Portfolio Insights: Alger Weatherbie Specialized Growth Strategy
In the first quarter U.S. earnings season, which is ongoing right now, more than half of companies have reported thus far and EPS is reported to be down about 15%, and in all indications the second quarter will be even worse, but there are some reasons for hope. First, the stimulus has been robust. The Federal Reserve balance sheet has increased some $2.5 trillion since the end of February and U.S. fiscal stimulus has been about $4 trillion if you include Federal Reserve leveraging. A couple of weeks ago, only about 7% of the U.S. was not under stay at home orders, but today more than half the country is not and in a few days that number will be about 80%. According to Apple, the mobility of U.S. citizens is up about 15% in the past week, although it is still some 20% down from pre-pandemic levels. In the credit card data that I mentioned a moment ago, there's a silver lining there. First off, the decline of less than 20% is much better than the 40% or so we saw at the end of March that may be due to the stimulus checks that started arriving around that time. Also there are pockets of growth within that downward spending such as e- commerce, which is up 75% and it is broad based among electronics, home improvement, food and apparel. This last thing, maybe the most important observation I can make and one we'll probably hear more about from Josh, is that many of the most innovative companies are seeing relatively less impact from the pandemic. Some are well positioned, like those that are enabling the digital transformation of the economy, and are actually seeing increasing tailwinds. We see that within the current earnings season with sectors like health care and technology having the best earnings season so far, beating estimates and posting EPS growth of 12% and 6%, respectively, despite the pandemic. We can see some reason for optimism going forward, particularly for skilled stock pickers. And with that, I’ll turn it back over to you, Alan. Alan Kirby : Thanks very much, Brad. Appreciate the update. Many of you on the call today are familiar with Weatherbie Capital and its team-managed strategy Alger Weatherbie Specialized Growth. Josh Bennett is
the director of research at Weatherbie Capital. Josh is also a portfolio manager on the strategy. He has research responsibilities in the consumer, industrials, technology, and diversified business service areas. We had a call with Portfolio Managers George Dai and Matt Weatherbie in March, right after the major decline in the U.S. markets. Can you give us a sense of what's gone on in the portfolio since then? Josh Bennett : Well as you mentioned, our last call was about four or five weeks ago and we talked at a high level on that call about how our initial response as a team was to rally together, dig deep and really review what do we own in the portfolio. Determine what is going to be the impact of COVID-19 on the various business models and balance sheets that those companies that we own. It was more of a kind of defensive initial response. But from there, we rapidly turned around and shifted from defense to offense and focused on positioning the portfolio for recovery from these tough times. If you think about the way we work, our work format by necessity has had to change. We've shifted from face to face meetings to having a lot of calls and a lot of video conferences. But if you think about the way we do our job, we continue to use the same tools to dig deep on the financials, to meet with industry experts and then to rally around on video conference calls with the entire Weatherbie team oftentimes multiple times a day. So we've adapted and it's actually been working pretty well. We found some great new and exciting ideas. A lot of new opportunities are actually coming out of the current environment. Alan Kirby : Brad just mentioned earnings season, so now we're in the midst of it and it sounds like you and the rest of the team are speaking to management of the companies that you invest in. How many of the Weatherbie 50 portfolio companies have reported so far and can you share some insights with us on what you're hearing from these management teams?
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