Baron Small Cap Fund Exited The Cheesecake Factory (CAKE) Following YTD Rally

Baron Capital, an investment management company, released its Q3 2026 investor letter for the "Baron Small Cap Fund." The letter can be downloaded here. In Q3, the Baron Small Cap Fund declined 7.69% (Institutional Shares), outperforming the Russell 2000 Growth Index, which fell 9.39%. Year to date, the Fund is down 4.30%, while the Index is up 10.71%. The Fund's initial strength in July and August was followed by a September sell-off driven by rising interest rates, inflation concerns, and geopolitical tensions, notably in the Middle East. The Fund's relative outperformance was driven by strong stock selection in Information Technology, which rose 7.16% while the Index's IT stocks fell sharply. Stock selection in Financials and Health Care was also favorable. The Fund is, and has been, underweight to Momentum and Beta. Both factors were out of favor this quarter, which helped relative performance. Long-held positions have generated significant returns, with 39% of assets in stocks held for over ten years compounding at 17.2% annually. Despite current pressures and macroeconomic concerns, management remains optimistic about the potential for strong long-term returns in quality smal...