Baron Capital, an investment management company, released its first quarter 2026 investor letter for its “Baron SMID Cap EFT”. This is the first full quarter of results for Baron SMID Cap ETF (BCSM). A copy of the letter can be downloaded here. Baron SMID Cap ETF focuses on investing in small, fast-growing businesses that demonstrate significant long-term growth potential, possess durable competitive advantages, have exceptional management teams, and offer compelling valuations. The Fund declined 10.56% (NAV) in the first quarter, underperforming the Benchmark, the Russell 2500 Growth Index, which declined 3.52%. During this quarter, investors gravitated towards a select few companies benefiting from artificial intelligence (AI) spending, referred to as “AI winners,” while selling off those considered “losers.” This created a challenging environment for bottom-up investors, as market prices diverged from fundamental values. This disconnect, combined with the onset of conflict in Iran, impacted the portfolio’s performance during the quarter. In addition, please check the Fund’s top five holdings to know its best picks in 2026.
In its first-quarter 2026 investor letter, Baron SMID Cap EFT highlighted Dynatrace, Inc. (NYSE:DT). Dynatrace, Inc. (NYSE:DT) is a leading software company that provides AI-powered observability platforms. On June 3, 2026, Dynatrace, Inc. (NYSE:DT) closed at $43.44 per share. One-month return of Dynatrace, Inc. (NYSE:DT) was 8.76%, and its shares lost 20.09% over the past 52 weeks. Dynatrace, Inc. (NYSE:DT) has a market capitalization of $12.66 billion.
Baron SMID Cap EFT stated the following regarding Dynatrace, Inc. (NYSE:DT) in its Q1 2026 investor letter:
“We increased our position in Dynatrace, Inc. (NYSE:DT), a provider of “observability” software which uses its own proprietary AI model to predict network and application problems so they can be remediated before they become major issues. Dynatrace is used by many of the world’s largest enterprises, including airlines, banks and defense companies. We believe that the company is a great deterministic data-oriented company, meaning that it uses data that it generates, and which is not available to general LLM providers. Dynatrace benefits from huge competitive advantages as it is complex to implement and therefore very “sticky” and hard to replace with alternative solutions. Customers have also attested to generating extremely high ROIs in Dynatrace. However, given the broad-based sell-off in software stocks, this great company is trading at a rock-bottom multiple (13 times free cash flow, with free cash flow expected to grow in the mid-teens for the next few years).”
Dynatrace, Inc. (NYSE:DT) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 46 hedge fund portfolios held Dynatrace, Inc. (NYSE:DT) at the end of the first quarter, up from 53 in the previous quarter. While we acknowledge the risk and potential of Dynatrace, Inc. (NYSE:DT) 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 Dynatrace, Inc. (NYSE:DT) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Dynatrace, Inc. (NYSE:DT) and shared the list of best cloud stocks to buy as Azure growth hits 40%. In addition, please check out our hedge fund investor letters Q1 2026 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.
