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With mega-cap valuations coming into question, more investors are gravitating towards small companies in pursuit of greater growth opportunities. However, simply allocating capital to an ETF that tracks a broad small-cap index, such as the Russell 2000 Index, can expose investors to unintended volatility and risk.
During the quarter, we initiated a position in Advanced Drainage Systems, the leading U.S. manufacturer of stormwater and onsite wastewater management products. We view Axon Enterprise as a market leading "atoms plus electrons" software provider with huge competitive moats. We sold the HeartFlow position in the quarter as we grew incrementally more concerned with the presence of competitors on the market.
Small-cap equities are winning out against their large-cap counterparts in a classic David versus Goliath ETF battle. After years of mega-cap technology dominance, small-cap equities have delivered investors a historic first half of 2026.
Emerging markets (EM) continue to attract investor attention after the asset class significantly outperformed U.S. and global stocks in 2025 and Q1 2026. Fueled by deglobalization, expanding artificial intelligence (AI) ecosystems, and powerful reform tailwinds, more investors are migrating to EM equities.
Higher-for-longer interest rates and ongoing market uncertainty have made SMID cap investing more difficult—and more interesting. The potential upside for this asset class is hard to ignore, and in this environment, an active approach like that offered by Baron SMID Cap ETF (BCSM) is more relevant than ever.
As megacap valuations remain stretched, more investors are looking to small- and mid- cap companies for growth exposure.
Baron SMID Cap ETF Q1 2026 Commentary
Baron Capital continues to grow its active ETF lineup with today's introduction of Baron Risk Optimized Large Cap ETF™ (BROL). The ETF builds upon the firm's commitment to long-term growth investing with a targeted focus on U.S. large-cap companies that exhibit durable competitive advantages, significant growth opportunities, exceptional management teams, and compelling valuations.
SEC filings for BCSM aren't indexed yet — common for recently launched funds. Browse the issuer's filings on SEC EDGAR directly.