Baron Capital, an investment management company, released its second-quarter 2026 investor letter for its "Baron Financials ETF". A letter can be downloaded here. In the quarter ended June 30, 2026, Baron Financials ETF™ (the Fund) increased by 1.82%, underperforming both the MSCI USA Financials Index (up 8.93%) and the FactSet Global FinTech Index (up 6.14%).
U.S. equities soared, largely driven by AI infrastructure investments, despite challenges from the U.S.-Iran war, changing Federal Reserve rates, and consumer sentiment hampered by high living costs and inflation. Most gains were concentrated in Information Technology (IT) and Industrials, with IT outperforming the broader market at 31.8%, contributing significantly to the S&P 500's growth. Although growth outperformed value in the quarter, value remains ahead year to date.
Small caps notably surpassed large caps. The Fund's underperformance relative to the Financials Index stemmed from lower bank exposure and a higher allocation to software and data firms affected by AI disruption fears. The Fund believes its holdings are undervalued and have a positive outlook, as economic conditions remain strong with healthy consumer and business spending.
Also, check the fund's top five holdings to see its best picks in 2026. In its second-quarter 2026 investor letter, Baron Financials ETF highlighted LPL Financial Holdings Inc. (NASDAQ:LPLA). Based in San Diego, California, LPL Financial Holdings Inc. (NASDAQ:LPLA) offers an integrated platform of brokerage and investment advisory services.
On August 27, 2026, LPL Financial Holdings Inc. (NASDAQ:LPLA) closed at $361.22 per share, reflecting a market capitalization of $28.44 billion. LPL Financial Holdings Inc. (NASDAQ:LPLA) posted a one-month return of 3.58%, while its shares gained 0.52% over the past 52 weeks. Baron Financials ETF stated the following regarding LPL Financial Holdings Inc. (NASDAQ:LPLA) in its Q2 2026 investor letter: "Independent broker-dealer LPL Financial Holdings Inc. (NASDAQ:LPLA) was another detractor in Capital Markets, largely due to concerns that AI-driven cash management could erode the client sweep balances that earn significant interest income for LPL.
This narrative weighed on the stock even as the underlying business continued to perform well. We see little risk to LPL's cash balances, and management is exploring options to reduce the company's reliance on sweep cash revenue. Consequently, we believe the share price weakness reflects a temporary sentiment overhang rather than a deterioration in the company's growth outlook." LPL Financial Holdings Inc. (NASDAQ:LPLA) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026.
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