Baron Global Opportunity Fund: Latest Insights and Commentary

U.S. equities were broadly higher in the third quarter, building on gains from the prior quarter. The S&P 500 Index and NASDAQ Composite set new record highs, most recently on September 22, and the Dow Jones Industrial Average ended the quarter at an all-time high. Small caps led the market recovery, with the Russell 2000 Index finally surpassing its previous record high achieved almost four years ago on November 8, 2021. Market volatility remained muted during the quarter as the CBOE Volatility Index (VIX) continued to trade in the mid-teens, well below its long-term average of around 20. 

The preeminent driver of market strength was the increased likelihood of Federal Reserve (Fed) rate cuts, prompted by signs of weakness in the labor market and the subsequent emergence of more dovish Fed commentary. Rate cut expectations rose in early August following a much weaker-than-expected July nonfarm payrolls report and significant downward revisions to prior numbers. Dovish Fedspeak intensified as the month wore on, with Chair Powell hinting a possible interest rate cut while delivering remarks at the Fed’s annual Jackson Hole conference. Similarly, Governor Waller continued to advocate for cuts while speaking at the Economic Club of Miami. The Fed eventually resumed its rate-cutting cycle at the September meeting, lowering its policy rate by 25 basis points to a range of 4% to 4.25%, after being on hold since its previous cut last December. Robust corporate earnings, narrowing trade uncertainties, a resilient consumer, increased M&A and IPO activity, and sustained AI optimism also contributed to market gains during the quarter. 

The Magnificent Seven complex dominated market returns for a second consecutive quarter, accounting for nearly two-thirds of the S&P 500 Index’s third-quarter gains. The group appreciated 15.5% in the period, outperforming all other securities in the Index, which were up 4.6%, by a double-digit margin. Tesla (+40.0%), Alphabet (+38.1%), Apple (+24.2%), and NVIDIA (+18.1%) posted the largest gains. Meta and Amazon were essentially flat in the period, trailing the broader Index. 

Most sectors closed higher in the period, with Information Technology, Communication Services, and Consumer Discretionary being the only sectors to outperform the broader market thanks to the heavy influence of the Magnificent Seven. Consumer Staples was the only sector to decline in the period, driven by broad-based weakness across a range of sub-industries, including distillers & vintners, personal care products, food retail, tobacco, and household products. Other laggards were Real Estate, Financials, Health Care, Industrials, Energy, and Materials. From a style perspective, small caps outperformed in the third quarter, rising more than 12% and narrowing the gap with mid- and large-cap stocks this year. Performance was mixed between growth and value, with growth stocks dominating in July, losing out to value in August, and rebounding in September. Despite recent volatility, growth generally remains ahead of value year to date, with the largest differential in the mid- and large-cap segments thanks to the heavy influence of Palantir and the broader Magnificent Seven. 

Beyond the U.S., emerging market (EM) equities meaningfully outperformed in September to finish ahead of their developed market counterparts for the quarter. The rally in Chinese equities was largely responsible for EM outperformance, with gains being driven by investor optimism about AI innovation, which bolstered Chinese technology and internet companies. Targeted government initiatives, easing trade tensions with the U.S., and significant domestic capital inflows also contributed to strength in China. Taiwanese and Korean equities also performed well in the period, overshadowing weakness in India, where equity markets were pressured by underwhelming corporate earnings and concerns about recently enacted U.S. tariffs. Foreign investor flows in Indian markets turned negative in the third quarter after being meaningfully positive in May and June. Performance in developed markets was held back by weakness in continental Europe (Denmark, Germany, Norway, Switzerland, France, and Sweden). European equities were hurt by weak corporate earnings, Trump tariff headwinds, and political instability, particularly in France, where the country’s prime minister resigned after losing a crushing confidence vote in parliament.

CONTRIBUTORS

• Shopify Inc. is a cloud-based software provider for multi-channel commerce. Shares rose during the quarter as the company continued to deliver solid results, with second-quarter revenue up 30% year over year in constant currency, reflecting sustained market share gains driven by 29% growth in gross merchandise volume (GMV). Growth was broad-based across Shopify’s core e-commerce merchant base and supported by successful expansion into offline, international, and business-to-business channels, which grew 29%, 42%, and 101%, respectively. Shares also benefited from progress in agentic commerce, underscored by Shopify’s recently announced partnership with OpenAI, the owner of ChatGPT. We believe the company's maturing product suite is becoming increasingly attractive to merchants of all sizes and geographies, enabling it to further expand its addressable market. We remain shareholders due to Shopify’s strong competitive positioning, innovative culture, and long runway for growth, as it still holds less than a 2% share of the global commerce market.
• NVIDIA Corporation is a fabless semiconductor company specializing in compute and networking platforms for accelerated computing. The company's dominant position in AI infrastructure—with a comprehensive portfolio spanning GPUs, systems, software, and high-performance networking solutions—continues to drive strong performance. Shares rose during the quarter as investor confidence in AI infrastructure expansion grew. NVIDIA reported near-term visibility of tens of gigawatts in AI buildouts, with each gigawatt representing an estimated $35 billion total addressable market (TAM). During its last earnings call, the company announced that its long-term TAM expanded from $1 trillion to between $3 and $4 trillion, and more recently to $5 trillion. As AI infrastructure investment accelerates, NVIDIA’s leadership continues to strengthen through durable moats across compute silicon, networking, systems, software, and supply chain. We remain highly confident in AI’s potential to transform the global economy and in NVIDIA’s pivotal role as the leading enabler of that transformation, positioning it to capture significant long-term value in the AI era.
• 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 stock transactions.

DETRACTORS

• MercadoLibre, Inc., the leading e-commerce marketplace across Latin America, detracted from performance during the quarter due to macroeconomic and competitive pressures. The sharp selloff in Argentine assets weighed heavily on shares, as Argentina represents roughly 20% of revenue and 40% of direct group contribution. The Argentine business, which had recently been a source of growth upside and upward forecast revisions, now faces potential downside amid weaker consumer confidence and currency volatility. At the same time, Amazon—one of MercadoLibre’s largest regional competitors—introduced new promotional rates for sellers in Brazil, heightening concerns about intensifying e-commerce competition. While these factors created near-term pressure, we maintain conviction in MercadoLibre’s long-term opportunity. The company remains uniquely positioned to capture a growing share of Latin America’s underpenetrated e-commerce and fintech markets, supported by its scale, brand trust, and powerful ecosystem.
• InPost S.A., Poland’s leading logistics operator with a rapidly expanding pan-European presence, detracted from performance during the quarter. Allegro, Poland’s top e-commerce platform and InPost’s largest customer—contributing around 15% of group revenue—has begun exploring alternative logistics solutions and partnering with multiple providers. This has raised concerns about potential volume pressure in Poland and further market share erosion once the current Allegro–InPost contract expires in 2027. Despite worst-case fears, we believe a full exit by Allegro is unlikely. InPost controls roughly 70% of parcel lockers and 90% of out-of-home delivery volumes in Poland, making a complete transition away from its network highly disruptive to service quality. We remain positive on InPost’s market leadership, expanding international footprint, and growing client diversification.
• Shares of IT services provider Endava plc detracted from performance after the company provided a weak financial outlook for the fiscal year. Revenue growth remains subdued amid continued demand softness, while margins are being pressured by AI-led investments and higher compensation costs. Client spending continues to be sluggish, reflecting hesitancy around rapidly evolving AI technologies and broader macroeconomic uncertainty. We remain investors and expect these near-term pressures to ease over time, leading to improved growth as clients increasingly prioritize digital transformation.

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) appreciated 7.71% (Institutional Shares) in the third quarter, performing similarly to the MSCI ACWI Index (the Index), which increased 7.62%. The Fund failed to separate itself from the Index because favorable impacts from active sector weights and tailwinds from certain strong performing style factors, such as Beta and Residual Volatility, were offset by disappointing stock selection. 

From a geographic perspective, stock selection in developed markets was a source of relative strength in the period, with investments in Canada, the U.S., and the Netherlands contributing the vast majority of relative gains. The Fund’s higher exposure to emerging markets (EM) also added value. EM equities outperformed their developed market counterparts thanks to a sharp rally in Chinese equities late in the quarter, as well as ongoing semiconductor-related strength in Taiwan. Mostly offsetting the above was weakness in other markets from the Fund’s investments in Argentina, where double-digit losses from MercadoLibre, Inc. and Globant S.A. were a 200-plus basis point drag on relative results. 

On a sector level, stock selection in Health Care was a standout in the period, contributing approximately 110 basis points of relative gains. Strength in the sector was led by sharp gains from biotechnology company argenx SE and AI-driven coronary artery disease management platform Heartflow, Inc. Argenx is best known for developing Vyvgart, the leading FcRn inhibitor for the treatment of autoimmune conditions. The company’s shares rose after second-quarter Vyvgart sales meaningfully exceeded investor expectations, rebounding from prior weakness linked to seasonal factors (such as insurance reverification) and higher Medicare Part D utilization and associated discounts. Our conversations with management and neurologists continue to reinforce Vyvgart’s value as an important treatment option with strong long-term growth potential. The drug continues to launch well in generalized myasthenia gravis, and its launch in chronic inflammatory demyelinating polyneuropathy is off to a strong start. 

Heartflow’s shares performed exceptionally well after the company’s August IPO was well received by investors. The company’s solution provides a minimally invasive way to catch blockages in the heart vessels, reducing both false negatives and false positives relative to the standard of care today. The company has a strong competitive moat, with a repository of 110 million images supplemented by human-aided training that has taken over 10 years to build. We like the asset-light nature of the business, along with the margin expansion opportunity as the AI algorithm improves with scale and data, enabling Heartflow to reduce the number of employee hours involved in real-time workflows. Heartflow has over 600 peer-reviewed publications, its solution has been approved by the FDA, and its core product has 99% insurance coverage. We remain excited about Heartflow’s prospects given the company is in the early innings of its growth ramp. 

Higher exposure to semiconductor and internet services & infrastructure stocks within Information Technology contributed another 90-plus basis points of relative gains. Lastly, the Fund benefited from being underexposed to the lagging Consumer Staples and Financials sectors.

Largely offsetting the above was disappointing stock selection in Consumer Discretionary, where Latin American e-commerce marketplace MercadoLibre and Spanish online gaming company Codere Online Luxembourg, S.A. were material detractors. MercadoLibre’s stock was hurt by a combination of macroeconomic and competitive pressures. The sharp selloff in Argentine assets weighed heavily on shares, as Argentina represents roughly 20% of revenue and 40% of direct group contribution. The Argentine business, which had recently been a source of growth upside and upward forecast revisions, now faces potential downside amid weaker consumer confidence and currency volatility. At the same time, Amazon—one of MercadoLibre’s largest regional competitors—introduced new promotional rates for sellers in Brazil, heightening concerns about intensifying e-commerce competition. While these factors created near-term pressure, we maintain conviction in MercadoLibre’s long-term opportunity. The company remains uniquely positioned to capture a growing share of Latin America’s underpenetrated e-commerce and fintech markets, supported by its scale, brand trust, and powerful ecosystem.

Codere Online is the digital gaming arm of casino operator Codere Group, with operations in Spain, Mexico, and other Latin American markets. The company’s shares declined in response to reports that the Mexican government may raise its gambling tax from 30% to 50% of gross gaming revenue—a potential headwind given Mexico’s importance to the business. While this proposal pressured sentiment and raised concerns about profitability, we believe the market reaction overstates the risks. Codere Online’s established brand, strong presence in Spain and high-growth Latin American markets, and first-mover advantage position it well for long-term growth. Despite near-term regulatory uncertainty, we view the company as undervalued and an attractive asset in the expanding digital gaming market.

Minimal exposure to the outperforming Communication Services sector and cash exposure in a rising market were other notable detractors in the period.