Baron Capital, an investment management company, released its Q2 2026 investor letter for the "Baron Discovery Fund". A copy of the letter is available to download here. Baron Discovery Fund appreciated by 19.08% (Institutional Shares) in the quarter, underperforming the Russell 2000 Growth Index, which gained 25.71%.
This lag was primarily due to a momentum-driven "AI winners" trade, with these stocks largely contributing to the Benchmark's performance. The Fund experienced a 6.63% underperformance, largely driven by an underweight in strong-performing Momentum and Beta factors. The Fund prioritizes a long-term balanced portfolio over chasing momentum.
The letter discussed parallels between the current AI market and the late 1990s dot-com bubble. The firm remains focused on company fundamentals and long-term valuation. Please review the fund's top five holdings to gain insights into their key selections for 2026.
In its Q2 2026 investor letter, Baron Discovery Fund highlighted CareDx, Inc. (NASDAQ:CDNA). Incorporated in 1998, CareDx, Inc (NASDAQ:CDNA) is a precision medicine company focused on the discovery, development, and commercialization of diagnostic solutions for transplant patients, which contributed positively to the fund's performance this quarter. On August 11, 2026, CareDx, Inc. (NASDAQ:CDNA) closed at $47.23 per share, reflecting a market capitalization of $2.4 billion and a year‑to‑date gain of 150.69%.
CareDx, Inc. (NASDAQ:CDNA) posted a one‑month return of 58.76%, while its shares gained 289.37% over the past 52 weeks." Baron Discovery Fund stated the following regarding CareDx, Inc. (NASDAQ:CDNA) in its Q2 2026 investor letter: "Shares of CareDx, Inc. (NASDAQ:CDNA) contributed to performance. CareDx sells diagnostic testing services which detect early rejection of heart, kidney, and lung transplants. Shares declined dramatically in the third quarter of 2025, as the Centers for Medicare and Medicaid Services (CMS) MolDX Program issued a draft local coverage decision (LCD) that, if finalized, would significantly limit reimbursement for CareDx's tests.
In particular, the draft LCD would remove increased coverage for HeartCare (which is a dual test including donor derived cell-free DNA (dd-cfDNA) and gene expression profiling (GEP) despite definitive data showing a heightened clinical benefit from using both tests. The draft LCD also proposes a bundled payment reimbursement model that has been studied and is recommended by medical societies. It is not yet clear whether the structure of the bundling program would help or hurt CareDx's revenues.
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