Baron Discovery Fund Gains from Strategic Accumulation of CareDx (CDNA)

Baron Discovery Fund Gains from Strategic Accumulation of CareDx (CDNA)

Wed, August 12, 2026 at 4:47 PM GMT+3 4 min read

• CDNA -0.49%

Baron Capital, an investment management company, released its Q2 2026 investor letter for the "Baron Discovery Fund". A copy of the letter is available to download here. Baron Discovery Fund appreciated by 19.08% (Institutional Shares) in the quarter, underperforming the Russell 2000 Growth Index, which gained 25.71%. This lag was primarily due to a momentum-driven "AI winners" trade, with these stocks largely contributing to the Benchmark's performance. The Fund experienced a 6.63% underperformance, largely driven by an underweight in strong-performing Momentum and Beta factors. The Fund prioritizes a long-term balanced portfolio over chasing momentum. The letter discussed parallels between the current AI market and the late 1990s dot-com bubble. The firm remains focused on company fundamentals and long-term valuation. Please review the fund's top five holdings to gain insights into their key selections for 2026.

In its Q2 2026 investor letter, Baron Discovery Fund highlighted CareDx, Inc. (NASDAQ:CDNA). Incorporated in 1998, CareDx, Inc (NASDAQ:CDNA) is a precision medicine company focused on the discovery, development, and commercialization of diagnostic solutions for transplant patients, which contributed positively to the fund's performance this quarter. On August 11, 2026, CareDx, Inc. (NASDAQ:CDNA) closed at $47.23 per share, reflecting a market capitalization of $2.4 billion and a year‑to‑date gain of 150.69%. CareDx, Inc. (NASDAQ:CDNA) posted a one‑month return of 58.76%, while its shares gained 289.37% over the past 52 weeks."

Baron Discovery Fund stated the following regarding CareDx, Inc. (NASDAQ:CDNA) in its Q2 2026 investor letter:

"Shares of CareDx, Inc. (NASDAQ:CDNA) contributed to performance. CareDx sells diagnostic testing services which detect early rejection of heart, kidney, and lung transplants. Shares declined dramatically in the third quarter of 2025, as the Centers for Medicare and Medicaid Services (CMS) MolDX Program issued a draft local coverage decision (LCD) that, if finalized, would significantly limit reimbursement for CareDx's tests. In particular, the draft LCD would remove increased coverage for HeartCare (which is a dual test including donor derived cell-free DNA (dd-cfDNA) and gene expression profiling (GEP) despite definitive data showing a heightened clinical benefit from using both tests. The draft LCD also proposes a bundled payment reimbursement model that has been studied and is recommended by medical societies. It is not yet clear whether the structure of the bundling program would help or hurt CareDx's revenues. We thought that at their lowest levels of $11 to $12 last summer, CareDx shares were pricing in a worst-case scenario, and we meaningfully increased our position at those levels. Recently, shares have outperformed and are trading in the high-$20s as investors better understood that the LCD process is a dialogue between the CMS and key stakeholders and that the CMS may come to better appreciate recent clinical data. We expect the LCD to be finalized very soon. Further, in the second quarter of 2026, CareDx announced a very solid 1Q26 result with revenues up 39% year over year and testing volumes up 17% year over year. The company also announced financially and strategically attractive deals to divest its lab products business and acquire Naveris, marking the company's entrance into the head and neck cancer testing market."

CareDx, Inc. (NASDAQ:CDNA) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 27 hedge fund portfolios held CareDx, Inc. (NASDAQ:CDNA) at the end of the first quarter, compared to 29 in the previous quarter. While we acknowledge the potential of CareDx, Inc. (NASDAQ:CDNA) 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 thebest short-term AI stock.

In another article, we covered CareDx, Inc. (NASDAQ:CDNA) and shared a list of stocks surpassing earnings expectations. 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.