Baron Global Opportunity Fund: Latest Insights and Commentary

CONTRIBUTORS

• Shopify Inc., a leading commerce platform for merchants of all sizes, contributed to performance. Second-quarter results marked another quarter of exceptional execution, with gross merchandise volume (GMV) rising 32% year-over-year to $116 billion and revenue increasing 34%. This represented the fifth consecutive quarter of 30%-plus growth across GMV, revenue, gross profit, operating income, and free cash flow. Merchant solutions revenue grew 37% year-over-year on higher payments penetration, while operating income increased 68% and free cash flow margin expanded to 18% from 16%. Growth was broad-based across merchant sizes, geographies, and channels, with business-to-business (B2B) GMV up 76% and offline GMV up 32%. Third-quarter guidance for low-30% revenue growth and further operating expense leverage exceeded expectations. We retain conviction in Shopify as a durable compounder and believe its two decades of proprietary merchant and buyer data position the company as a key beneficiary as commerce shifts toward AI-driven discovery and agentic checkout.
• Cloudflare, Inc. is a leading provider of cloud-based security, performance, and developer services. Shares rose as investors increasingly viewed the company as a key infrastructure provider for the emerging agentic internet. In the second quarter, more than half of the traffic crossing Cloudflare’s network was non-human for the first time. The company is building the controls, developer tools, and payment infrastructure needed to secure and monetize this shift. A cybersecurity recovery provided an additional tailwind as new AI-enabled threats heightened urgency among security buyers, while Cloudflare’s partners reported broad-based acceleration across the company’s portfolio. Fundamentals remained strong, with revenue growth accelerating to 36% year-over-year, large customers growing 27%, and nearly 2 million developers joining Cloudflare’s Workers platform during the quarter. We retain long-term conviction and believe the company’s scale and network architecture provide a durable advantage as AI agents reshape how the internet is used.
• Leading cloud-native cybersecurity platform CrowdStrike Holdings, Inc. contributed to performance. The rapid advance of AI cyber capabilities, underscored by several high-profile incidents in which AI agents escaped their testing environments and breached live corporate systems, has made cyber defense a board-level priority and is driving committed cybersecurity spending. CrowdStrike sits at the center of this demand, securing the endpoints, clouds, and identities where AI is increasingly created and consumed. With modules across every major security category and a trusted brand, the company is also benefiting from a structural consolidation of spending away from point products and legacy antivirus vendors. We believe this contributed to the strongest quarter in CrowdStrike’s history as a public company. Annual recurring revenue (ARR), net new ARR, and revenue growth all accelerated, with net new ARR increasing 51% year-over-year and management raising its full-year net new ARR growth outlook by 630 basis points. We retain conviction in CrowdStrike’s long-term opportunity while remaining mindful of valuation following the stock’s substantial appreciation.

DETRACTORS

• Space Exploration Technologies Corp. (SpaceX) develops and launches advanced rockets, satellites, and spacecraft, with the long-term goal of making humanity multi-planetary. The stock detracted from performance as shares pulled back from highs reached after the initial public offering, despite strong underlying fundamentals. We remain long-term shareholders and believe the company is in the early stages of a multi-decade growth opportunity. SpaceX’s first public-company results reinforced our conviction, with revenue nearly doubling year-over-year and losses narrowing sharply on high incremental margins. Growth was driven by rapidly scaling, multibillion-dollar compute-hosting deals with AI leaders, including Anthropic and Google, alongside Starlink momentum. Management guided to a robust $100 billion annualized revenue run rate by year-end 2026 and up to five times more compute exiting 2027, well above Street expectations. SpaceX also closed its acquisition of Cursor, a premier enterprise AI-powered coding platform, accelerated product development with Grok Bot and more advanced Grok models, and progressed Starship toward full reusability.
• Forgent Power Solutions, Inc. is a leading manufacturer of electrical distribution equipment used in data centers, the power grid, and industrial applications. The company specializes in low- and medium-voltage electrical equipment, with more than 90% of revenue derived from custom, engineered-to-order products, while larger competitors tend to focus on higher-voltage and more standardized offerings. Shares fell as sentiment weakened across the AI infrastructure market, despite financial results and guidance that beat expectations. Bookings reached $1.5 billion during the quarter, significantly exceeding the company’s current revenue run rate. Forgent is gaining market share through its ability to offer customized products with industry-leading lead times and remains in the early stages of its opportunity, having recently signed its first master services agreement (MSA) with a hyperscale customer. The company has invested heavily in capacity and personnel to support future growth. Given the strength of demand, Forgent has increased its planned manufacturing footprint to $5.8 billion, supporting our view that the company has many years of growth and margin expansion ahead.
• Loar Holdings Inc. is a specialized aerospace components manufacturer focused on highly engineered, mission-critical products. Shares declined amid growing negative sentiment toward the aerospace aftermarket as elevated fuel prices related to the Iran War weighed on the outlook. We expect Loar to outperform peers, supported by latent pricing power and a strong new product pipeline. The company has not fully utilized its pricing power in stronger market conditions, providing flexibility in a more challenging environment. We also expect new product growth to accelerate as customers increasingly seek out leading suppliers to solve complex problems.

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) rose 3.32% (Institutional Shares) in the third quarter, outpacing the 1.60% return of the MSCI ACWI Index (the Index). According to MSCI’s Barra factor attribution, strong stock selection and favorable industry factor effects were the principal contributors to outperformance, and together they helped offset headwinds from style factors, which were largely tied to the quarter’s rotation into value stocks. The Fund’s underexposure to Earnings Yield, Book-to-Price, and Dividend Yield proved costly.

The most significant industry contributions came from the Fund’s overweight positions in the IT Services and Software and Internet Software and Services industries, both of which appreciated double digits. Software and services-related industries struggled through much of the first half of 2026, as the “SaaS-pocalypse” stoked concerns that AI posed an existential threat to many of these businesses. That sentiment turned sharply at the beginning of the third quarter. Healthy growth and earnings reports helped calm those worries, and many of these companies demonstrated how AI could enhance their business models rather than displace them. Investors responded by rotating back into these formerly neglected areas, where valuations had dropped to multi-year lows.

From a geographic perspective, strong stock selection in developed markets drove outperformance in the period, led by strength in the U.S. and Canada (Shopify Inc.), where many of the Fund’s software and health care holdings performed well. Disappointing stock selection in emerging markets partially offset these gains, largely because of weakness associated with select holdings in Taiwan (Taiwan Semiconductor Manufacturing Company Limited (TSMC)), Korea (Coupang, Inc.), and Brazil (Nu Holdings Ltd.).

On a sector level, favorable stock selection in Information Technology (IT) combined with an overweight to this outperforming sector accounted for essentially all of the outperformance. Strength in IT was driven by double-digit gains from Shopify, Cloudflare, Inc., CrowdStrike Holdings, Inc., Snowflake Inc. and other software and services-related holdings, all of which benefited from the improving sentiment described above. Cybersecurity was another tailwind, as several of the Fund’s software holdings are cybersecurity companies. The rapid advance of AI cyber capabilities, underscored by several high-profile incidents in which AI agents escaped their testing environments and breached live corporate systems, has made cyber defense a board-level priority and is driving committed cybersecurity spending.

Strong stock selection in Health Care also contributed, driven by significant gains in Illumina, Inc. and Heartflow, Inc. Both companies benefitted from AI-related and company-specific catalysts. Illumina is the dominant provider of next-generation sequencing instruments and consumables. Shares rose sharply during the quarter, supported by several long-term tailwinds, including growing sequencing demand from personalized medicine, such as Moderna’s cancer vaccine; liquid biopsy (blood-based cancer testing); and AI-driven drug discovery, which relies on proprietary data to train AI models. We retain conviction in Illumina as a leading picks-and-shovels provider benefiting from some of the most attractive secular growth trends in health care.

Heartflow is a commercial-stage medical technology company whose AI platform turns coronary CT scans into non-invasive diagnostics for coronary artery disease. Shares surged after the company reported strong second-quarter results and raised its outlook. AI was a catalyst in two ways. First, growing adoption of its AI-powered Plaque Analysis drove higher case volumes and accelerated revenue growth. Second, AI-driven automation of its case-processing workflow expanded gross margins to a record level, demonstrating the scalability of the model. Plaque-activated accounts continued to accelerate, and reimbursement coverage continued to run ahead of plan. We remain confident in Heartflow given its scale advantage in an underpenetrated market and its potential to expand its addressable market as asymptomatic screening trials begin enrolling.

Disappointing stock selection in Industrials and Communication Services partially offset these gains, though favorable allocation effects in both sectors somewhat cushioned the impact. Stock-specific losses in Communication Services stemmed from the Fund’s sizable position in Space Exploration Technologies Corp. (SpaceX), which develops and launches advanced rockets, satellites, and spacecraft with the long-term goal of making humanity multi-planetary. SpaceX shares pulled back from highs reached after the initial public offering, despite strong underlying fundamentals. We remain long-term shareholders and believe the company is in the early stages of a multi-decade growth opportunity. SpaceX’s first public-company results reinforced our conviction, with revenue nearly doubling year-over-year and losses narrowing sharply on high incremental margins. Growth was driven by rapidly scaling, multibillion-dollar compute-hosting deals with AI leaders, including Anthropic and Google, alongside Starlink momentum. Management guided to a robust $100 billion annualized revenue run rate by year-end 2026 and up to five times more compute exiting 2027, well above Street expectations. SpaceX also closed its acquisition of Cursor, a premier enterprise AI-powered coding platform, accelerated product development with Grok Bot and more advanced Grok models, and progressed Starship toward full reusability.

Weakness in Industrials was led by declines in Forgent Power Solutions, Inc., a leading manufacturer of electrical distribution equipment used in data centers, the power grid, and industrial applications, and Loar Holdings Inc., a specialized aerospace components manufacturer focused on highly engineered, mission-critical products. Forgent’s shares fell as sentiment weakened across the AI infrastructure market, despite financial results and guidance that beat expectations. Bookings reached $1.5 billion during the quarter, significantly exceeding the company’s current revenue run rate. Forgent is gaining market share through its ability to offer customized products with industry-leading lead times and remains in the early stages of its opportunity, having recently signed its first master services agreement with a hyperscale customer. The company has invested heavily in capacity and personnel to support future growth. Given the strength of demand, Forgent has increased its planned manufacturing footprint to $5.8 billion, supporting our view that the company has many years of growth and margin expansion ahead.

Loar’s stock fell amid growing negative sentiment toward the aerospace aftermarket as elevated fuel prices related to the Iran war weighed on the outlook. We expect Loar to outperform peers, supported by latent pricing power and a strong new product pipeline. The company has not fully utilized its pricing power in stronger market conditions, providing flexibility in a more challenging environment. We also expect new product growth to accelerate as customers increasingly seek out leading suppliers to solve complex problems.

Disappointing stock selection in Financials (Bajaj Finance Limited and Nu), along with no exposure to the top-performing Energy sector, also hampered performance.