The markets tell us what investors are doing. But what, exactly, are they thinking? Edison’s Inside the mind of the investor aims to find out. In this edition, we talk to Randy Baron of Pinnacle Associates.
The biggest stocks in the world have dominated market returns for years. So how did one fund manager nearly double the index in 2025 without owning a single one of them?
Randy Baron, portfolio manager at Pinnacle Associates, runs the Pinnacle Opportunity Fund: a long-only, fully invested strategy that hunts for best ideas across global equities, typically via companies valued below $5bn. His fund returned 41.4% in 2025, nearly doubling the MSCI World Index’s 21.3% gain. And he did it without owning any of the so-called ‘Magnificent seven’ technology stocks.
‘We pick stocks,’ Baron says simply. ‘We’re not shorting, we’re not doing a lot of derivatives. We tend to be 95% plus invested in the market at any time. And what’s really cool is we outperformed not owning any of the FANG names. No Tesla, no Nvidia, none of the stuff that’s captured the market’s broader attention.’
The exhausting middle
Baron has a neat way of describing what 2025 felt like. ‘A balance sheet is a photograph at a moment in time,’ he explains. ‘And the P&L captures what changed in between two moments in time. The photograph from December 2024 to December 2025 looks better. Maybe even Ukraine’s better, geopolitics look better, tariff uncertainty has eased. But in between? That P&L was unbelievable in terms of its volatility and, consequently, it was exhausting.’
He has a point. The year started under the shadow of a new tariff regime from President Trump’s second term. And yet, as the months wore on, a pragmatic approach to trade negotiations took hold and corporates proved far more resilient than many had feared. The S&P 500 climbed 16.4%, posting 39 record highs, while the Nasdaq gained nearly 22%.
But for Baron’s strategy, the real story was what happened outside America. The US dollar lost 9.4%, its worst year since 2017, spurring outperformance in international equities, which make up roughly 40% of his portfolio. Emerging markets surged 34.3%; Europe rose nearly 21%. Commodities rallied sharply too: silver climbed nearly 150% and gold was up 65%.
The photograph from December 2024 to December 2025 looks better […] But in between? That P&L was unbelievable […] and, consequently, it was exhausting.
A broadening market
Here’s what matters now. The very narrow leadership that powered markets in recent years is finally broadening, and Baron sees this as a significant tailwind for stock pickers like him.
‘In a world where there’s quite a lot of uncertainty, people keep diversifying,’ he notes. ‘That very narrow leadership of the ‘Magnificent seven’ stocks is broadening out and there are people on the hunt for the unloved, the undervalued, the misunderstood.’
Baron’s investment philosophy centres on finding ‘an idea a day’: continuously scanning for new opportunities and checking in on existing ones. It is a discipline shaped by his time at JP Morgan and Lazard Frères, and built on a conviction that the best returns come from deep, patient relationships with management teams.
His focus on fundamentals starts with what he calls ‘the widget’, the core cash generation of a business before financial engineering gets in the way. ‘EBITDA is what comes out of the factory before the lawyers and accountants screw everything up,’ he says. ‘That’s how I look at it.’
What drove performance
So where did those returns actually come from? The fund’s strong 2025 was powered by stock selection across several sectors.
In technology, holdings in Lumentum and Coherent, the top two manufacturers of optical transceivers for data centres, re-rated sharply higher as demand from the AI spending boom continued unabated. UK-listed Seeing Machines rose over 90% as its in-cabin driver monitoring solutions, combining cameras and AI, gained further traction.
Within industrials, Vicor delivered strong earnings-driven gains, while UK-listed Public Policy Holding Co., one of the world’s largest lobbying firms, prepared for a US initial public offering. Hexcel benefited as persistent supply chain delays eased in commercial aerospace, particularly on the Airbus A350 and Boeing 787 programmes.
Financials also contributed meaningfully. Citigroup held a capital markets day during the fourth quarter, highlighting investment banking revenues up 20% year-on-year, with its reorganisation now two-thirds complete. ING regained momentum as both net interest income and loan growth improved.
Then there is the fund’s most eye-catching position: top holding Warner Bros. Discovery, which became the subject of a bidding war between Paramount Skydance and Netflix. Baron remains disciplined even when opportunity knocks. ‘When you look at multiples, Netflix is at 25 or 26 times cash flow versus Warner Brothers at 11,’ he observes. ‘It’s still not meeting our thresholds, but at least intellectually we try and look.’
We outperformed not owning any of the FANG names. No Tesla, no Nvidia, none of the stuff that’s captured the markets broader attention.
The UK opportunity
Baron has been investing in the UK for years, long before it became fashionable again. With close to a decade having passed since the Brexit referendum, he believes the market has reached another inflection point.
Several UK-listed holdings feature prominently in the portfolio. Beyond Seeing Machines and Public Policy Holding Co., the fund holds Victoria, a flooring manufacturer working through a debt resolution, and other positions where Baron sees management teams executing on long-term strategies despite depressed valuations.
His comfort with the UK stems partly from its accessibility. The shared language and legal framework between the US and UK removes much of the friction that comes with investing further afield. ‘Between the two geographies, it makes it really much easier than investing in Japan,’ he notes. ‘In Japan, I have to pay people to send me research and there’s always a question in the back of your mind.’
In 2026, the question remains: will Big Tech’s huge investments usher in broad productivity gains for society?
Looking ahead to 2026
What could go right from here? Baron identifies several catalysts that could power markets forward based on the outlook for the US.
First, manufacturing. After nearly three years of contraction, a recovery in industrial spending is increasingly plausible. Reshoring initiatives, historically low inventory levels and the stimulative effects of the One Big Beautiful Bill could all contribute.
Then there is the Federal Reserve. A new chairperson is expected by year-end and additional rate cuts are on the table. The Fed has already lowered the benchmark lending rate to a range of 3.5% to 3.75% from 5.25% to 5.5% since September 2024. The Supreme Court has also just ruled of the administration’s biggest tariffs, justified under the International Emergency Economic Powers Act. The decision against the government could reshape trade policy.
The big question nobody can yet answer is AI. ‘In 2025, AI was perceived as a generational force underpinning the stock market,’ Baron writes in his latest investor letter. ‘In 2026, the question remains: will Big Tech’s huge investments usher in broad productivity gains for society?’
Whatever the answer, Baron will be doing what he has always done: finding undervalued businesses, building relationships with their management teams and waiting patiently for the market to catch up.
We would like to thank Randy Baron for sharing his views in this edition of Inside the mind of the investor.
Randy Baron is portfolio manager at Pinnacle Associates, a plus 10-billion-dollar investment advisory firm founded in 1984 and headquartered in New York. He is responsible for the firm’s Pinnacle Opportunity Fund and overall international investment strategy. Baron holds a BA in international studies from Johns Hopkins University and an MA, with highest honours, from the Paul H. Nitze School of Advanced International Studies.
Nothing in this article quoting Randy Baron is intended to be a recommendation.
