Baron Capital, an investment management company, released its Q1 2026 investor letter for the “Baron Small Cap Fund”. A copy of the letter can be downloaded here. Baron Small Cap Fund was down 7.90% (Institutional Shares) in Q1 2026, trailing the Russell 2000 Growth Index’s -2.81% return. The first quarter started with optimism driven by expectations for higher growth and interest rate cuts, while the market sentiment shifted at the end of the quarter. The release of new AI applications unsettled markets due to fears of disruption and long-term effects on software, causing stocks in these sectors to decline. In late February, the Iran war caused oil prices to spike, leading to rising interest rates and inflation. 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 Small Cap Fund highlighted stocks like Oddity Tech Ltd. (NASDAQ:ODD). Oddity Tech Ltd. (NASDAQ:ODD), a consumer tech company, builds a digital-first brand for the beauty and wellness market. On May 4, 2026, Oddity Tech Ltd. (NASDAQ:ODD) closed at $15.27 per share. One-month return of Oddity Tech Ltd. (NASDAQ:ODD) was 5.44%, and its shares lost 76.75% over the past 52 weeks. Oddity Tech Ltd. (NASDAQ:ODD) has a market capitalization of $877.09 million.
Baron Small Cap Fund stated the following regarding Oddity Tech Ltd. (NASDAQ:ODD) in its Q1 2026 investor letter:
“We sold Oddity Tech Ltd. (NASDAQ:ODD) after a Meta algorithm update proved incompatible with the company’s “Try Before You Buy” model, routing ads toward low-intent audiences and sending customer acquisition costs to levels that made new customer acquisition unprofitable. This forced management to pull back on growth in marketing during their peak Q1 acquisition window. With no firm timeline for resolution and a recovery path that requires rebuilding core prediction models and retooling the acquisition funnel, we decided to exit the position.”
Oddity Tech Ltd. (NASDAQ:ODD) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 25 hedge fund portfolios held Oddity Tech Ltd. (NASDAQ:ODD) at the end of the fourth quarter, compared to 31 in the previous quarter. While we acknowledge the risk and potential of Oddity Tech Ltd. (NASDAQ:ODD) 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 Oddity Tech Ltd. (NASDAQ:ODD) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Oddity Tech Ltd. (NASDAQ:ODD) and shared the list of stocks Jim Cramer discussed. 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.
