Portfolio Insights: Alger Weatherbie Specialized Growth Strategy
Josh Bennett (continued): And over time, since we have a team of analysts that are constantly looking for great, new ideas for the portfolio to get in and fighting to get into the Weatherbie 50, the name that's been challenged against our thesis will begin to fall down the ranks and these other names will begin to compete for those slots and the portfolio managers will decide to eliminate one and replace it with what we think is a name with better growth prospects. So whenever things happen, we go back to the original investment thesis, we look carefully at that thesis and does this new news or what's happening change that thesis and we're always cautious to not fall into the trap of the creeping investment thesis where you find ways to justify continuing to own a name for different reasons than you initially bought it. We're very hard on going back to the thesis. Speaker Question: Maybe a little bit of a follow-up to that question and again, I understand my data may be a little bit skewed, but are you still long EPAM Systems? Speaker Question: I look at this company and obviously it's done phenomenally well. The market cap now is approaching $18 billion and you just said that $15 billion was sort of your place to start to look out of it. Can you explain to me how you guys look at portfolio drift? Because it appears to me clearly you're violating something you just mentioned that you use and maybe you can explain a little bit further how hard that $15 billion really is and if I misunderstood you, please correct me. Josh Bennett: Let me clarify that further so that you understand that it is no violation underway. What I said is when a stock gets sustainably above $15 billion, we begin to move out of that name. We do give ourselves a period of time to move out of a name that's sustainably above the $15 billion market cap. Josh Bennett: Yes, we still own EPAM.
That's what you should see and if you pull up the stock chart, you can see that it's been kind of a straight up and to the right stock. So you can assume that if that stock stays above $15 billion, we will be moving out. We do abide by what we say and when a name is sustainably above $15 billion, we're going to move out, but just to clarify your question, it doesn't mean that it's a light switch and the moment it touches $15.2 billion or $16 billion or $17 billion that like a light switch we exit the name. That wouldn't be good for our clients. We move out of that name and replace it with a better name. Speaker Question: And is there a period where you normally or historically have seen that happen? Is it a quarter or two or is there again some rule that says it's got to be 30 to 40 days? Speaker Question: In the previous economic crisis we went through, we did this massive QE that was super speculative and there's since been a lot of debate around how effective it was because trillions of dollars of liquidity entered the economy and then a lot of people say it never really circulated through the economy; it debatably just sat on balance sheets. This time, just in my opinion, the really genius aspects of what the Fed did is that instead they put these trillions of dollars right into the hands of consumers and businesses that will ultimately spend this money and so it will circulate throughout the economy and increase the money supply and so there are some complaints or concern that, hey, it hasn't circulated yet and savings rates that pre-crisis were as high as 8.5 percent have jumped up to 33 percent now. So I have this kind of speculative theory that at some point as things open up, there are 33 percent savings rates that are sitting on the balance sheets of consumers, but then also similar occurrences in businesses. Joshua Bennett: We typically sell out of a position within 90 days of the position reaching a sustained market cap of $15 billion or more.
You can look at a name like EPAM as is it sustainably above $15 billion? If it is, then you're likely to see us move out of that position by the end of the next quarter.
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