The fund underperformed by 6.63% due to an underweight in high-momentum AI stocks, prioritizing long-term fundamentals over short-term gains.
Baron Discovery Fund returned 19.08% in Q2 2026, trailing the Russell 2000 Growth Index’s 25.71% gain. The underperformance stemmed from a momentum-driven rally in AI-related stocks, which the fund avoided to maintain a balanced portfolio.
The fund’s 6.63% lag was attributed to an underweight in high-beta and momentum factors, contrasting with the benchmark’s heavy exposure to AI winners. Baron Capital drew parallels to the late 1990s dot-com bubble, emphasizing fundamentals over speculative trends.
Advanced Drainage Systems (WMS) was reinitiated as a holding, closing at $143.65 on August 11, 2026, with a market capitalization of $10.83 billion. The stock posted a one-month return of -5.03% but gained 0.76% over the past year.