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Learn moreBaron Capital, an investment management company, released its second-quarter 2026 investor letter for its "Baron SMID Cap ETF". You can download the letter here. Baron SMID Cap ETF® (BCSM) gained 15.62% (NAV) in the second quarter, underperforming the Russell 2500 Growth Index's 24.02% return. The trend towards "AI winners" continued, focusing on companies related to chips, power equipment, and AI data center financing. MSCI's Barra factor attribution indicates the fund's underperformance was due to being underweight in Momentum and Beta factors. The top 10 holdings of the fund accounted for 29.3% of assets. The firm believes the portfolio companies are performing well fundamentally and are viewed as long-term cash flow compounders poised for significant returns. Additionally, reviewing the Fund's top five holdings could help identify its best picks for 2026.
In its second-quarter 2026 investor letter, Baron SMID Cap ETF highlighted Heartflow, Inc. (NASDAQ:HTFL). During the quarter, the fund sold its holdings in Heartflow, Inc. (NASDAQ:HTFL), a medical technology company that focuses on AI-driven non-invasive solutions for diagnosing and managing coronary artery diseases. On September 16, 2026, Heartflow, Inc. (NASDAQ:HTFL) closed at $48.30 per share. Over the past month, Heartflow, Inc. (NASDAQ:HTFL) returned 3.21%, but its shares are up 48.71% over the past year. Heartflow, Inc. (NASDAQ:HTFL) has a market capitalization of $4.2 billion, and its stock has traded within a 52-week range of $20.13 to $51.78.
Baron SMID Cap ETF stated the following regarding Heartflow, Inc. (NASDAQ:HTFL) in its Q2 2026 investor letter:
"Heartflow, Inc. (NASDAQ:HTFL) is a provider of software that analyzes CT scans (with contrast) of a patient's coronary arteries, and shows calcification, plaque buildup, and blood flow quality in a three dimensional model. We sold the position in the quarter as we grew incrementally more concerned with the presence of competitors on the market."
Heartflow, Inc. (NASDAQ:HTFL) is not on our list of the 40 Most Popular Stocks Among Hedge Funds. According to our database, 30 hedge fund portfolios held Heartflow, Inc. (NASDAQ:HTFL) at the end of the second quarter, compared to 25 in the previous quarter. While we acknowledge the potential of Heartflow, Inc. (NASDAQ:HTFL) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
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