Portfolio Insights: Alger Weatherbie Specialized Growth Strategy


Josh Bennett (continued): We have historically added in these periods to what we believe are more stable companies that are more resilient to uncertainty. Examples of that might be FirstService Corporation, which is a stable growth real estate services company that we've owned for over 10 years or even Casella Waste, which is a waste management company focused on the northeast regional market. And we've also seen that periods of market volatility may create excellent opportunities to initiate new names in the portfolio that we've known well for months or even years and then that period of market volatility can grant us the opportunity to begin a start-up position in those new names. Now, regarding the election more specifically, in our view, it does seem that a Biden win might imply a higher corporate tax rate while a Trump win might mean stability or even a tax cut and we do think that tax cuts would generally be a tailwind for smaller cap companies given their primarily domestic revenue exposure. However, in our view, the advantage of investing in these small cap companies is that these have historically been innovative companies that are market leaders. More often than not, they're competing against smaller mom and pops and we believe that innovation serves as the real engine that should enable those companies to overcome any near-term volatility caused by the election. Ted Doyle: Thanks, Josh. Another thing that's come up in recent weeks is there has been a growing speculation of a potential value growth rotation. Specialized Growth is a diversified portfolio of 50 stocks and unique to that strategy that you invest in, quote-unquote, are "diversified business services holdings." Can you comment on the potential rotation and are there any holdings in your portfolio that you think may hold up better during this period?

growth companies exist on a spectrum anywhere from kind of pure momentum investors to GARP investors, we wouldn't say that Weatherbie Specialized Growth is on either end of that spectrum. So when investors hear about small cap growth, many automatically think of technology and health care and I do want to be clear that the Weatherbie team has a multi-decade track record of finding what we believe are great companies in those tech and health care sectors. However, to your question, in our view, what makes our team truly unique is our ability to identify companies in parts of the market that most of our growth peers do not explore. Those names are typically more off-the-beaten-path type names. They're coming from what we call the dynamic growth area called diversified business services, which you mentioned in your question and sometimes we say that these companies are jewels in mundane industries such as industrials or services, even the financials industry. Should the market rotate from growth to value, we believe that the Weatherbie portfolio should navigate that environment well as we believe these unique diversified business services companies can potentially do quite well regardless of the market orientation. Ted Doyle: Well, we just saw the conclusion of earnings season or it's coming there soon to us for the second quarter and it was a quarter that most predicted would be among the most challenging ever. You and the rest of the Weatherbie team are consistently speaking to management teams of the companies you invest in. Nearly all 50 of the Specialized Growth portfolio companies have reported so far. Can you share any insights into what you've learned from the quarter and what you're hearing from the management teams you speak to? So we don't look to predict market rotations, but instead we focus on positioning the portfolio to navigate all these scenarios.

Josh Bennett: Sure. So obviously we are smaller cap growth investors and we're not going to shy away from that and the way we think about it is while smaller cap

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