Emerging markets stocks are experiencing a powerful, broad-based rally, delivering an impressive 39% return over the 12-month period ending in August. For many investors, this resurgence across developing economies represents a long-awaited vindication of international equity allocations. Yet, even as this asset class surges forward, one prominent portfolio—Baron Emerging Markets (BEXFX), a core member of the Kiplinger 25 roster of recommended no-load mutual funds—finds itself lagging behind the broader market’s blistering pace.

While the fund’s 24% gain over the same 12-month window is undeniably solid on a stand-alone basis, it falls short of the MSCI Emerging Markets Index. This performance gap marks a notable shift in fortune for a portfolio that, just a few months prior, was keeping a much closer pace with its established benchmark. For a fund valued by long-term investors for its disciplined approach, this recent divergence has prompted a closer examination of what is happening beneath the surface of its holdings.

Tech Hits a Rough Patch

The primary catalyst behind Baron Emerging Markets’ recent relative underperformance lies in the technology sector. A handful of the fund’s top-weighted holdings within tech were extraordinary wealth generators throughout 2025 and the early months of 2026. These stellar performers served as the main engine driving the fund’s robust gains during that period. However, market tides shift quickly, and in recent months, those exact same high-flying technology stocks have encountered a sharp pullback, weighing down the fund’s overall returns.

The impact of this sector-wide cooling is clearly visible in the portfolio’s heavyweights. Shares in Taiwan Semiconductor Manufacturing (TSM), which accounted for a substantial 16% of the fund’s total assets at the most recent portfolio reporting, have slipped 13% over the past two months alone. Similarly, major Korean technology giants have faced considerable headwinds. Holdings in Samsung Electronics, representing 8% of the portfolio, and SK hynix, accounting for 7%, have absorbed notable losses, dropping 28% and 12% respectively over the same two-month timeframe.

Compounding these challenges, shares in Chinese tech heavyweights Alibaba Group Holding (BABA) and Tencent Holdings have also acted as an anchor on performance since the beginning of 2026. Regulatory pressures, shifting macroeconomic conditions, and changing investor sentiment toward Chinese equities have collectively created a difficult environment for these pivotal holdings, further restricting the fund’s capacity to match the peak gains of the broader index.

Evaluating Long-Term Performance and Resilience

Despite the recent turbulence and lagging short-term relative returns, portfolio manager Michael Kass has expressed confidence in the fund’s trajectory. In a report detailing the quarter that ended in June, Kass noted that he remained quite encouraged by the strong absolute performance of the fund. Looking at a slightly broader window, the fund’s cumulative gain since the start of 2025 stands at an impressive 50%. While that figure highlights substantial wealth generation for investors, it still trails the 66% cumulative return posted by the MSCI Emerging Markets Index over the same span, largely due to the tech concentration and recent pullbacks.

When evaluated over longer investment horizons, however, the picture for Baron Emerging Markets shifts back into a more favorable perspective. Over a 15-year period, the fund’s annualized return of 6.3% places it securely among the top 31% of all diversified emerging-markets stock funds. Furthermore, this long-term track record edges out the MSCI Emerging Markets Index, which has delivered an annualized return of 6.0% over the same extended timeframe, demonstrating the potential benefits of its active management style across complete market cycles.