Baron Fifth Avenue Growth Fund Q3 2025 Shareholder Letter

Core Insights - Baron Fifth Avenue Growth Fund gained 5.7% in Q3, underperforming the Russell 1000 Growth Index (10.5%) and S&P 500 Index (8.1) [3][4] - Year-to-date, the Fund is up 14.4%, lagging behind the Russell 1000 Growth Index (17.2%) and S&P 500 Index (14.8%) [3][4] - The Information Technology sector has been a significant driver of returns, representing 52.6% of the Russell 1000 Growth Index [5] Fund Performance - Q3 performance: Fund Retail Shares gained 5.78%, Institutional Shares gained 5.72% [4] - Year-to-date performance: Retail Shares up 14.29%, Institutional Shares up 14.35% [4] - 1-year performance: Institutional Shares up 27.76%, outperforming the Russell 1000 Growth Index (25.53%) [4] Sector Analysis - The IT sector has appreciated 186% since the start of 2023, significantly outperforming the Russell 1000 Growth Index [5] - The Fund's underweight in the "Magnificent Seven" tech stocks contributed to its relative underperformance [7] - Health Care overweight and underweight in IT negatively impacted the Fund's performance [7] Key Contributors and Detractors - Top contributors: NVIDIA (2.02%), Shopify (1.42%), Tesla (1.27%), Alphabet (1.22%) [16] - Top detractors: The Trade Desk (-0.85%), Intuitive Surgical (-0.59%), MercadoLibre (-0.55%) [20] Investment Strategy - The Fund's portfolio is constructed on a bottom-up basis, focusing on quality ideas and conviction [23] - As of September 30, 2025, the top 10 holdings represented 60.3% of the Fund's net assets [24] - Recent activity includes initiating a position in Figma and increasing stakes in KKR, Alphabet, Taiwan Semiconductor, and CrowdStrike [28] Market Trends - AI investments are accelerating, with significant commitments from companies like Oracle ($455 billion backlog) and NVIDIA ($100 billion investment in OpenAI) [6][12] - The market is currently characterized by cautious investor sentiment, contrasting with the "bubble thinking" seen in the late 1990s [13] - Valuations today are considered more rational compared to the dot-com era, with major tech companies trading at lower P/E ratios than during the previous bubble [13][14] Company Insights - NVIDIA is positioned as a leader in AI infrastructure, with a total addressable market expanding from $1 trillion to $3-4 trillion [16] - Shopify's growth is driven by a 30% year-over-year revenue increase and successful expansion into various channels [18] - Tesla's stock surged due to strong delivery volumes and advancements in AI initiatives [19] Future Outlook - The Fund remains optimistic about long-term prospects, particularly in AI and technology sectors [44] - The anticipated downward trend in interest rates may lead to increased capital inflows into the stock market [14]