ZenSaBi/E+ via Getty Images The following segment was excerpted from the Baron Financials ETF Q4 2025 Quarterly Letter. In the quarter ended December 31, 2025, Baron Financials ETF® (BCFN)(the Fund) fell 2.22% (NAV) compared with a 7.19% decline for the FactSet ...

Core Insights - The Baron Financials ETF experienced a decline of 2.22% in the fourth quarter of 2025, underperforming the MSCI USA Financials Index which gained 2.07% and the S&P 500 Index which rose by 2.66% [2][3][7] - Since its inception, the Fund has achieved a 10.21% annualized return, outperforming the FactSet Global FinTech Index which only rose by 2.55% [2][3] Performance Overview - In the fourth quarter, the Fund's performance was influenced by favorable stock selection within Information Services and an overweighting in Tech-Enabled Financials, despite underperformance against the Financials Index due to low exposure to banks [7][8] - The Fund's annualized performance over various periods shows a 0.91% gain over one year, 16.52% over three years, and 4.01% over five years [3] Market Context - The fourth quarter of 2025 saw a steady finish for equity markets, driven by easing economic pressures and lower interest rates, with large-cap technology stocks leading the market [6] - The Federal Reserve's rate cuts contributed to a favorable environment for financial markets, with large-cap stocks outperforming mid and small-cap stocks [6] Fund Strategy and Holdings - The Fund maintains a growth-oriented investment strategy focused on financial and financial-related companies, emphasizing those with sustainable competitive advantages and strong management [5] - As of December 31, 2025, the Fund held 43 positions, with the top 10 holdings representing 43.8% of net assets [19][22] Sector Allocation - The Fund's sector allocation includes 31.7% in Capital Markets, 20.7% in Information Services, and 17.4% in Payments, with a notable underweight in Banks at 8.2% [20][23] - The Fund's holdings are primarily classified as Leaders (75.6% of net assets) and Challengers (24.2% of net assets), indicating a focus on established companies with stable growth [21] Recent Activity - The Fund made significant net purchases in Morgan Stanley and Capital One Financial Corporation, reflecting a strategy to invest in firms with strong growth potential and diversified revenue streams [25][31] - The Fund trimmed positions in Guidewire Software and Interactive Brokers to manage exposure to the volatile software sector [32] Outlook - The macroeconomic environment is viewed as generally healthy, with expectations for continued growth supported by fiscal stimulus and easing monetary policy [34][35] - Political developments are seen as a potential risk, particularly regarding regulatory changes that could impact the financial sector [36]