Baron Capital, an investment management company, released its second-quarter 2026 investor letter for its “Baron SMID Cap ETF”. You can download the letter here. Baron SMID Cap ETF® (BCSM) gained 15.62% (NAV) in the second quarter, underperforming the Russell 2500 Growth Index’s 24.02% return. The trend towards “AI winners” continued, focusing on companies related to chips, power equipment, and AI data center financing. MSCI’s Barra factor attribution indicates the fund’s underperformance was due to being underweight in Momentum and Beta factors. The top 10 holdings of the fund accounted for 29.3% of assets. The firm believes the portfolio companies are performing well fundamentally and are viewed as long-term cash flow compounders poised for significant returns. Additionally, reviewing the Fund’s top five holdings could help identify its best picks for 2026.
In its second-quarter 2026 investor letter, Baron SMID Cap ETF highlighted Axon Enterprise, Inc. (NASDAQ:AXON) as a newly established position. Axon Enterprise, Inc. (NASDAQ:AXON) is a public-safety technology company focused on developing connected law enforcement products and services, including taser, body camera, drone, and other hardware solutions. On September 16, 2026, Axon Enterprise, Inc. (NASDAQ:AXON) closed at $468.42 per share. Over the past month, Axon Enterprise, Inc. (NASDAQ:AXON) declined 23.74%, but its shares are down 38.89% over the past year. Axon Enterprise, Inc. (NASDAQ:AXON) has a market capitalization of $38.05 billion, and its stock has traded within a 52-week range of $339.01 and $792.16.
Baron SMID Cap ETF stated the following regarding Axon Enterprise, Inc. (NASDAQ:AXON) in its Q2 2026 investor letter:
“Axon Enterprise, Inc. (NASDAQ:AXON) is a public-safety-oriented company that sells its products to governments and law enforcement agencies around the world. Its mission is to “make the bullet obsolete” using non-lethal Taser devices combined with digital body cameras, drones, license plate readers, cloud-based software (including AI report generation which simplifies the administrative workload for law enforcement officers), and virtual reality training. This array of technology aims to provide better relationships between law enforcement and its constituent communities, and to reduce the number of fatal outcomes dramatically when stressful confrontations occur. Axon was a very successful investment for Baron Discovery Fund® when it was a smaller market cap company. In the current quarter we got a rare opportunity to repurchase Axon at a discount when it traded down as part of the “AI losers” basket. For the first half of 2026, the market has pressured the shares of all software-oriented companies as part of the “LLMs will eat all other software companies” trade. We view Axon as a market leading “atoms plus electrons” software provider with huge competitive moats. And we believe there’s an opportunity to more than double our money over a five-year time frame at current prices.”
