The strategy seeks to achieve capital appreciation over the long term by investing in small cap U.S. growth businesses with leading competitive positions. Investments are made in companies that we expect to grow at a faster rate than the broad market and the economy. The portfolio may hold successful small cap investments as they advance into larger businesses.
For the period ended 10/31/2025, the Baron Small Cap Fund received a 3-Star Overall Morningstar Rating™, 3-Star 3-Year Rating, 3-Star 5-Year Rating, and 3-Star 10-Year Rating. The Morningstar Ratings are based on the Morningstar Risk-Adjusted Return measures of 516, 516, 496, and 392 funds in the category, respectively. This Morningstar Rating is for the Retail share class only; other classes may have different performance characteristics.
1. Investment Strategy: High-Growth Small Caps
The fund follows a "Growth" investment style, specifically targeting "small-sized" companies. The management team focuses on:
Market Leaders: Investing in businesses with significant competitive advantages, high barriers to entry, and strong management teams.
- Sustainable Growth: Seeking companies that can grow their earnings and cash flow at a faster rate than the broader market over a 3-to-5-year horizon.
Long-Term Perspective: The fund is known for its low turnover (around 13%), indicating that the manager, Cliff Greenberg (who has managed the fund since its inception in 1997), prefers to "buy and hold" winners rather than trade frequently.
2. Portfolio Composition
Market Cap: It primarily invests in companies within the market cap range of the Russell 2000 Growth Index. As of late 2025/early 2026, the portfolio’s weighted average market cap is significantly higher than some peers, often leaning into "SMID" (small-to-mid) territory as its successful investments grow.
Concentration: The fund typically holds between 50 and 60 stocks. The top 10 holdings often represent nearly 40% of the total assets, showing a high-conviction approach.
Key Sectors: The portfolio is heavily weighted toward Industrials (approx. 28%), Information Technology (22%), and Consumer Discretionary (20%).
Top Holdings: Recent top positions include Vertiv Holdings (VRT), Red Rock Resorts (RRR), and Kinsale Capital Group (KNSL).
3. Performance and Risk Profile
Longevity and Consistency: One of the fund's greatest strengths is its management stability; Cliff Greenberg has over 28 years of tenure. Since its inception in 1997, the fund has historically outperformed the Russell 2000 Growth Index.
Volatility (Beta): The fund often carries a Beta higher than 1.0 (currently around 1.2 to 1.3), meaning it tends to be more volatile than the broad market. It may see sharper gains during bull markets but deeper pullbacks during corrections.
- Recent Performance: While long-term (10-year) returns remain strong (approx. 11.8% annualized), shorter-term 1-year and 3-year performance has faced headwinds relative to its benchmark, reflecting the volatile nature of the "Small Growth" category in recent high-interest-rate environments.
