The Baron Focused Growth Fund (the “Fund”) increased 1.68% (Institutional Shares) in the first quarter, underperforming the Russell 2500 Growth Index (the “Benchmark”), which increased 8.51%. Despite strong U.S. economic growth, the market priced in a smaller number of Federal Reserve interest rate cuts this year, leading to losses in the Fund’s Disruptive Growth investments, including Tesla, Inc., FIGS, Inc., and Iridium Communications Inc. However, gains in Financials investments, such as Interactive Brokers Group, Inc. and Arch Capital Group Ltd., as well as Real/Irreplaceable Asset investments, including Hyatt Hotels Corporation, Red Rock Resorts, Inc., and Choice Hotels International, Inc., partially offset the declines. The Fund’s strong risk-adjusted returns continue, with outperformance of the Benchmark over 3-, 5-, 10-, and 15-year periods, and since its inception in 1996. The underperformance in the first quarter was attributed to Disruptive Growth investments, representing 31.5% of the Fund’s net assets and declining 10.8%. Tesla’s decline of 29.3% in the quarter impacted performance by 346 bps, while FIGS and Iridium’s declines also contributed to the underperformance. Financials investments, representing 18.2% of the Fund, benefited from higher interest rates and performed well, with Interactive Brokers increasing 34.8% and Arch Capital Group contributing to performance. Real/Irreplaceable Assets increased 9.7% and contributed 230 bps to performance, driven by strong daily pricing power and consumers’ preference for experiences over goods.
