Portfolio Insights: Alger Weatherbie Specialized Growth Strategy

TRANSCRIPT

Josh Bennett : Sure. It's a very busy week for the Weatherbie team. We are almost exactly at the halfway point right now. Twenty-six of the Weatherbie 50 names have reported. And of the top 10, which make up more than 45% of our assets, half of the top 10 have reported and we'll see more over the next couple of days. These are smaller cap companies, it's what we've always focused and specialized on at Weatherbie Capital, and what we're seeing as a consistent pattern that until mid- March, most of these companies were not only on track, but many were actually talking about a strength relative to expectations that things were going much better than they had expected until the last two weeks of March. Not surprisingly, the last two weeks of March and into April, they've seen pretty significant change. But what we're seeing in particular in the back half of April, and some are even talking about what they've seen so far, just kind of early results so far in May, is we're seeing our companies are talking about how their businesses are stabilizing, even if that means stabilizing at lower levels or some are actually beginning to improve. Many of our companies not surprisingly are withdrawing their 2020 guidance, but we are beginning to see some broad insights about the road ahead. What we've noticed as we looked at our businesses in the Weatherbie 50 portfolio is that it was a radical difference depending on the type of business model that they run. We saw that most of our companies thought fell into three buckets and one bucket is we saw that several of our companies were actually helped by the COVID-19 situation or they saw very little impact. The second bucket would be companies that might have seen an immediate hit to their business, but we believe they should be well positioned for a steep or even immediate recovery. once the people go back to work and kind of the stay at home is lifted. And then the third bucket is that some were hit maybe to a lesser extent initially. But what we're noticing is that these could potentially have longer lasting impacts on growth prospects. And quite often actually for the better because their competitive positioning is actually significantly improved coming out of these tough times. It depends on the

business, but we tend to see our companies falling into one of those three buckets.

Alan Kirby : That's interesting. The three different buckets. Based on that, how is the team positioning the portfolio now? Are there any subtle shifts that you're making as you look ahead? Josh Bennett : Let me begin by saying what has not changed. Since the firm was founded in 1996, we have followed the same key investment criteria. Nothing about the core strategy and what we're looking for in companies has changed in any way. I also want to remind everyone on the call that we've been through volatility before. The portfolio manager team has been working together for over 12 years, nearly 13 years. This is our flagship product and what we've done in previous periods of volatility is what we're doing again. When the market overreacts to the downside, we're always looking for ways that we can try to improve and upgrade the quality of the portfolio to an even better level. We look to trim up opportunistically and look to add to names that are a bit more stable. And perhaps an example would illustrate this. A company like FirstService Corporation reported earnings about two weeks ago. And on my call with the CFO following the earnings call in late April, relative to a lot of other companies that are out there, they've put up a strong quarter. They're very careful about the guidance in their second quarter. And we think that there are portions of their business that might see some pressure, but we're confident in following that call and our meeting with the team to talk about ideas that we believe the company will be a better and stronger company in three to five years. And one day we'll look back and realize that the steps they're taking now to cut costs, to manage operations, to focus marketing are going to position them much better relative to the competition in the coming years in our opinion.

Alan Kirby : Can you talk to us about some of the drivers of that recent performance?