Baron Discovery Fund: Q1 2026 Performance Review and Portfolio Adjustments

During the first quarter of 2026, the Baron Discovery Fund experienced a challenging period, recording a decrease of 10.65% in its Institutional Shares. This performance lagged significantly behind the Russell 2000 Growth Index, primarily due to a downturn in the software industry. In response, the fund made strategic adjustments, including divesting its stake in Intapp, Inc. to concentrate on investments offering superior competitive advantages. Meanwhile, Advanced Energy Industries, Inc. saw its stock value climb as market appreciation for its strong position in the data center and semiconductor sectors grew. Forgent Power Solutions, Inc. is on the verge of completing a substantial manufacturing facility expansion, positioning it for increased revenue capacity. Concurrently, Enpro Inc. is projected to achieve consistent mid-to-high single-digit organic revenue growth and expanding EBITDA margins in the long term.

Baron Discovery Fund's Q1 2026 Performance and Strategic Shifts

In the initial quarter of 2026, the Baron Discovery Fund (Institutional Shares) recorded a notable decline of 10.65%, trailing the Russell 2000 Growth Index by 7.84%. This underperformance was largely influenced by significant headwinds within the software sector. Amidst these challenges, the fund strategically re-evaluated its holdings, leading to the sale of its investment in Intapp, Inc. The decision stemmed from a belief that other software investments within the portfolio possessed more robust competitive advantages. This move reflects a proactive approach to optimizing the fund's composition in a volatile market.

Conversely, some portfolio companies demonstrated resilience and growth. Advanced Energy Industries, Inc. experienced a positive trajectory in its stock value during this period. The market began to recognize the considerable strength of the company's position in both the data center and semiconductor end markets, leading to increased investor confidence and share price appreciation. This highlights the fund's diversified exposure across various high-growth sectors.

Further emphasizing strategic investment in infrastructure and technology, Forgent Power Solutions, Inc. is nearing the culmination of a significant manufacturing footprint investment. This expansion is designed to support an impressive $5 billion in revenue, establishing the company as a leader with one of the industry's most advanced manufacturing capabilities. This development underscores a commitment to fostering long-term growth through enhanced production capacity.

Looking ahead, the Baron Discovery Fund holds a positive outlook on Enpro Inc. Analysts anticipate that Enpro Inc. will achieve mid to high single-digit organic revenue growth consistently over time. Additionally, its EBITDA margins are expected to expand into the high 20% range, indicating strong operational efficiency and profitability. These projections reinforce the fund's strategy of investing in companies with solid fundamentals and promising growth prospects.

The first quarter of 2026 presented a mixed landscape for the Baron Discovery Fund, marked by significant challenges in the software sector but also by strategic portfolio adjustments and the strong performance of key holdings. The fund's proactive management of its investments, including the strategic divestment from Intapp, Inc. and continued support for high-potential companies like Advanced Energy Industries, Forgent Power Solutions, and Enpro Inc., demonstrates a clear strategy to navigate market complexities and pursue long-term growth. This period underscores the importance of adaptive investment strategies and a deep understanding of market dynamics to capitalize on emerging opportunities while mitigating risks.