Baron Capital, an investment management company, released its Q2 2026 investor letter for the "Baron Small Cap Fund." Baron Small Cap Fund gained 12.57% (Institutional Shares) in the second quarter, trailing the Russell 2000 Growth Index's 25.71% return. A copy of the letter can be downloaded here. U.S. equities rebounded sharply after March's selloff related to the U.S.-Iran conflict, with AI infrastructure, semiconductors, and other technology stocks driving much of the market's gains.
Small caps also outperformed large caps, although performance remained concentrated in high-Beta and Momentum stocks, areas where the Fund has historically had less exposure. The Fund benefited from several AI-related and industrial holdings, but software and services stocks remained pressured by concerns that AI could disrupt their businesses. Looking ahead, management believes broader market participation, attractive small-cap valuations, improving industrial growth, and stronger earnings could support future returns despite continued uncertainty around oil prices, inflation, and interest rates.
In addition, please check the Fund's top five holdings to know its best picks in 2026. In its second-quarter 2026 investor letter, Baron Small Cap Fund highlighted Wingstop Inc. (NASDAQ:WING). Wingstop Inc. (NASDAQ:WING) operates restaurants under the Wingstop brand in United States and internationally.
On August 17, 2026, Wingstop Inc. (NASDAQ:WING) closed at $115.72 per share. The one-month return of Wingstop Inc. (NASDAQ:WING) was -13.55% and its shares lost 64.74% over the past 52 weeks. Wingstop Inc. (NASDAQ:WING) has a market capitalization of $3.15 billion.
Baron Small Cap Fund stated the following regarding Wingstop Inc. (NASDAQ:WING) in its Q2 2026 investor letter: "Wingstop Inc. (NASDAQ:WING) was a previous successful investment that remains a best-in-class franchisor with stellar unit economics and long growth runway. We are investing again in this high-quality "fallen angel" at what we think is a meaningfully discounted valuation." Wingstop Inc. (NASDAQ:WING) is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 44 hedge fund portfolios held Wingstop Inc. (NASDAQ:WING) at the end of the first quarter which was 49 in the previous quarter.
While we acknowledge the potential of Wingstop Inc. (NASDAQ:WING) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock. In another article, we covered Wingstop Inc. (NASDAQ:WING) and shared whether the company is a good stock to buy.
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