Baron Funds, an investment management company, released its fourth-quarter investor letter for the “Baron Focused Growth Fund”. A copy of the letter can be downloaded here. The Fund delivered strong results in the fourth quarter, appreciating 12.34% (Institutional Shares) compared to the Russell 2500 Growth Index’s (the Benchmark) 0.33 % return. The Fund returned 22.26% in 2025 compared to 10.31% return for the index. The firm highlighted its continued faith in its portfolio companies in the letter. As of December 31, 2025, the Fund’s top 10 positions hold 60.1% of net assets. Please review the Fund’s top five holdings to gain insights into their key selections for 2025.
In its fourth-quarter 2025 investor letter, Baron Focused Growth Fund highlighted stocks such as CoStar Group, Inc. (NASDAQ:CSGP). CoStar Group, Inc. (NASDAQ:CSGP) is an information, analytics, and online marketplace services provider for commercial and residential property markets, which fell 20.3% and reduced quarterly performance by 93 bps. On February 5, 2026, CoStar Group, Inc. (NASDAQ:CSGP) stock closed at $50.99 per share. One-month return of CoStar Group, Inc. (NASDAQ:CSGP) was -12.82%, and its shares lost 33.99% of their value over the last three months. CoStar Group, Inc. (NASDAQ:CSGP) has a market capitalization of $21.611 billion.
Baron Focused Growth Fund stated the following regarding CoStar Group, Inc. (NASDAQ:CSGP) in its fourth quarter 2025 investor letter:
“CoStar Group, Inc. (NASDAQ:CSGP) is the leading provider of information and marketing services to the commercial and residential real estate industries. Shares fell as the company’s net new sales came in below expectations. The stock has been weighed down by significant growth investment in CoStar’s residential product, where sales performance has remained modest. That said, we are encouraged by improving momentum as the company builds out its dedicated residential sales force, enhances its customer targeting, and potentially benefits from changes in Multiple Listing Service practices. We also expect growth in CoStar’s non residential business to accelerate as sales productivity ramps and the sales team refocuses on core offerings, a trend likely to be amplified by 20% sales force growth in 2025 alone. We believe the value of CoStar’s core non-residential business exceeds the current share price of the stock, suggesting that investors are ascribing little value to the long-term residential opportunity.
CoStar declined by 20.3% in the fourth quarter and detracted 93 bps from performance as investors were concerned with a deceleration of growth in its core commercial real estate business and a slower-than-expected ramp of its residential business. However, we believe daily active users on its Homes.com platform should accelerate this year as its marketing investments begin to generate returns. Monthly active users have already reached 110 million and compare to Zillow’s 250 million users. This is positive as CoStar is demonstrating that it can drive meaningful traffic growth to its platform. We believe the acceleration in investment over the past two years should drive organic growth on its Homes. com platform and expand the company’s addressable market. We believe investors are currently attributing negative equity value to this. Over the next five years, we believe CoStar’s residential investment could add at least $1 billion to annualized revenue at a significantly accretive margin. This would result in a 33% increase in today’s $3 billion in revenue and an approximate 50% increase in EBITDA. Longer term, we believe this investment opportunity is several multiples of $1 billion of revenue. CoStar continues to hire new people for its commercial real estate sales business and should begin to see a rebound in net new bookings this year with continued strength in its retention rates, despite implementing price increases across its suite of products. It continues to have a strong balance sheet, with $2 billion of cash and just $1 billion of debt. We are not concerned with its residential investment and believe it should generate strong returns over time.”
CoStar Group, Inc. (NASDAQ:CSGP) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 57 hedge fund portfolios held CoStar Group, Inc. (NASDAQ:CSGP) at the end of the third quarter, compared to 59 in the previous quarter. While we acknowledge the risk and potential of CoStar Group, Inc. (NASDAQ:CSGP) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CoStar Group, Inc. (NASDAQ:CSGP) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered CoStar Group, Inc. (NASDAQ:CSGP) and shared Vulcan Value Partners’ views on the company. In addition, please check out our hedge fund investor letters Q4 2025 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
