Baron International Growth Fund: Latest Insights and Commentary

International and emerging market (EM) equities delivered another quarter of relative outperformance, extending strong momentum from 2025. The first two months of 2026 saw international markets post solid double-digit gains, driven largely by AI-related technology companies and broad-based strength in industrials. Performance was particularly strong in Korea and Taiwan, where sustained investor demand for AI “picks and shovels” technology, memory chips, and foundry services contributed to market strength.

Late in the quarter, the U.S. and Israel attacked Iran, triggering a sharp rise in oil prices and an inflection point in global equity markets. However, this led to increased volatility and a rotation toward energy and U.S. assets. This shift weighed on international equity performance into quarter end; however, international and EM equities still comfortably outperformed the S&P 500 Index for the period, -0.6% and –0.1% versus -4.3%, respectively, underscoring the resilience of the asset class despite geopolitical disruption.

Looking ahead, the principal near-term risk remains the potential for an extended disruption to oil flows and a sustained spike in energy prices, as many Asian economies—including Taiwan, Korea, China, and India—are heavily reliant on Middle East imports. Nevertheless, current market dynamics suggest elevated energy prices are more likely to be temporary than structural.

Overall, we maintain our optimism regarding the outlook for both relative forward earnings and performance for the asset class. Company fundamentals remain intact, which supports our confidence in the asset class despite an evolving geopolitical backdrop.

CONTRIBUTORS

• 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

• ODDITY Tech Ltd. is a consumer tech platform transforming the beauty and wellness market. Shares fell after a recent Meta algorithm update proved incompatible with the company’s “Try Before You Buy” model, steering ads toward low-intent audiences. Because the model’s higher return rates skewed the algorithm, customer acquisition costs rose from $60 to $75 to over $100 to $150. Management spent several weeks diagnosing the problem before concluding it stemmed from the auction layer rather than the creative content fed into the algorithm. By the time the cause was identified in late January, ODDITY had already entered its peak first-quarter acquisition window with unit economics that made new customer acquisition unprofitable. As a result, the company pulled back on growth marketing. With no firm timeline for resolving the algorithm issue, we significantly reduced our position, though ODDITY remains inexpensive on normalized earnings and METHODIQ (its new teledermatology platform) continues to track well. We continue to own the company given its long-term growth opportunity in a large, underpenetrated e-commerce category.

The Quarterly Attribution Analysis for period ending March 31, 2026, is not yet available.