Portfolio Insights: Alger Weatherbie Specialized Growth Strategy

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Portfolio Insights: Alger Weatherbie Specialized Growth Strategy

Josh Bennett, CFA Senior Managing Director Director of Research Weatherbie Capital, LLC

Josh Bennett, CFA, recently provided a portfolio update for clients in the Alger Weatherbie Specialized Growth strategy. The call was hosted by Sean Jacobus and Jeremy Jackson, vice presidents and regional directors in our distribution organization. Please note this transcript is from a call on December 15, 2020, and it has been edited for clarity and brevity. Sean Jacobus: Thank you so much for joining us today. We really appreciate you all taking time out of your busy day to join us, but the good thing is we have a great speaker that we think you all are going to enjoy hearing. Today, we’re going to talk to you with the team from Weatherbie. Alger acquired Weatherbie Capital in 2017, so it just shows Alger’s commitment to expand our capabilities and offerings on Wall Street.

Josh Bennett: Sure, I’d be happy to do that and thank you again for agreeing to host me and thank you to all who have given me the time to listen and learn more about Alger Weatherbie Specialized Growth. So, how did I meet Matt? It was back when I graduated from Wheaton College. I went straight into the business on the high-yield side at Fidelity Management and Research where I was a high-yield analyst, essentially, for three years. Spent two years in tech, got my MBA up at Tuck, up at Dartmouth, and as I was leaving Tuck, and I was looking at what are my options? I was looking at the kind of usual suspects for the larger firms where I could kind of get my teeth in the business and do investment research which is what I really want to do, equity research and equity portfolio management, but I also wanted to know who are the best smaller firms out there. The name that kept coming up from multiple angles was Matt Weatherbie. I was able to network my way into a phone call, which turned into a coffee. What I’ll say is that was back in I guess, the 2003 timeframe, and Matt and I just hit it off right away. I left Tuck and I spent three years at MFS Investment Management following transportation and aerospace defense companies, but I kept in touch with Matt, once a year, twice a year, and then one day he gave me a phone call and said, “Hey, I’m thinking about hiring, would you consider interviewing?” The rest is history. That was 13 years ago. I’ve now been with Matt for 13 years, going on 14, and it’s been a tremendous run.

Now, let me introduce to you my colleague, Jeremy Jackson. He’s going to introduce our speaker today, Josh Bennett.

Jeremy Jackson: Thank you, Sean, and thank you everybody for joining us.

So, let’s get into the call and let me first introduce our featured speaker, Josh Bennett. So, Josh is a senior managing director and the director of research at Weatherbie Capital. He has over 20 years of investment experience. Talk to us a little bit on what brough t you to Weatherbie Capital and how you met Matt Weatherbie, the founder of the strategy?

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Josh Bennett (continued): Matt has a reputation in the Boston area as one of the premier growth investors having run Putnam’s Voyager Fund through the 1980s, growing that from less than a $500 million fund to well over $5 billion, and then he left in 1995 to found this little company called MA Weatherbie and Company, which became Weatherbie Capital. So, Weatherbie Capital, we are based in Boston. We’re still kind of a lean mean machine focused on small cap growth, that’s all we do, and Matt is still involved but little by little, he’s been handing the reigns to my colleague, George Dai and me, and I look forward to telling you a bit more about that, but Matt has an incredible reputation as a growth stock investor and when he left Putnam, it was really to get back to his roots, which were small or smid growth investing. So, we now implement what we call the Weatherbie Way, which is an institutional-grade small cap growth process and I look forward to talking more about that, so that gives you a quick background. Jacobus: Awesome. That’s great. Tell us a little bit about the team structure, what kind of analysts that you have surrounding you and feeding you guys ideas when you do your research on the Weatherbie stocks that you put in a portfolio? Bennett: Sure, so I mentioned we’re lean and mean and I really mean it. The team-up in Boston, we have fewer than 10 people in the Boston office, and again, we’re a wholly owned subsidiary of Alger. So, since March of 2017 when Alger acquired us, we’ve been that wholly owned subsidiary, but we operate very independently up in Boston. We don’t share research back and forth with Alger. We do things the way that we’ve always done it, and it happened to be a lot of parallels in how we do that and I can talk about that if you like. The way the team is structured is that Matt is the head of the Boston office and after Matt, I have myself and George Dai, kind of the two senior leaders of the office. George is co-CIO of Weatherbie Capital with Matt Weatherbie, and I’m the senior managing director, director of research. So, George kind of handles the CIO responsibilities, the kind of outlook and I handle: the hiring and training of our analyst team.

Our analyst team is incredibly experienced. We have Dan Brazeau, Ed Minn and Scott Lipschitz who all work as analysts, but what’s important to understand and, we get this question quite often, they say, well, how can a team that size with Matt plus Josh and George and three analysts cover the market? Well, we’re very focused in terms of what we look for in companies, so we know a Weatherbie growth stock when we see one, but the other thing is you ask how the team is structured and it’s important to realize that George and I are still analysts, so we’re analysts and portfolio managers. We’re the lead portfolio managers on this strategy, but you have the two of us, plus three other highly experienced analysts, who have each been kind of assigned, by me as part of my role as director of research, assigned multiple sectors of the market to look for these Weatherbie growth stocks. Jacobus: We talk about 50 stocks in the portfolio, the Weatherbie 50. Number one, why 50 stocks? Then maybe if you could talk a little bit about the difference between almost a barbell approach of opportunity and a foundation stock that the Weatherbie team talks about. Could you give a little detail on why 50 and the differences between the two types of stocks that we put together in the Weatherbie 50? Bennett: Sure. At Weatherbie Capital, we believe in focus. What we mean by focus is it’s great to say that you do fundamental research on stocks, everybody says that we’re bottom-up fundamental stock investors like everyone else, but if you do the amount of work that we do on the companies that we end up owning as a Weatherbie 50, if you’re not focused, if you end up with 75, 100, 125, 150 stocks, we feel like what you’re doing is you’re diluting your best asset, and the best asset, in our view, is the team and its ability to understand these companies better than anybody out there. So, we believe in focus.

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Josh Bennett (continued): We always talked about running, and this is since Matt founded the firm, between 50 and 60 stocks, and what we realized over time and in particular the last 10 years or so, is that really, our best ideas were really the top 50, that the next 10 had some value but weren’t adding an incredible amount of value and we did a detailed analysis back in 2014 where we went all the way back to the trading history of when we founded the firm and we created these kind of model portfolios and we realized that in three out of every four years, our top 15, one-five names were outperforming the rest of the fund. With that analyses, what we did and it was equivalent of our version of kind of big data analysis and trying portfolios of 10 stocks, of 20 stocks, and ending up at 15. Fifteen stocks now make up close to 60% of the AUM in the portfolio. So, not only are we concentrated on 50 rather than 60, but now we’ve realized that within that 50, we’re really going to put our best ideas in the top 15 ideas. Now, there’s a risk element to that. When you think about 60% of your assets being in 15 names, you need to manage that risk, and one way that we try to do that is we assign a second analyst to every one of the top 15 ideas, and we have a monthly meeting when we review every one of those top 15 ideas in great detail, and these are meetings that last anywhere from three hours to five hours, and we literally go through all the top 15 names, plus any name that any of the portfolio managers would like to discuss because it might be a hotly debated name. The way that would work, Sean, and this is important to kind of our process, is you would have the primary analyst, let’s say I’m talking about FirstService Corporation which I may talk about today. I would talk about what’s the recent news, what’s the trend in estimates, how has the stock performed, and what’s my recommendation, should we be adding, should we be trimming or should we pull right where we are? Then Dan Brazeau, who is one of my analysts and happens to be the second set of eyes on FirstService, would step in and say, Well, Josh was presenting at a Merrill event and missed the meeting that I had with management at the Canaccord Growth Equity Conference. Here are two or three things that I learned,

and by the way, I agree with Josh’s recommendation that we should be adding, for example. So, that’s the way the team dynamic works, and why 50? Because it’s based on the data and the work that we’ve done is let’s focus on our best ideas and even within that 50, let’s really focus on the top 15. Jacobus: So, it’s fair to say, if you’re going to go active, let’s go really active. Let’s be truly concentrated, but if you’re going to be that concentrated, you better have a darn good experienced team managing those assets, but that’s where you’re going to potentially really drive your output in your portfolio, would you agree with that? Bennett: That’s exactly right. Everybody is highly focused on this concept of active share as if all you have to do is drive up your active share, and then surprise, surprise, you beat the market. You and I know that that’s not how it works. Active share gives you the opportunity to beat the market, right? You’re different than the index, and therefore, you’re going to get the shots on goal to be different than the market and to, therefore, outperform them. So, you have to have that active share, but it’s a necessary but not a sufficient element to kind of drive the performance that we’re looking to drive.

Jacobus: Awesome. Jeremy, let me pass it over to you for our next part.

Jackson: What’s the case for small caps now and really, what excites you about that?

Bennett: Sure. Well, one obvious one is kind of what I’ve already spoken about. We really believe that the innovation that you see at this smaller cap level is incredible and really, it’s market driving. So, we continue to find and we believe this is the real advantage of doing things the way we do it is you have the playground if you will, the small cap growth indices or really, just any company that’s under $2.5 billion of market cap is where we like to get in, is below $2.5 billion and then we’re going to ride it up to $15 billion market cap, and we have multiple examples of companies that we bought that have increased to five times or 10 times our original purchase price, stocks that have really done quite well.

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Josh Bennett (continued): So, number one is we believe that’s where the innovation is happening. Number two is, every time we have one of these companies that sort of graduates from our portfolio, we call these our graduates because they get above $15 billion. They’re still growing. They’re still doing well, but they graduate from our portfolio because we have an institutional-grade process which we have institutional- grade clients that we still invest in or invest for. They’re looking for us to be small cap growth investors. These companies become graduates and what ends up happening, in particular, in today’s market, you see the valuation gap between the smaller cap companies and the larger cap companies and we’re still finding great value companies. We’re finding companies that are coming in at attractive valuations. Now we do think, and this is important to our process, valuation and smaller cap growth investing, we call it smaller meaning, small or SMID, in small cap growth investing, we believe that valuation is 15%, maybe 20% of the puzzle. You’d not only want to, you need to get the fundamentals right in smaller cap growth investing, and then valuation follows over time. So, we’re incredibly focused on valuation, but it only comes once we know that the fundamentals are in place. So, on the valuation side, we always think about every one of our names in terms of an upside case, which is typically a multiple on an outyear estimate. Today, we’d be looking at like a 2021 estimate or outyear, we’d be putting a multiple on that for upside case because the market when it gets excited about names, it looks out further, and it puts a higher multiple on the outyear estimate. When the market gets spooked, what it does and our downside case would be built on a lower multiple in a near year estimate, and then based on industry dynamics, our knowledge and understanding, and experience with the management company, of the company, we would then weigh the upside versus downside and come up with the expected value. So, we have a robust system for evaluating valuation, but why is small cap interesting? The two reasons that come to mind right away are like I said, innovation, this is where it’s happening, and the fact that we believe the values are quite attractive right now for the new ideas, replacing the ideas that have really worked well for us.

Jackson: Follow up question would be, if anyone who looks at the fact sheet and the conversations we’re having, you’re seeing names that investors are typically aware of. Can you talk a little bit about, maybe some of the stocks having limited coverage or names that are outside the benchmark that really your team and your unique research process are uncovering them? Bennett: Absolutely. Yes, I mean, the advantage we have here is you take an experienced group of investors and I mean, our portfolio managers have an average of 20 years experience, our analysts are also very, very experienced. You take an experienced team of investors who are highly focused on finding Weatherbie growth stocks in a market that we believe is underfollowed, under-resourced, and what we mean by that is I’ve been doing this here for 13 years, I’ve been investing for 20, and little by little, what you’ve seen is that Wall Street research has changed. Wall Street research, because there’s less and less budget for it, they’ve made a lot of these Wall Street firms have chosen to focus on the larger cap names within their coverage universe because they feel like that’s where they get the most bang for the buck. So, what has suffered from a Wall Street research standpoint are many of the smaller companies that we’re looking at, it’s not unusual at all, Jeremy, for us to bring up a company into the portfolio, I’ll talk about how that happens, but by the time it’s getting into the portfolio, it may have one or two sell-side analysts who are actually covering the name. We’ll do an early call with them to kind of understand what they know about it, maybe take a look at how they’re modeling it, but it does not take long before we understand these companies well. Then over time, as companies pick up coverage of these names, as you know, that tends to help kind of prep up the valuation as these jewels that we find are discovered. In fact, not only are we in this kind of smaller cap space where there’s less resources, but even within smaller cap, everybody who thinks about kind of small cap growth investing where their mind automatically goes is health care and technology. Those are kind of the buckets that you’ve got to do, that’s the vast majority of the alpha that’s added by the portfolio.

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Josh Bennett (continued): What’s unique about the Weatherbie team, and this has been the case since Matt founded the firm back in the 1990s, is we do health care, we do technology, and we think we do those groups incredibly well and yes, they are drivers to performance, but we have our kind of little secret sauce, and we think our secret sauce is that when we take the market and we pick it apart and look for opportunities, we don’t think in terms of getting sectors. We think in terms of dynamic growth areas. Dynamic growth areas, sometimes GICS sectors but we assign our analysts to at least two of these dynamic growth areas. There’s one dynamic growth area we call diversified business services. Frankly, that’s a catchall for a lot of companies that don’t naturally fit kind of in the normal categories of other companies. Many of our biggest winners came from this diversified business services segment. So, companies like LKQ, where we were one of the early holders in this junkyard company, that was applying technology and process to an old-style industry. We used to own Waste Connections and today we own Casella Waste which are truly, waste management companies, but they’re applying better process, better management, and some technology to an age-old industry of collecting trash on the side of the street and then putting that trash in a landfill. So, we find company after company. One of the best examples probably is this company called FirstService Corporation that I mentioned earlier. FirstService is a real estate services company, so incredibly boring if I can just be blunt about that. I like to say it’s pleasantly boring. The reason is that, essentially if you think about a property owner of say a high-rise building, a residential building in New York, or let’s take a gated community out in Arizona, and you have a homeowner’s association that runs it. The property owner or the homeowner’s association has to hire a manager to manage that property. What do they do? Well, yes, they do take care of the grass and they take care of the plumbing, and they paint the outside and the roofing, but ,they also deal with all the contracts anytime somebody buys into the condo association, and leaves the condo association. They also help these companies or these properties find the best deals on utilities. The best deals on insurance. The best banking deals to take

on people’s deposits and manage that. They have 24/7 service. So, it sounds incredibly simple, but what I’ll tell you is they’re anywhere, depending on the market, two to five times larger than their nearest competitor, so they have a scale advantage. They can benchmark relative to the other competitors with similar properties in those surrounding markets, 24/7 coverage using technology to get back to people quickly, and now let me tell you the great part. Over 20 years, this FirstService Corporation has grown its revenues at a 19% compound annual growth rate, two-thirds of that growth has been organic growth. So, this is a strong growth company that’s kind of in this unknown area of residential property management. They generate an incredible amount of free cash flow which they then use to go and buy their nearest competitor in each of these regional markets. So, the scale advantage keeps growing and growing. So, this is a good example, because you asked earlier, Sean, about this concept we have of foundation growth stocks versus opportunity growth stocks. FirstService Corporation is a good example of a foundation growth stock. Highly predictable, experienced management with a strong ownership stake, the growth is there and the growth is predictable. We’ve known these companies for a long time, at least two-thirds of our portfolio is always going to be in foundation growth stocks. Flip over to opportunity growth stocks, up to one-third can be the opportunity growth stocks, which I can also talk about. Jacobus: I just got a question emailed into me, and I just want to know, about this rotation we’ve seen in the market, you talked about how a lot of smaller growth funds, heavy tech, heavy health care which the Weatherbie team does great, but with these more mundane things that might not be in those sectors, your strategy has held up exceptionally well, it’s even thrived even more in this rotation. So, maybe if you could just touch base a little bit on this rotation we’ve seen in the market, why we’re seeing it, and how you guys have held up so well, and how maybe these more mundane, pleasantly boring names that you talked about has held up so exceptionally well where we’ve seen maybe a little pullback in the traditional growth sectors?

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Bennett: We haven’t invented the system of the foundation opportunity growth stocks and finding this growth on unusual places. Sometimes we talk about jewels in mundane industries, or we use the phrase fishing in a different pond, just fishing in a different pond than a lot of people. I like to say we have a broader aperture, so whatever kind of analogy you want to use. If this rotation from growth to value does happen, and it’s difficult to predict whether it will, but clearly, we saw some of that just recently. If that happens, or some might say when that happens, what’s great about the Weatherbie way of investing is that we have this category of stocks that may be outside the purview of our typical competitor. We believe our typical competitor is going to be hamstrung. Why? Because all they do is health care, and all they do is technology. So, if they try to mimic what we do, they may be getting outside of their comfort zone with very little experience, with analysts who may not know those sectors the way that we do, and we believe we have an advantage in that all along the way, we’ve been finding these kind of off the beaten path growth stock stories that some might say, are a bit more value-oriented. A bit more predictable like FirstService Corporation, or as I mentioned, Casella Waste which is a top 10 position today in the waste management industry and benefits and hangs in there better when you see the rotation. So, rather than trying to predict if or when that rotation from growth to value happens, what I’m saying is that the fact that we have this category of foundation growth stocks and opportunity growth stocks, and the fact that all along the way, a key part of our strategy and differentiator has been that we tend to find these names that are off the beaten path, means that we think we’re incredibly well-positioned to identify and continue to identify more and more of these ideas that would then shift away from the traditional sectors that have performed so well in 2020. You’re right, it has contributed to our performance recently with some of these names hanging in there even better than expected.

attribution of where those returns came from? But also some of the challenges and how you persevered through that in 2020?

Bennett: Sure, it’s funny. Boy, I think I’m probably in that same category, even though performance has been strong, I think a lot of us hoped to put 2020 behind us and have just a bit more normality in 2021. So, I’ve heard of folks already shutting down for the year. We’re not. We’re still working like crazy and looking for new ideas. In fact, we’ll be discussing new ideas this week again. Yes, Weatherbie Capital never sleeps. 2020 has been an incredible year, incredibly challenging, and it really has been an opportunity for us to demonstrate the differentiators that we think Weatherbie Capital has that are sustainable into the future. Beginning last year in January, I remember coming back from the New Year’s holiday and I was having conversations with George Dai who is Chinese, by the way, he’s born in China. It’s great to have George as part of the team, so he and I were having conversations in the January timeframe about coronavirus and these were early days. He was in contact already with family and friends, he reads the Chinese newspaper still, and I said, George, what are the chances that this one travels? That this virus can travel? He said, Josh, I think it’s higher than people are putting odds on. That’s what we do, right. All we do is we’re trying to get a sense of what does the market think, and what do we think, and where are we willing to be different? So, January, February, we were already talking about the risks of coronavirus, and how it’s being way, way underreported from the Wuhan data that we were seeing. As it spread, again, we continue to do work, so then we respond February into March, our first reaction was play defense. What I mean by that is we were looking at the portfolio, February into March, looking at what are the companies that we think could be impacted on the supply chain side from the disruption in China because at that time, it was still contained to some extent to China, but we still had companies that had supply chain exposure to China.

Jackson: Perfect. So, Josh, you’re talking about how the portfolio and the team has held up and performed quite strongly in 2020. Can you talk a little bit about the

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Josh Bennett (continued): So, we were already pairing some of that back and what we like to say is we upgraded the already high quality of our portfolio even further. So, takes them out of companies that might be exposed. By March, we were looking at the balance sheets of every one of our companies and we were looking at the debt structure of every one of our companies and liquidity. We had multiple meetings over about a two- week process in March where we reviewed the liquidity and the cash burn potential of each of our companies, and again, repositioning, so we were looking at – this is still in the defense mode, we were looking at what are the companies that we need to pair back here, and what are the higher quality companies among the spectrum of 50 that we own, that we could kind of add to, to further upgrade the quality of the portfolio. By mid-March, we were already shifting gears out of defense mode and into offense mode. What I mean by that is, I mentioned that we sort of have our rule of thumb as we get in before $2.5 billion. So, we had, by that time, several names, like a Wingstop for example, that had dropped into our market cap. Wingstop was a name that I’d known since IPO, but it very quickly ran through our upper cap limit, and now Wingstop was suddenly a name that we could buy in our portfolio. We looked for opportunities like a Wingstop to eliminate positions that might have a bit more exposure and add to names that we know we want to own for multiple years into the future. The shift from being early on defense in the January, February timeframe, but then by March, certainly by mid to late March, shifting from defense into offense mode and looking for opportunities, that helped us navigate this crazy time in a way that really helped drive the performance this year. Jackson: Josh, let’s jump into 2021. What’s the Weatherbie team excited about, whether it’s by sector, whether it’s by trend? What do you think 2021 expectations should be?

Bennett: Sure. So, I’ll tell you, Jeremy, that what we’re probably most excited about in 2021 is just a return to some sort of normal growth environment, and we do think that that will happen, and what tends to happen in an environment like that is the companies that have been hyper focused on just surviving this downturn, making sure that they take advantage of the downturn however they can, can now get back to implementing the processes, the procedures, the strategic plans that they had in place pre-COVID. Now the world has changed, and so they’re going to need to modify those strategic plans, but frankly, we’re excited to just see sort of a return to a normal growth environment. We don’t tend to think of really hot opportunities in terms of sectors, but I’ll tell you that we’re finding ideas today in health care. We’re still finding ideas today in technology, and we are still finding these sorts of off the beaten path, diversified growth, diversified business services growth stocks, so we’re finding ideas everywhere. What we tend to find is – well, a lot of people ask us, when do we sell? Well, I mentioned already that we sell above $15 billion, but we’re also seeing some of our companies get acquired like a Pluralsight for example, which was just kind of announced that it’s being acquired. That was one of our companies that was earlier in the year, a company called Dermira, so the companies get acquired, they leave our portfolio, companies kind of graduate and leave our portfolio, as these companies leave our portfolio, we’re finding great opportunities in this smaller cap space, and again, we sort of let the big ones go and then we find great opportunities sub $2.5 billion, and we begin the process over. It’s kind of the repeat, reuse, and continue to drive value for our clients. So, I don’t want to necessarily point out specific sectors because I think that – I mean, you should see it in consumer, you should see it in technology, you should see it in health care, and you’re going to see more of these kinds of off the beaten path companies that many of you have never heard of that we’re going to find, we’re going to discover, in fact we already know a lot of them that we’re doing our work on right now, you’re going to see those creeping to the portfolio, but I do want to kind of emphasize the fact that our turnover tends to be much lower than the average portfolio out there.

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Josh Bennett (continued): So, something like high 60s, 69%, 70% turnover on a dollar basis about half of that on a name basis. So, all we need to do is we need to find maybe 10 to 15 kinds of new names per year. We’re excited for some normalcy in 2021 and a normal growth environment would be welcome to our entire team. Jacobus: You had mentioned that your process at Weatherbie Capital has not changed. You guys will not go chase something when there’s a shift in the market. Could you just maybe illustrate that no matter what kind of market conditions we go through, how you stick to your name and stick to your process and don’t deviate from that? Bennett: Yes, what has not changed and will not change, Sean, is what we look for in the Weatherbie growth stocks. So, we have six growth stock criteria that are literally unchanged since Matt founded the firm back in the mid-1990s. What does change, I’ll talk about this a bit, is kind of how we find these companies, but what we look for is unchanged, and that’s first of all, we’re looking for real growth. So we’re not looking for a kind of GARP (growth at a reasonable price), these are not GARP-y. We’re looking for real growth, high teens, 20% plus. Number two, we’re looking for a company that over time, can generate real returns, ROIC (return on invested capital) is what we tend to look at. We tend to look at incremental ROIC and we compare that to the weighted average cost of capital over time. We’re looking for companies that are going to be or are already real value creators showing a positive trend in return on invested capital. Number three, balance sheet and cash flow. We look at those two together because we’re not opposed to companies that carry some debt as long as they have the free cash flow, if they could pay down that debt over time. So, those are three more quantitative factors. On the softer side, on the more qualitative side, what we’re looking for is we’re looking for companies that have some seasoning, and what we mean by that is we’re not VC (venture capital) investors, we’re not going to be the first ones in, we want companies that are past the perils of infancy, is the language that Matt

Weatherbie taught us early in our careers. Number two, management matters. We really believe that management matters fundamentally. We’re looking for companies that are either still founder-led and therefore, the founder still has a significant stake in the business, or if it’s new management that’s come in, which can sometimes be an excellent catalyst for the company, we want management that has incentives tied to the very factors that I talked about, organic growth, not acquired growth, return on invested capital, improving the balance sheet. Finally, I kind of mentioned this a little bit earlier, but I always save this one for last, because most important to me is – and to the team, we drive this through the team is a sustainable competitive advantage. You can use quant screens, you can use black boxes to identify companies that have the high growth metrics, that have the ROIC and so forth, but what you can’t do without the fundamental, bottom up fundamental analyses, is understand how sustainable is the moat around the business. In growth stock investing, that’s incredibly important because a great company is going to expand that moat over time, the competitive advantage is going to grow. I mentioned FirstService Corporation, for example, getting better and better and actually extending its scale advantage over time, that company is going to surpass everyone’s expectations and get a higher multiple from the market over time. Those six criteria have not changed. What does change is our ability to use new and fresh tools to identify those companies, so we’re looking at companies and we run very quickly get through, 60, 70, 80, 100 company tools for example, that are using AI (artificial intelligence) and ML (machine learning) to track transcripts and look for keywords so we can transcripts and look for keywords that we’re looking for, and key trends are related words and concepts..

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Josh Bennett (continued): So, new tools keep coming out. Bloomberg keeps being up, updated and upgraded and we stay on the cutting edge of the tools that we believe can help us identify companies with those six growth stock criteria, but the criteria will not change and you can talk to me five years from now, 10 years from now, it’ll be the same criteria but likely, we’ll be using different tools and have different methods of uncovering and testing those companies. I hope that gives you a sense for kind of what changes, what doesn’t change Jackson: Very helpful, Josh. With that, I’d like to just see if you have any final comments. Bennett: Well, I just want to thank everyone for the opportunity to get the Weatherbie story out there. I really do believe that what we do is unique, it’s different.

Jackson: Absolutely. Thank you everybody for joining us today.

Conference Call 9/10

DISCLOSURE

Active share measures the fraction of a fund's portfolio (based on position weights) that differs from the benchmark index. Portfolio turnover is a measure of how quickly securities in a fund are either bought or sold by the fund's managers, over a given period of time. Return on invested capital (ROIC) is a calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. Weighted average cost of capital is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities. Holdings and sector allocations are subject to change. Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. A significant portion of assets will be invested in technology and healthcare companies, which may be significantly affected by competition, innovation, regulation, and product obsolescence, and may be more volatile than the securities of other companies. Investing in companies of small and medium capitalizations involve the risk that such issuers may have limited product lines or financial resources, lack management depth, or have limited liquidity. Assets may be focused in a small number of holdings, making them susceptible to risks associated with a single economic, political or regulatory event than a more diversified portfolio. Foreign securities and Emerging Markets involve special risks including currency fluctuations, inefficient trading, political and economic instability, and increased volatility. Please visit www.alger.com for additional risk disclosures. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments. The following positions represented the noted percentages of assets as of 9/30/20: Alger Weatherbie Specialized Growth Fund: FirstService Corp., 5.93%; Chegg, Inc., 5.71%; Casella Waste Systems, Inc., 4.17%; Pluralsight, Inc., 1.12% Wingstop, Inc., 0.79%; Waste Connections, Inc., 0%; and Dermira, 0%. Alger Weatherbie Specialized Growth SMA: FirstService Corp., 5.98%; Chegg, Inc., 5.72%; Casella Waste Systems, Inc., 4.12%; Pluralsight, Inc., 1.17% Wingstop, Inc., 0.77%; Waste Connections, Inc., 0%; and Dermira, 0%. Alger Weatherbie Specialied Growth SICAV: FirstService Corp., 5.89%; Chegg, Inc., 5.67%, Casella Waste Systems, Inc., 4.09%; Pluralsight, Inc., 1.12%; Wingstop, Inc., 0.78%; Waste Connections, Inc., 0%; and Dermira, 0%. For Investors in the U.S. Mutual Funds: The Alger Fund mutual funds are not available to foreign investors. Please see the prospectus for more information. Before investing, carefully consider the Fund’s investment objective, risks, charges, and expenses. For a prospectus and summary prospectus containing this and other information The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of January 2021. These views are

or for the Fund’s most recent month-end performance data, visit www.alger.com , call (800) 992-3863 or consult your financial advisor. Read the prospectus and summary prospectus carefully before investing. Distributor: Fred Alger & Company, LLC. Member NYSE Euronext, SIPC. NOT FDIC INSURED. NOT BANK GUARANTEED. MAY LOSE VALUE. For SICAV Investors - Important Disclosures: This document is directed at investment professionals and qualified investors (as defined by MiFID/FCA regulations). It is for information purposes only and has been prepared and is made available for the benefit of investors. This document does not constitute an offer or solicitation to any person in any jurisdiction in which it is not authorised or permitted, or to anyone who would be an unlawful recipient, and is only intended for use by original recipients and addressees. The original recipient is solely responsible for any actions in further distributing this document and should be satisfied in doing so that there is no breach of local legislation or regulation. This document is not for distribution in the United States. Data, models and other statistics are sourced from our own records, unless otherwise stated herein. We caution that the value of investments in discretionary accounts, and the income derived, may fluctuate and it is possible that an investor may incur losses, including a loss of the principal invested. Investors should ensure that they fully understand the risks associated with investing and should consider their own investment objectives and risk tolerance levels. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments. Certain products may be subject to restrictions with regard to certain persons or in certain countries under national regulations applicable to such persons or countries. NOTABLY, THIS MATERIAL IS EXCLUSIVELY INTENDED FOR PERSONS WHO ARE NOT U.S. PERSONS, AS SUCH TERM IS DEFINED IN REGULATIONS OF THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT) AND WHO ARE NOT PHYSICALLY PRESENT IN THE UNITED STATES. Risk Disclosure: Each Fund is exposed to several types of risks. Please read the Fund’s Key Investor Information Document ("KIID") and the prospectus for more information. Investing in the stock market involves certain risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. A significant portion of assets will be invested in technology and healthcare companies, which may be significantly affected by competition, innovation, regulation, and product obsolescence, and may be more volatile than the securities of other companies. Investing in companies of small and medium capitalizations involve the risk that such issuers may have limited product lines or financial resources, lack management depth, or have limited liquidity. Assets may be focused in a small number of holdings, making them susceptible to risks associated with a single economic, political or regulatory event than a more diversified portfolio. Foreign securities and Emerging Markets involve special risks including currency fluctuations, inefficient trading, political and economic instability, and increased volatility. Please visit www.alger.com for additional risk disclosures

Fred Alger & Company, LLC 360 Park Avenue South, New York, NY 10010 / www.alger.com

January 2021

DISCLOSURE

Important Information for Investors in Sweden: Funds are authorized for distribution by the Swedish Financial Supervisory Authority. The latest prospectus, the KIID and the annual and semi-annual reports are available free of charge on www.lafrancaise-am.com or www.morningstar.se or from our Paying Agent SKANDINAVISKA ENSKILDA BANKEN AB Sergels Torg 2, SE-106 40 Stockholm, Sweden. Important Information for Investors in Switzerland: This is an advertising document. The state of the origin of the fund is Luxembourg. In Switzerland, the representative is ACOLIN Fund Services AG, Leutschenbachstrasse 50, CH-8050 Zurich, whilst the paying agent is NPB Neue Privat Bank AG, Limmatquai 1/am Bellevue, P.O. Box, CH-8024 Zurich. The prospectus, the key information documents or the key investor information documents, the articles of association as well as the annual and semi-annual reports may be obtained free of charge from the representative. Past performance is no indication of current or future performance. The performance data do not take account of the commissions and costs incurred on the issue and redemption of units. For all Funds, except Focus Equity Important Information for Investors in Singapore: The Alger SICAV is not authorised under section 286 of the Securities and Futures Act (Cap. 289) ("SFA") or recognised under section 287 of the SFA, and the Fund is not allowed to be offered to the public. This material and any other document issued in connection with the offer or sale of Units is not a prospectus as defined in the SFA and will not be lodged or registered as a prospectus with the Monetary Authority of Singapore. Statutory liability under the SFA in relation to the content of prospectuses does not apply. No offer or invitation for subscription or purchase of the Units, may be made, nor any document or other material (including but not limited to this material) relating to the Fund may be circulated or distributed, either directly or indirectly, to any person in Singapore other than to an institutional investor (as defined in section 4A of the SFA) pursuant to section 304 of the SFA. Where an offer is made to institutional investors pursuant to section 304 of the SFA, certain restrictions may apply to shares acquired pursuant to such an offer. Important Information for Investors in Spain: Funds are authorized for distribution by the Comision Nacional del Mercado de valores. The latest prospectus, KIID and annual and semi-annual reports are available free of charge on www.lafrancaise-am.com or can be obtained from Allfunds Bank SA Calle Estafeta 6- Complejo Plaza de la Fuente, Edificio 3, La Moraleja, Spain.

Important Information for All Investors: Alger Management, Ltd. (company house number 8634056, domiciled at 78 Brook Street, London W1K 5EF, UK) is authorised and regulated by the Financial Conduct Authority, for the distribution of regulated financial products and services. Fred Alger Management (“FAM”) and/or Weatherbie Capital, LLC, U.S. registered investment advisors, serve as sub- portfolio manager to financial products distributed by Alger Management, Ltd. Alger Group Holdings, LLC (parent company of FAM and Alger Management, Ltd.), is not an authorized person for the purposes of the Financial Services and Markets Act 2000 of the United Kingdom (“FSMA”) and this material has not been approved by an authorized person for the purposes of Section 21(2)(b) of the FSMA. Important Information for Investors in Austria: Funds are authorized for distribution by the Financial Market Authority. The latest prospectus, the KIID and the annual and semi- annual reports are available free of charge on www.lafrancaise- am.com or upon request to contact-valeurmobilieres@lafrançaise- group.com or from our Paying Agent: Erste Bank der oesterreichischen Sparkassen AG, Graben 21, 1010 Vienna Austria. Important Information for Investors in Finland: Funds are authorized for distribution by the Financial Supervisory Authority. The latest prospectus, the KIID and the annual and semi- annual reports are available free of charge on www.lafrancaise- am.com or www.morningstar.fi . Important Information for Investors in Germany: Funds are authorized for distribution by the Federal Financial Supervisory Authority. The latest prospectus, KIID and annual and valeurmobilieres@lafrançaise-group.com or in from our Information Agent and Paying Agent: BNP PARIBAS Securities Services S.A. – Zweigniederlassung Frankfurt am Main, Europa-Allee 12, 60327 Frankfurt am Main. Important Information for Investors in Italy: Funds are authorized for distribution by the Commissione Nazionale per le Società e la Borsa. The latest prospectus, KIID and annual and semi-annual reports are available free of charge on www.lafrancaise-am.com, or www.fundinfo.com or from our Paying Agent BNP PARIBAS Securities Services, Via Ansperto no. 5 20123 Milan, Italy. Important information for Investors in Israel: This material is provided in Israel only to investors of the type listed in the first schedule of the Securities Law, 1968 (the "Securities Law") and the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995. The Fund units will not be sold to investors who are not of the type listed in the first schedule of the Securities Law. Important Information for Investors in Luxembourg: Funds are authorized for distribution in Luxembourg by the Commission de Surveillance du Secteur Financier. The latest prospectus, the KIID and the annual and semi-annual reports are available free of charge on www.lafrancaise-am.com or upon request to contact-valeurmobilieres@lafrançaise-group.com. semi-annual reports are available free of charge on www.lafrancaise-am.com or upon request to contact-

Fred Alger & Company, LLC 360 Park Avenue South, New York, NY 10010 / www.alger.com

January 2021