Unveiling Insights: Baron Health Care Fund Q1 2025 Shareholder Update & Performance Highlights

Quarterly Update: Baron Health Care Fund Performance

Dear Baron Health Care Fund Shareholders,

In the first quarter of 2025, the Baron Health Care Fund saw a decline of 2.54%. This compares to the Russell 3000 Health Care Index, which gained 3.87%, and the broader Russell 3000 Index, which fell 4.72%. Since its inception in April 2018, our fund has grown at an annualized rate of 10.00%, slightly ahead of the Benchmark’s 9.57% but behind the broader Index’s 12.58%.

Performance Highlights

Our performance lagged the Benchmark, mainly due to stock selection choices. Two key areas, biotechnology and health care equipment, significantly influenced our results.

1. Biotechnology: Poor decisions here accounted for about two-thirds of our underperformance. Arcellx, Inc. (ACLX) struggled due to safety concerns from trial results for its multiple myeloma therapy. While promising, these challenges overshadowed its potential. We maintain confidence in its long-term prospects. Similarly, argenx SE (ARGX) showed underlying strength, despite recent stock declines.

2. Health Care Equipment: We faced setbacks with Glaukos Corporation and Intuitive Surgical, Inc. (ISRG). Glaukos’s new glaucoma treatment, iDose, did not meet ambitious investor expectations, causing a stock drop. Intuitive Surgical’s challenges stemmed from concerns about tariffs affecting its earnings and general market sentiment.

Key Contributors and Detractors

Performances from individual stocks played a pivotal role:

• Top Contributors:

  • Boston Scientific Corporation (BSX) outperformed due to its strong market position in medical devices, especially in cardiac innovation.
  • Vertex Pharmaceuticals (VRTX) recovered investor sentiment thanks to its robust cystic fibrosis lineup.
  • UnitedHealth Group (UNH) benefited from market anticipation for improved operational metrics.
• Top Detractors:
  • Arcellx was our biggest underperformer, as noted earlier, alongside Glaukos and Intuitive Surgical.

Portfolio Overview

Our strategy focuses on growth — specifically, companies poised for mid to high single-digit revenue growth. As of the end of March, our 35 holdings reflect an intentional focus on high-quality firms involved in health care innovations. The top 10 holdings comprise 64.2% of our net assets, with significant stakes in biotechnology and health care equipment sectors.

We’re actively watching emergent themes like innovative medical devices, gene therapy, and care delivery methods that reduce costs while enhancing patient outcomes. Noteworthy are the advances in organ transplant technology, including attempts at xenotransplantation, which could revolutionize kidney transplants.

Looking Ahead

The landscape for biotechnology remains complex, especially with potential changes in regulatory frameworks. We’re currently tracking emerging trends, such as greater investment in health care infrastructure and evolving patient care solutions.

Despite recent challenges, we remain committed to selecting companies with strong fundamentals and innovative capabilities. Our focus will always be on long-term growth, aligning our investments with trends in health care that promise to offer significant advancements.

Thank you for your continued trust in our management. I’m in this journey with you.

Sincerely,
Neal Kaufman, Portfolio Manager

For more details on our recent performance and positioning or any inquiries, visit BaronCapitalGroup.com.

This revised update maintains essential insights while highlighting key statistics and trends in the health care market. To enhance readability, technical jargon was minimized, making it more accessible while retaining the original message’s depth and context.

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