Baron Capital, an investment management company, released its Q2 2026 investor letter for the "Baron Small Cap Fund." Baron Small Cap Fund gained 12.57% (Institutional Shares) in the second quarter, trailing the Russell 2000 Growth Index's 25.71% return. A copy of the letter can be downloaded here. U.S. equities rebounded sharply after March's selloff related to the U.S.-Iran conflict, with AI infrastructure, semiconductors, and other technology stocks driving much of the market's gains.
Small caps also outperformed large caps, although performance remained concentrated in high-Beta and Momentum stocks, areas where the Fund has historically had less exposure. The Fund benefited from several AI-related and industrial holdings, but software and services stocks remained pressured by concerns that AI could disrupt their businesses. Looking ahead, management believes broader market participation, attractive small-cap valuations, improving industrial growth, and stronger earnings could support future returns despite continued uncertainty around oil prices, inflation, and interest rates.
In addition, please check the Fund's top five holdings to know its best picks in 2026. In its second-quarter 2026 investor letter, Baron Small Cap Fund highlighted Blackstone Digital Infrastructure Trust Inc. (NYSE:BXDC). Blackstone Digital Infrastructure Trust Inc. (NYSE:BXDC) is a newly organized company focused on acquiring and owning mission-critical data center assets that power the modern digital economy.
On August 17, 2026, Blackstone Digital Infrastructure Trust Inc. (NYSE:BXDC) closed at $20.33 per share. One-month return of Blackstone Digital Infrastructure Trust Inc. (NYSE:BXDC) was 1.55% and its shares lost 9.00% over the past 3 months. Blackstone Digital Infrastructure Trust Inc. (NYSE:BXDC) has a market capitalization of $2.11 billion.
Baron Small Cap Fund stated the following regarding Blackstone Digital Infrastructure Trust Inc. (NYSE:BXDC) in its Q2 2026 investor letter: "We participated in the IPO of Blackstone Digital Infrastructure Trust Inc. (NYSE:BXDC), a newly listed Blackstone-sponsored vehicle focused on acquiring stabilized, fully leased data centers underpinned by long-term, non-cancellable leases to the world's largest hyperscalers in primary data center markets. The opportunity is compelling given the absence of large-scale capital dedicated to acquiring stabilized data center assets – leaving a significant volume of institutional-quality assets available at attractive prices with limited competition. Blackstone's sponsorship brings an unparalleled sourcing advantage, having invested $200 billion into digital infrastructure since 2018 and sourcing over 85% of deals off market, alongside a near-term actionable pipeline of $25 billion.
We believe the long-term leases with annual escalators and limited exposure to operating risks support a highly visible, attractive return profile. We spent considerable time with management prior to the IPO and came away highly impressed with the depth of the team, the quality of the identified pipeline, and the clarity of the long-term vision." Blackstone Digital Infrastructure Trust Inc. (NYSE:BXDC) is not on our list of the 40 Most Popular Stocks Among Hedge Funds. While we acknowledge the potential of Blackstone Digital Infrastructure Trust Inc. (NYSE:BXDC) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk.
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