Amy Zhang Call Transcript


Amy Zhang (continued): Again, innovation is a very, very important theme but that’s evolved and the changes are constant. And you know at Alger we invest in Positive Dynamic Change. But the most important thing is to understand the change. We always want to be on the right side of the change. It’s really about change and the sustainable growth generated by that change. We always want to be earlier than everyone else. Like Cryoport. That time I think we were the first in terms of companies. We were very, very small, very early in their corporate life cycle as an institutional shareholder. So, to that extent, this really comes down to understanding themes but also really focusing on our individual stock selection. So, our companies will have common themes, such as innovation, that can trump economic cycles. Matt Goldberg: Clearly, the value of fundamental bottom up research is the cornerstone of the process. So, Amy, here’s a question sent by email: How do you define small and mid caps and what are the differences across the sector weightings? Amy Zhang: I define small in terms of revenue because I think revenue is a better indication of size. For Small Cap Focus at initial point of investment we look for companies with revenues that are generally less than $500 million. A lot of times a lot less, perhaps $100 million to $200 million or even less. Cryoport, for example, is much less than $100 million. But we don’t invest in startups. All companies we invest in have proven operating histories. Mid Cap Focus is over $500 million in revenue. I keep it nebulous because mid cap is really interesting in terms of it having the best of both worlds for small and large. Everybody understands that the small cap market is very inefficient and there is a lot of alpha to be made. But mid caps, in terms of quality, are closer to large cap. In terms of growth potential, they’re similar to small. I think we are pretty good at picking high-quality names and when you look at a small cap benchmark—not that I look at it closely—there are a lot of low-quality names. Mid cap is different. To that extent, we have a more open-ended approach with mid cap. The two strategies

really complement each other. Somebody asked, “How is it different?” It’s very different in the sense that of course the strategies have common themes. But in small cap, it’s very hard to find high-quality consumer names. But mid cap is a totally different story. We don’t want to sacrifice quality, and so in small cap, health care is over 40%, tech is about 35%, over 35%. So together that’s over 70%. In mid cap, our largest sector is consumer discretionary. It’s over 30% and that has worked out very well. It’s a significant overweight. There are a lot of consumer trends, including e- commerce, sports betting, other ones that really are very promising areas that you can invest in mid cap that are not available in small cap. Mid cap tech, especially large mid, is more overvalued and tech is about 25%. It’s actually underweight. People tend to be surprised about that. But again, it’s about risk/reward. And then health care is 20%. In tech, everybody wants to be early and being right is very important, and in health care that’s also very true. Relatively, more names in mid cap are commonly known. But we still find alpha generating opportunities, of course. But I just want you to know that it’s very deliberate, how I designed those two portfolios. And you can see they almost hedge each other. And we have seven common holdings out of 50, so that’s 14%, which is very small, and then also it’s deliberate. When I first launched the mid cap product it was over 60%, which is also understandable because basically I want to own what I know. But over time, my goal is really about best ideas and diversification through the strategies and I’m very grateful that we have many of our small cap investors that invest in our Mid Cap Focus product.

I really feel our Mid Cap Focus strategy is a natural extension of the success that we’ve built in Small Cap Focus but in a much bigger arena.

Matt Goldberg: Thank you, Amy. At this point, why don’t we open the call to questions.

Conference Call 4/9

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