Ask the Manager: Michael Baron on the Case for Active Management  

In a market where passive investing has dominated in recent years, what factors do you believe are driving the growing demand for active management?   

We are seeing a renewed appreciation for what long-term, research-driven active management can deliver. Today, investors are looking beyond index outperformance and want to partner with managers who can deliver investment solutions tailored to their investment goals. 

Investors are also looking for managers who have unique perspectives on the companies they own and the ability to construct portfolios aligned with specific objectives, such as growth, durability, capital preservation, or long-term compounding. Active ETFs may now offer a compelling way for investors to achieve their tailored goals. Long-term active managers, like Baron Capital, can deliver the same rigorous research, high-conviction decision-making, and investment perspective in a cost-effective and tax-efficient vehicle. 

What motivated Baron Capital to launch active ETFs and how is Baron Capital positioning itself to meet demand?  

Our goal at Baron Capital is to meet clients’ needs. That commitment guides every decision we make and it is how we change lives. At our 2024 Baron Annual Conference, I was asked if Baron Capital would offer an active ETF. My answer at the time was intentional: “we are studying it.” And throughout 2025, we did exactly that. We met with legal and operations experts, spoke with clients and prospects, and exchanged ideas with competitors. 

Unlike other firms who are racing to flood the markets with new offerings, at Baron Capital, we never rush important decisions. In our view, it is not a race to see who can be first, but a challenge to see who can do it right. While the wrapper is new to our offerings, our disciplined investment process remains the same. For more than four decades, we have invested exclusively in growth companies benefiting from long-term secular trends, with durable competitive advantages and exceptional management teams. We have deployed a consistent process in discovering, researching, and constructing portfolios. These newly launched active ETFs on the NYSE, RONB (Baron First Principles ETF), BCGD (Baron Global Durable Advantage ETF), BCSM (Baron SMID Cap ETF), provide another way for investors to access our proven investment approach and philosophy. I'm extremely confident that we are well positioned to meet this evolving investor demand.  

What is your perspective about risk management from a framework standpoint?

We view risk management as a holistic, multi-pronged framework designed to support the delivery of stated investment objectives. While rigorous research is foundational, effective risk management extends beyond stock selection to include thoughtful portfolio construction and disciplined portfolio management. Research focuses on identifying businesses with clear growth objectives, durable competitive advantages, strong balance sheets, and visionary management teams aligned with long-term value creation.

Portfolio construction then translates those insights into a well-balanced portfolio, where position sizing, diversification, and factor exposures are intentionally managed to align with risk parameters and return goals. Finally, ongoing portfolio management ensures that the portfolio remains aligned with its objectives through continuous monitoring, reassessment of risks, and adjustments as fundamentals evolve. 

You are one of the Portfolio Managers of RONB (Baron First Principles ETF). What sets the ETF apart from other actively managed ETFs, particularly in terms of strategy, research process, and management?  

RONB (Baron First Principles ETF) is distinguished by its highly concentrated, durable growth profile and unconventional research process rooted in “First Principles” where we question everything and break complex businesses down to their core truths.  

We spend significant time researching companies before we invest and continue that work throughout the life of every holding. We meet with visionary management teams as well as their competitors, suppliers, and customers, and question every critical element of the business until it is sufficiently understood. When we identify visionary leaders and differentiated businesses capable of growth, we are willing to take bold positions. When conviction is exceptionally strong, we may employ leverage to increase exposure. The portfolio may also hold private companies. Our long-term investment horizon, we believe, makes such positions appropriate in this structure.  

Although RONB holds a concentrated set of high-conviction positions, it is not narrowed to one type of investment. We mitigate the potential volatility of a concentrated portfolio in two primary ways: we conduct extensive due diligence and diversify our assets across less correlated categories. 

Baron Capital has had considerable success managing commingled focused portfolios in the mutual fund vehicle. We are deploying that same methodology to the ETF format. 

Which secular trends do you believe will be most influential over the next decade and beyond?  

Artificial intelligence (AI) is increasingly shaping how work is performed, decisions are made, and businesses operate. We believe its impact will unfold over many years as an enabling force across several secular trends. At Baron Capital, we are not only investing in companies we believe will be the leaders in developing AI technology, but also companies that will effectively utilize these advances.  

This is evident in areas such as autonomous driving and robotics, where AI is enabling companies to visualize, interpret, and react in the world. Additionally, AI is driving a shift toward data-driven decision-making. As systems grow more complex, organizations increasingly rely on standardized data, analytics, and models to guide decisions and manage risk, with AI enabling these processes to operate at greater scale. E-commerce is another area that will benefit from AI over the long term, with advancements in customer personalization, marketing, and operational efficiency designed to strengthen merchant productivity and platform economics. 

AI is just one of the secular trends we are focused on at Baron Capital, alongside other transformative forces that we believe will define the next decade of innovation and economic growth.