Baron Capital’s Baron Discovery Fund declined 4.16% in the third quarter of 2026 for institutional shares, outperforming the Russell 2000 Growth Index’s 9.39% decline. The fund returned 1.96% year to date, trailing the benchmark’s 10.71% gain despite what Baron described as strong stock selection, as investors rotated from momentum-driven artificial-intelligence winners toward software and healthcare. Healthcare holdings added 4.33% to quarterly performance, while software holdings recovered. CareDx, Inc. (NASDAQ:CDNA) contributed 2.54% after its shares rose nearly 130% following what Baron called a best-case reimbursement outcome for kidney, heart and lung transplant tests under the CMS (Centers for Medicare and Medicaid Services) MolDX program. Forgent Power Solutions, Inc. (NYSE:FPS) detracted 0.94% despite reporting results and guidance above market expectations; its quarterly bookings reached $1.5 billion and its planned manufacturing footprint expanded to $5.8 billion. The fund also highlighted aerospace and defense opportunities, including Loar Holdings Inc. (NYSE:LOAR), and maintained a disciplined focus on secular-growth companies with sustainable advantages while flagging risks related to capacity expansion, AI subscription revenue and financing-market stress.