Portfolio Insights: Alger Weatherbie Specialized Growth Strategy
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.
Conference Call 3/10
Made with FlippingBook flipbook maker