Baron Capital, an investment management company, released its first quarter 2026 investor letter for its “Baron SMID Cap EFT”. This is the first full quarter of results for Baron SMID Cap ETF (BCSM). A copy of the letter can be downloaded here. Baron SMID Cap ETF focuses on investing in small, fast-growing businesses that demonstrate significant long-term growth potential, possess durable competitive advantages, have exceptional management teams, and offer compelling valuations. The Fund declined 10.56% (NAV) in the first quarter, underperforming the Benchmark, the Russell 2500 Growth Index, which declined 3.52%. During this quarter, investors gravitated towards a select few companies benefiting from artificial intelligence (AI) spending, referred to as “AI winners,” while selling off those considered “losers.” This created a challenging environment for bottom-up investors, as market prices diverged from fundamental values. This disconnect, combined with the onset of conflict in Iran, impacted the portfolio’s performance during the quarter. In addition, please check the Fund’s top five holdings to know its best picks in 2026.
In its first-quarter 2026 investor letter, Baron SMID Cap EFT highlighted stocks like ServiceTitan, Inc. (NASDAQ:TTAN). ServiceTitan, Inc. (NASDAQ:TTAN) is an American cloud-based software company that provides solutions for connecting and managing a range of business workflows. On June 3, 2026, ServiceTitan, Inc. (NASDAQ:TTAN) closed at $72.63 per share. One-month return of ServiceTitan, Inc. (NASDAQ:TTAN) was 11.23%, and its shares lost 36.60% over the past 52 weeks. ServiceTitan, Inc. (NASDAQ:TTAN) has a market capitalization of $6.93 billion.
Baron SMID Cap EFT stated the following regarding ServiceTitan, Inc. (NASDAQ:TTAN) in its Q1 2026 investor letter:
“Shares of ServiceTitan, Inc. (NASDAQ:TTAN), a leading business management software platform for the trades, detracted from performance in the quarter. The company reported strong fiscal Q4 2026 earnings and gave preliminary fiscal year 2027 guidance that was ahead of expectations. Despite these strong results, the stock was weak due to industry-wide AI fears that are hard to disprove in the near term around the potential for AI companies like Anthropic to negatively impact software businesses. We sold the position to re-allocate to higher conviction SMID-cap software ideas.”
ServiceTitan, Inc. (NASDAQ:TTAN) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 44 hedge fund portfolios held ServiceTitan, Inc. (NASDAQ:TTAN) at the end of the first quarter, compared to 48 in the previous quarter. While we acknowledge the potential of ServiceTitan, Inc. (NASDAQ:TTAN) 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.
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