Baron Discovery Fund Q1 2026: Who Moved The Needle
Baron Discovery Fund fell 10.65% in Q1 2026, lagging its benchmark as software holdings hurt results. The team points to stronger long-term opportunities in names like Forgent, Advanced Energy, and Enpro.
Intelligence analysis by GPT-5.4 Mini
The fund had a difficult first quarter, with software weakness and limited exposure to stronger market areas dragging performance below the Russell 2000 Growth Index. Baron says it is leaning into companies with better competitive positions and secular growth drivers.
The fund had a rough quarter because some of its tech-like software picks fell behind. It is trying to focus on companies that it thinks can grow for a long time, like a coach betting on sturdy players instead of fast luck.
Analysis
Performance
Baron Discovery Fund said Q1 2026 was challenging on both an absolute and relative basis. Institutional Shares declined 10.65% and trailed the Russell 2000 Growth Index by 7.84%, with the manager pointing to significant underperformance in software as a major reason.
What helped and hurt
The commentary says the fund lacked exposure to some of the stronger areas of the market, including energy and materials, while several consumer and industrial names also faced negative sentiment. Even so, some core holdings posted strong earnings, which softened but did not offset the broader weakness.
Portfolio actions and thesis
The fund sold its stake in Intapp because the team believes other software holdings have stronger competitive advantages. It also highlighted Advanced Energy Industries, whose stock rose as investors began to appreciate demand tied to data centers and semiconductors.
Baron also discussed Forgent Power Solutions, saying the company has nearly finished a manufacturing footprint investment that could support $5 billion in revenue and give it one of the largest state-of-the-art manufacturing footprints in the industry. Another holding, Enpro, is viewed as capable of mid to high single-digit organic revenue growth over time, with EBITDA margins expanding into the high 20% range.
Bottom line
The fund is trying to stay focused on businesses with durable advantages and long growth runways, even while short-term sector rotation weighs on results.
Key points
- Baron Discovery Fund lost 10.65% in Q1 2026 and lagged the Russell 2000 Growth Index by 7.84%.
- Software sector weakness was the main drag on relative performance.
- The fund sold Intapp because it sees better competitive advantages in other software holdings.
- Advanced Energy benefited as investors recognized demand from data centers and semiconductors.
- Baron highlighted Forgent Power Solutions and Enpro as longer-term growth opportunities.
If the team’s thesis proves right, holdings tied to data centers, semiconductors, grid infrastructure, and software could benefit from long-term demand. Forgent’s larger manufacturing footprint and Enpro’s margin expansion could help improve results if revenue growth and operating leverage come through.
If software stays weak or the fund keeps missing the market’s better-performing areas, relative performance could remain under pressure. The growth assumptions behind holdings like Forgent and Enpro may also take time to materialize, leaving the fund exposed to more near-term volatility.
