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 Karman Holdings Inc. (NYSE:KRMN). Karman Holdings Inc. (NYSE:KRMN) is an American defense technology company that designs and manufactures mission-critical systems. On August 11, 2026, Karman Holdings Inc. (NYSE:KRMN) closed at $61.94 per share, reflecting a market capitalization of $8.21 billion.
Karman Holdings Inc. (NYSE:KRMN) posted a one-month return of 26.98%, while its shares gained 19.51% over the past 52 weeks. Baron Discovery Fund stated the following regarding Karman Holdings Inc. (NYSE:KRMN) in its Q2 2026 investor letter: "Karman Holdings Inc. (NYSE:KRMN) designs, tests, and manufactures mission critical systems for existing and emerging missile and space programs, which are some of the growthiest and in-demand segments of the defense industry. It has unique experience in complex/proprietary manufacturing methods, high-end materials and composites, and system level design.
Nearly 90% of Karman's sales are sole-sourced from the company, and 94% of its revenue is tied to proprietary IP-driven solutions (including patent-protected technologies). This enables it to drive adjusted cash flow margins in excess of 30%. Shares declined during the quarter for a few reasons.
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