Forging Teamwork Is Key to the Weatherbie Way

Forging Teamwork Is Key to the Weatherbie Way

AUGUST 17, 2018

Forging Teamwork Is Key to the Weatherbie Way

the Alger Weatherbie Specialized Growth SMA.

on the “Weatherbie Way,” which entails using a research driven process to find companies that meet strict criteria including potential for strong earnings growth. George knows that if a shortcoming in his investment thesis exists, Matt and Josh are likely to discover it and may eventually reject the idea. All three of the professionals bring unique perspectives to investment debates, which makes the meetings challenging but productive.

It’s a crisp day in the fall of 2014 and the Weatherbie Capital investment teammeeting is about to begin. Senior Managing Director and Co- Chief Investment Officer H. George Dai, Ph.D., is eager to get started. He is about to pitch a new investment idea: Wayfair, Inc., a leading online furniture and home products retailer that is about to go public. In pitching the company, George knows he will face a formidable challenge. The proposal will need to survive a rigorous collaborative process as the team members build consensus. To that end, sitting across from him is Chief Executive Officer and Co-Chief Invest- ment Officer Matthew Weatherbie, CFA. Next to Matt is Senior Managing Director and Director of Research Joshua Bennett, CFA. Prior to pitching ideas at the meetings, each teammember travels extensively to research opportunities and the team frequently collaborates to refine stock proposals. With the portfolio managers’ heavy travel schedules, meetings are an important opportunity to fine tune the Weatherbie 50, a group of 50 small-and mid-cap stocks that the team believes have high growth potential and attractive valuations. The Weatherbie 50 is then used to construct portfolios for the Alger SMid Cap Focus Fund and

Three Tranches Each of the three portfolio managers builds an individual tranche of stocks that are selected from the Weatherbie 50 and determines his own weightings for individual positions. The combina- tion of the three tranches results in a “best ideas” focused portfolio of high conviction small- and mid-cap growth stocks. The stocks are selected based

From left to right: H. George Dai, Ph.D., Matt Weatherbie, CFA, and Josh Bennett, CFA

“I tell everybody that I want a cordial collaborative atmosphere outside of the conference room, but in the conference room, I don’t want any friends,” George explains. “I want to leave a meeting with the confidence that comes from knowing my idea has been challenged.” Matt, who currently has 45 years of industry experience, often provides unique perspectives on investment ideas. As noted by Josh, “Matt will quite often say ‘This company reminds me of another investment from several years ago.’ He will draw upon the comparison and his unique perspective to pick apart an idea.” Josh, for his part, brings intense questioning to meetings. His knack for fleshing out knowledge through questions started at an early age. “As a child, I would frequently ask my parents big questions and my parents would have to point me to the Encyclopedia Britannica to conduct research and find answers. Today, during meetings, one question can easily lead to 15 follow-on questions. Sometimes my questions may seem never-ending, but I really want to get to the core drivers behind an investment idea.”

George, meanwhile, tends to seek more data to develop investment proposals, which isn’t surprising. He has a Ph.D. in Organic Chemistry and was pre- viously a pharmaceutical researcher, so he is comfortable with the scientific process. In the case of Wayfair, he provides various data points, including web traffic that shows the company’s popularity is growing. The team also observes that the retailer has been developing its own proprietary logistics network specifically for delivering large, bulky furniture, which could potentially give the company a competitive edge. The company’s founders, furthermore, have a proven track record of building and growing technology companies and they have designed and developed an industry- leading technology platform and website to facilitate pleasant and smooth shopping experiences. With those observations and other factors in mind, the team agrees to take a small position in the Wayfair IPO. The Process Continues After the IPO, George continues with his extensive research of the company, including additional meetings with management and consulting with

industry experts. The additional research and team collaboration reinforce the portfolio managers’ conviction that Wayfair possesses the characteristics of a Weatherbie 50 stock and they subsequently invest more capital in the position. Matt says the collaboration illustrates the strength of an investment process that benefits from teamwork, without being burdened by cumbersome and bureaucratic hurdles. It sounds simple, but for the process to work, each teammember must provide unique perspectives on investment ideas while also embracing “theWeatherbieWay.” Time-Tested Collaboration In Matt’s view, the process has been refined over the years. “We have been working together in this strategy for 11 years,” he explains. “And George and Josh have now been thoroughly incul- cated in the Weatherbie Way.”

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RISK DISCLOSURE: Investing in the stock market involves gains and losses and may not be suitable for all investors.The value of an investment may move up or down, sometimes rapidly and unpredictably, and may be worth more or less than what you invested. Stocks tend to be more volatile than other investments such as bonds. Growth stocks tend to be more volatile than other stocks as the prices of growth stocks tend to be higher in relation to their companies’earnings and may be more sensitive to market, political, and economic developments. Investing in companies of small and medium capitalizations involves the risk that such issuers may have limited product lines or financial resources, lack management depth, or have more limited liquidity.The investments may be more concentrated and therefore more vulnerable to changes in the market value of a single issuer and may be more susceptible to risks associated with a single economic, political or regulatory occurrence than a more diversified portfolio.There may be a significant portion of assets invested in securities of companies conducting business in a related group of industries within a sector, and may be more vulnerable to unfavorable developments in that sector than a more diversified portfolio. Many technology companies have limited operating histories and prices of these companies’securities have historically been more volatile than other securities due to increased competition, government regulation, and risk of obsolescence due to the progress of technological developments.The cost of borrowing money to leverage may exceed the returns for the securities purchased or the securities purchased may actually go down in value more quickly than if borrowing had not been utilized. Foreign investing involves special risks including currency risk and risks related to political, social, or economic conditions.Active trading of portfolio securities may incur increased transaction costs and brokerage commissions, and potentially increase taxes that a shareholder may pay, which can lower the actual return on an investment. The mention of specific securities does not constitute a recommendation byWeatherbie Capital, LLC or its affiliate Fred Alger Management, Inc.As of June 30, 2018,Wayfair, Inc., represented 4.92%. of Alger SMid Cap Focus Fund assets and 4.93% of Alger Weatherbie Specialized Growth strategy assets. Holdings are subject to change. Before investing, carefully consider a Fund’s investment objective, risks, charges and expenses. For a prospectus or a summary prospectus containing this and other information about a Fund, call (800) 992‐3863, visit, or consult your financial advisor. Read it carefully before investing. Distributor: Fred Alger & Company, Incorporated. Member NYSE Euronext, SIPC. NOT FDIC INSURED. NOT BANK GUARANTEED. MAY LOSE VALUE.


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