Baron First Principles ETF Q1 2026 Commentary

Baron First Principles ETF fell 8.51% NAV in early 2026, outperforming the Russell 3000 Growth Index but still posting a disappointing start versus the index's 9.54% decline. The fund increased positions in existing holdings and added a couple of new names during the quarter. FIGS reported revenue growth of 33% to $201.9 million, indicating broad-based momentum across categories and geographies and exceeding expectations.

Analysis

The key signal is not the fund’s relative performance, but that incremental ownership is still being built into FIGS despite a soft tape for growth. That matters because apparel recovery names usually re-rate on positioning before fundamentals fully inflect; if a high-quality holder is adding after a drawdown, it often means the market is underestimating durability of gross margin and repeat demand rather than just one-quarter revenue growth.

Second-order, FIGS tends to benefit from a more selective consumer and healthcare labor backdrop: when buyers trade down within specialty apparel, a brand with direct-to-consumer control and strong merchandising can take share without needing category-wide demand expansion. The flip side is that competitors with heavier wholesale exposure or weaker brand identity may need to discount harder to defend shelf space, which can pressure industry margins over the next 1-2 quarters even if top-line growth remains intact.

The main risk is that the market is likely treating this as a noisy recovery story rather than a sustained comp cycle. If the quarter was driven by geography/category mix rather than broad repeat-order strength, the next catalyst window is the following 2 reporting periods, where a deceleration in growth would quickly compress the multiple. For now, the setup is less about chasing momentum and more about timing around sentiment: any post-earnings or sector-driven pullback is likely to be the better entry than a breakout chase.

Contrarian view: consensus may be underappreciating how much optionality FIGS has if management is still seeing enough demand to add exposure through volatility. If investor positioning is still skeptical after a weak fund start to the year, the stock can outperform on modest beats because expectations are low and the float is relatively sentiment-sensitive. The asymmetry is favorable if gross margin and repeat purchase indicators stay stable; if not, the downside is more orderly than catastrophic, but the multiple can de-rate fast.

Key Decisions for Investors

• Buy FIGS on weakness over the next 2-4 weeks rather than into strength; target a 2-3 month hold with a 15-20% upside case if sentiment rotates back into high-quality consumer growth.
• Use a call spread in FIGS for the next earnings window: long the at-the-money strike, short a 20-25% OTM strike to express upside without paying full vol, with risk capped to premium.
• Pair long FIGS / short a lower-quality apparel or consumer discretionary peer with more promotional exposure over 1-2 quarters; this expresses relative margin durability rather than market beta.
• Set a hard stop if growth visibly decelerates over the next print or if management commentary suggests momentum is mix-driven; in that case the setup becomes a value trap and the position should be exited quickly.