, as it rapidly embeds AI capabilities across its platform to better address customer needs. The company's AI product suite has become the fastest-growing offering in its history, already generating over $100 million in annualized revenue, while newer tools like Snowflake Intelligence and Cortex Code are now used by thousands of accounts. These developments support our long-term conviction in Snowflake’s ability to sustain durable growth and maintain its position as a foundational data platform, even as near-term valuation pressures persist.
• Bajaj Finance Limited is a leading non-bank financial company in India. Shares declined during the quarter as geopolitical tensions over the past month raised expectations of higher inflation and disrupted India’s easing interest rate environment, which could negatively impact consumption-led credit growth. We retain conviction in the company due to its best-in-class management team, robust long-term growth outlook, and conservative risk management frameworks. We believe Bajaj is well positioned to benefit from growing demand for consumer financial services in India, including mortgages, personal loans, credit cards, and other related products.

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 Global Opportunity Fund (the Fund) declined 4.80% (Institutional Shares) in the first quarter, trailing the MSCI ACWI Index (the Index), which declined 3.20%, by 160 basis points. Despite strong stock selection, headwinds from style and industry factors contributed to the Fund’s underperformance in the period. According to MSCI’s Barra factor attribution, the largest detractors from a style perspective were overexposure to the Growth factor and underexposure to certain value-oriented factors (Dividend Yield, Earnings Yield, and Book-to-Price) given the meaningful rotation out of growth stocks during the period. The Fund’s overexposure to Beta in a period of heightened market volatility also hampered relative performance. Active industry exposures also served as a headwind, led by overexposure to the weak performing Internet Software and Services, IT Services and Software, and Consumer Services industries, which faced significant selling pressure due to investor fears that AI will disrupt these segments. Lack of exposure to various Energy-linked industries also proved costly due to the sharp rise in oil prices following the start of the Iran war in late February.

From a geographic perspective, adverse stock selection in emerging and developed markets contributed to the relative deficit in the period. Select holdings in Korea (Coupang, Inc.) and Brazil (Nu Holdings Ltd.) were largely responsible for the stock-specific shortfall in emerging markets, though this weakness was exacerbated by being overexposed to India, which was one of the worst performing countries in the period. Indian equities faced headwinds from ongoing Foreign Institutional Investor outflows, disappointing corporate earnings, and rising energy prices related to the Iran war (the country imports most of its crude oil). Within developed markets, poor stock selection in Canada, the Netherlands, and Israel overshadowed strength in the U.S., where Space Exploration Technologies Corp. (SpaceX) was a material contributor. Lastly, the Fund’s overexposure to Argentina via a position in MercadoLibre, Inc. hampered relative results. 

On a sector level, disappointing stock selection in Information Technology (IT) and Consumer Discretionary coupled with being overexposed to these lagging sectors weighed heavily on relative results. Most of the losses in IT came from being overexposed to systems software and internet services & infrastructure, as the market has come to view AI as an existential risk for these companies. Many software and services businesses have been decimated by the so-called “SaaS-pocalypse”. The market has decided that all software and services related companies are AI losers and, as a result, most of our holdings in these areas suffered significant losses in the quarter. Although the short-term results have been difficult, we see this environment as a chance to invest in truly attractive opportunities across the software and services landscape that, in our view, have strong and sustainable competitive advantages. There are multiple potential catalysts that could quickly change the market’s thinking on these companies, and we want to be there to reap the benefits when that happens.

The largest detractor in IT was Shopify Inc., a leading global commerce operating system. Despite being caught up in the broader software selloff, the business delivered an exceptional year: gross merchandise volume (GMV) grew 30% (adding $86 billion of incremental volume), revenue grew 30%, and free cash flow increased 26% to over $2 billion. Management guided to low-thirties revenue growth to open 2026, above the roughly 25% most analysts had modeled, and to first-quarter free cash flow margins in the low-to-mid teens, reflecting deliberate investment. Enterprise penetration remains in the early innings: merchants generating over $25 million in GMV are growing faster than the broader business, while Shopify maintains low-single-digit share of the $2.4 trillion enterprise e-commerce market. Shop Pay GMV of $121 billion grew 62% and now exceeds 50% of U.S. payments volume, serving as a strong consumer trust signal with advertising optionality via the Shopify Product Network. We view the drawdown as an opportunity to own an exceptional business at a more attractive entry point. We added to the position and see a path for attractive multi-year compounding from current levels.

Other software names that suffered losses in the quarter included cloud data platform Snowflake Inc. and cybersecurity companies Zscaler, Inc., Netskope, Inc., and CrowdStrike Holdings, Inc. Despite experiencing near-term valuation compression, these companies delivered strong financial results and raised full-year guidance in most cases. As a result, we retain our long-term conviction in the competitive positioning and growth prospects of these businesses.

Weakness in Consumer Discretionary was driven by declines from e-commerce businesses Coupang (Korea) and MercadoLibre (Argentina). Coupang’s shares remained under pressure as fallout from a late-2025 customer data breach persisted into the new year, with fourth-quarter results confirming the incident had materially impacted revenue growth and profitability in December. Sentiment was further weighed down by an escalating geopolitical dimension: a coalition of major U.S. investors filed arbitration claims against the Korean government under the U.S.-Korea Free Trade Agreement, alleging discriminatory regulatory enforcement. The dispute drew engagement at the highest levels of the U.S. government and added a layer of uncertainty that markets struggled to price. Despite these headwinds, our conviction in Coupang remains intact and we took advantage of recent share price weakness to add to our position. The company noted that active customer trends and gross merchandise value growth rates stabilized and began recovering early in 2026, supporting our view that the breach is operational rather than structural. The core business continues to gain share in Korea, while expansion in Taiwan is progressing. 

MercadoLibre’s stock price was hurt by rising competitive pressures and the company’s decision to accelerate investments in logistics, marketing, and credit card origination, which weighed on near-term margin expectations. While underlying volume and revenue trends remain robust, profitability is likely to be temporarily depressed as these initiatives are rolled out. The stock reacted negatively as investors began to price in this shift in the earnings trajectory. We remain confident in management’s investment and capital allocation decisions, which have consistently widened the company’s competitive moat while increasing user engagement and purchase frequency. We are also excited about the company’s long-term prospects. In our view, MercadoLibre is uniquely positioned to capture a significant share of Latin America’s underpenetrated e-commerce and fintech markets, supported by its scale, brand trust, and powerful ecosystem.

Another material detractor in the sector was Eternal Limited, India’s leading food delivery and quick commerce platform, with roughly 55% and 40% market share in these respective categories. Eternal’s shares fell amid intensifying competition in the quick commerce industry, which raised concerns about the company’s near-term profitability. We retain conviction, as we believe Eternal is well positioned for long-term growth in quick commerce, given its first-mover advantage, scale, and superior execution. We think Eternal will continue to benefit from structural growth in online food delivery in India, potentially doubling its revenue, while also improving profitability and growing earnings over the next three to five years. 

Lack of exposure to the Energy sector, which was up sharply in the Index, and disappointing stock selection in Financials (Adyen N.V., Bajaj Finance Limited, and Nu) also contributed to relative weakness in the period. 

Somewhat offsetting the above was strong stock selection in Industrials, where SpaceX contributed the vast majority of gains. 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 spaceflight 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 financing transactions.

Polish e-commerce enablement platform InPost S.A. was another source of strength in the Industrials sector. Shares rose after the company announced it had received an indicative acquisition proposal in early January, a recommended all-cash offer of €15.60 per share from a consortium comprising Advent International, FedEx, A&R Capital, and PPF Group, representing a 50% premium to the undisturbed share price. We have long believed that InPost’s logistics infrastructure, dominant Polish franchise (generating nearly 50% EBITDA margins), and rapidly scaling international operations across Europe together represent a compelling and underappreciated asset. We trimmed our position following the re-rating, as the stock approached the offer price and near-term upside became more limited. We remain invested and continue to believe the offer undervalues the company’s long-term earnings power, particularly given the untapped potential of InPost’s international expansion and its early-stage AI commerce initiatives.

Minimal exposure to Communication Services also added value, as sector performance was weighed down by declines from Index heavyweights Alphabet Inc. and Meta Platforms, Inc.