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Baron Discovery Fund turns higher on FPS contribution in Q2 2026
The fund’s Institutional Shares gained 19.1% in the quarter, but lagged the Russell 2000 Growth Index by 6.6 percentage points due to an underweight in Momentum and Beta factors.
Baron Capital said its Baron Discovery Fund improved performance in Q2 2026, with Institutional Shares up 19.08% during the quarter. The fund, however, lagged the Russell 2000 Growth Index, which rose 25.71%.
In its Q2 2026 investor letter, the firm attributed much of the shortfall to a momentum-driven “AI winners” trade, noting that stocks tied to that factor set largely drove benchmark gains. Baron Discovery Fund said it underperformed by 6.63%, largely linked to an underweight in strong-performing Momentum and Beta factors.
Baron Capital said the letter also drew parallels between today’s AI market and the late 1990s dot-com bubble, while emphasizing a long-term approach focused on company fundamentals and valuation rather than chasing momentum. The fund highlighted Forgent Power Solutions, Inc. as a leading contributor, describing the company as a low- and medium voltage specialist whose engineered-to-order products account for more than 90% of revenue.
According to the investor letter, Forgent Power Solutions closed on August 10, 2026 at $37.60 per share, valuing it at a market capitalization of $11.45 billion. The stock showed a one-month return of -6.12%, while the fund said FPS rose during the quarter as it delivered strong financial results amid improving demand tied to AI infrastructure and grid buildout.
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