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Baron Capital, an investment management company, released its second-quarter 2026 investor letter for its "Baron Financials ETF". A letter can be downloaded here. In the quarter ended June 30, 2026, Baron Financials ETF (the Fund) increased by 1.82%, underperforming both the MSCI USA Financials Index (up 8.93%) and the FactSet Global FinTech Index (up 6.14%). U.S. equities soared, largely driven by AI infrastructure investments, despite challenges from the U.S.-Iran war, changing Federal Reserve rates, and consumer sentiment hampered by high living costs and inflation. Most gains were concentrated in Information Technology (IT) and Industrials, with IT outperforming the broader market at 31.8%, contributing significantly to the S&P 500's growth. Although growth outperformed value in the quarter, value remains ahead year to date. Small caps notably surpassed large caps. The Fund's underperformance relative to the Financials Index stemmed from lower bank exposure and a higher allocation to software and data firms affected by AI disruption fears. The Fund believes its holdings are undervalued and have a positive outlook, as economic conditions remain strong with healthy consumer and business spending. Also, check the fund's top five holdings to see its best picks in 2026.

In its second-quarter 2026 investor letter, Baron Financials ETF highlighted CME Group Inc. (NASDAQ:CME). CME Group Inc. (NASDAQ:CME), a leading financial derivative marketplace operator specializing in futures and options products, detracted from the Fund's performance this quarter. On August 27, 2026, CME Group Inc. (NASDAQ:CME) closed at $280.94 per share. Over the past month, CME Group Inc. (NASDAQ:CME) returned 6.04%, while its shares have gained 6.55% in the last 52 weeks. CME Group Inc. (NASDAQ:CME) has a market capitalization of $101.02 billion.

Baron Financials ETF stated the following regarding CME Group Inc. (NASDAQ:CME) in its Q2 2026 investor letter:

"CME Group Inc. (NASDAQ:CME) operates the world's largest and most diversified derivatives marketplace. Shares fell due to a slowdown in trading activity, reflecting tough comparisons against last year's tariff driven uncertainty as well as easing market volatility following the deescalation of the U.S.-Iran conflict. This cyclical softening was exacerbated by concerns about emerging competition from crypto-native perpetual futures markets, as well as uncertainty following the announcement that long-time CEO Terry Duffy will step down next year. We believe the sell-off is overdone and see minimal risk to CME's dominant institutional franchise. We continue to own the stock because we believe CME enjoys significant competitive advantages and should benefit from the growing adoption of exchange-traded derivatives and periodic spikes in market volatility."

CME Group Inc. (NASDAQ:CME) is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 88 hedge fund portfolios held CME Group Inc. (NASDAQ:CME) at the end of the second quarter, which was 70 in the previous quarter. While we acknowledge the potential of CME Group Inc. (NASDAQ:CME) 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.

In another article, we discussed CME Group Inc. (NASDAQ:CME) and shared a list of most oversold strong buy-rated stocks to invest in. CME Group Inc. (NASDAQ:CME) rose in Q1 2026 driven by higher trading volumes during a period of elevated market volatility. In addition, please check out our hedge fund investor letters Q2 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.