Baron Capital, a prominent investment management company, recently released its fourth-quarter 2025 investor letter for the “Baron Financials ETF.” The letter, which can be downloaded from here, provides insights into the Fund’s performance and key holdings.
During the fourth quarter, the Baron Financials ETF experienced a slight decline of 2.22% for Institutional Shares, outperforming the FactSet Global FinTech Index, which saw a 7.19% decline. On the other hand, the MSCI USA Financials Index recorded a 2.07% gain during the same period. Since its inception, the Fund has delivered an impressive annualized return of 10.21%, surpassing the indexes’ returns of 2.55% and 11.97%.
In December 2025, the Baron Financials ETF underwent a transition from a mutual fund to an exchange-traded fund (ETF) in response to investor feedback. Despite this structural change and name transition, the Fund’s investment strategy remains focused on a growth approach targeting financial and financial-related companies.
Several factors contributed to the Fund’s quarterly gains and the overall market recovery, including diminishing tariff effects, strong corporate earnings, and ongoing monetary easing. Looking ahead to 2026, Baron Capital remains optimistic about the financial sector’s outlook and its holdings, given the conducive macroeconomic environment.
One of the highlighted stocks in the fourth-quarter investor letter is Morgan Stanley (NYSE:MS), a global financial holding company known for offering a wide range of financial products and services. As of March 30, 2026, Morgan Stanley (NYSE:MS) closed at $158.37 per share, with a one-month return of -4.57% and a 36.83% gain over the past 52 weeks. The company boasts a market capitalization of $251.469 billion.
Baron Financials ETF’s analysis of Morgan Stanley (NYSE:MS) in the investor letter highlighted the company’s successful diversification beyond cyclical banking and trading fees into more recurring wealth and investment management services. With businesses overseeing $9.3 trillion in client assets, Morgan Stanley generates predictable revenue that grows from inflows and market appreciation. The company’s unique client acquisition model and competitive advantages position it well for continued growth and margin expansion.
Overall, Baron Capital’s fourth-quarter 2025 investor letter provides valuable insights into the Fund’s performance, key holdings like Morgan Stanley (NYSE:MS), and the optimistic outlook for the financial sector in the coming year. For a comprehensive read of the full text, click here.
