Baron SMID Cap ETF adds to discounted software holdings

In a first-quarter recap, Baron SMID Cap ETF managers Laird Bieger and Randy Gwirtzman wrote that several holdings beat earnings and raised 2026 guidance but fell after being labeled ‘AI losers.’ The fund has added to discounted software names and reinforced core positions in Samsara, Guidewire and Dynatrace.

They described a sharp valuation split between perceived AI winners and losers that produced price moves not aligned with company fundamentals. “Several of our holdings beat their earnings estimates and raised their 2026 guidance, yet saw their stocks decline more than 30% in the period, simply because they were categorized as AI losers,” the managers wrote.

As a response, the fund increased exposure to software companies trading at historically low multiples and added to high-conviction core positions. Midway through the second quarter, BCSM continued buying stocks in under-researched small and mid-cap businesses the managers view as early in their growth phases.

The recap names Samsara Inc., Guidewire Software, Inc., and Dynatrace, Inc. among the companies where the fund reinforced positions and says other software holdings were added opportunistically.

Bieger and Gwirtzman pointed to higher-for-longer interest rates and ongoing uncertainty as factors affecting SMID-cap investing. They noted that the market’s binary framing of companies as AI winners or losers may not last and that valuation focus could shift back to business performance.

The managers outlined a bottom-up stock selection process with concentrated stakes in firms that have limited analyst coverage. The fund maintained that approach while holding positions through periods when sentiment, rather than reported results, drove share prices.