Baron Capital, an investment management company, released its Q2 2026 investor letter for the “Baron Discovery Fund”. A copy of the letter is available to download here. Baron Discovery Fund appreciated by 19.08% (Institutional Shares) in the quarter, underperforming the Russell 2000 Growth Index, which gained 25.71%. This lag was primarily due to a momentum-driven “AI winners” trade, with these stocks largely contributing to the Benchmark’s performance. The Fund experienced a 6.63% underperformance, largely driven by an underweight in strong-performing Momentum and Beta factors. The Fund prioritizes a long-term balanced portfolio over chasing momentum. The letter discussed parallels between the current AI market and the late 1990s dot-com bubble. The firm remains focused on company fundamentals and long-term valuation. Please review the fund’s top five holdings to gain insights into their key selections for 2026.
In its Q2 2026 investor letter, Baron Discovery Fund highlighted Advanced Drainage Systems, Inc. (NYSE:WMS). Advanced Drainage Systems, Inc. (NYSE:WMS), a manufacturer and marketer of thermoplastic corrugated pipes and related water management products, was reinitiated by the fund during the quarter. On August 11, 2026, Advanced Drainage Systems, Inc. (NYSE:WMS) closed at $143.65 per share, reflecting a market capitalization of $10.83 billion. Advanced Drainage Systems, Inc. (NYSE:WMS) posted a one‑month return of ‑5.03%, while its shares gained 0.76% over the past 52 weeks.”
Baron Discovery Fund stated the following regarding Advanced Drainage Systems, Inc. (NYSE:WMS) in its Q2 2026 investor letter:
“During the quarter, we reinitiated a position in Advanced Drainage Systems, Inc. (NYSE:WMS), the leading U.S. manufacturer of stormwater and onsite wastewater management products. The company offers a comprehensive suite of pipes, drainage structures, storage chambers, and water treatment systems designed to manage stormwater from the moment it hits the ground until it is returned cleanly to the environment. We view ADS as a high quality, competitively differentiated business. It is the only national player of scale in an otherwise fragmented market and is roughly 10 to 15 times larger than its next closest competitors. Its manufacturing and logistics footprint is unmatched, spanning more than 60 plants and a company-owned fleet of roughly 600 trucks and 1,100 trailers that enables delivery of bulky products directly to jobsites. Its vertically integrated recycling operations, which supply roughly half of its raw materials at a discount to virgin resin, make it the lowest cost producer in the space.”
Advanced Drainage Systems, Inc. (NYSE:WMS) 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 Advanced Drainage Systems, Inc. (NYSE:WMS) at the end of the first quarter, up from 43 in the previous quarter. While we acknowledge the risk and potential of Advanced Drainage Systems, Inc. (NYSE:WMS) 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 Advanced Drainage Systems, Inc. (NYSE:WMS) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Advanced Drainage Systems, Inc. (NYSE:WMS) and shared a list of best water infrastructure stocks to buy as AI data centers strain resources. In addition, please check out our hedge fund investor letters Q2 2026 page for more investor letters from hedge funds and other leading investors.
READ NEXT: 33 Stocks That Should Double in 3 Years and 15 Stocks That Will Make You Rich in 10 Years.
Disclosure: None. This article is originally published at Insider Monkey.
