Portfolio Insights: Small Cap Focus & Mid Cap Focus
In fact, the credit card data that I mentioned a moment ago, there was some silver lining there. First off, the decline of 28% was much better than the 43% or so that we saw at the end of March. Also, the CARES Act checks started arriving at the end of the period that was measured, which indicated that those who received their checks increased spending by 26% that day. As the stimulus is flowing into consumers’ hands, we're seeing better trends in spending. And you'll hear more about this from Amy, but there are indeed pockets of growth during this awful crisis. E-commerce spending within that data is up some 85%, which is broad based among electronics, home improvement, food and apparel. Even in the terrible earnings picture that I mentioned a moment ago, we see some pockets of growth. Sectors like health care are seeing growth so far this earning season despite the pandemic, so we can see some reason for optimism going forward on the macro front. I'd like to begin our discussion with Amy. Amy is the manager of the Alger Small Cap Focus Fund. Over the past three years ending March 31, 2020, the fund has mitigated risk well with its downside capture being only 63%. That, together with its upside capture of 115%, has helped propel it into a very strong showing in the Morningstar U.S. Small Growth Category. Amy, I'd like to ask you a series of questions, get your thoughts on the strategies that you manage and your view on the world. The last time we had a call with you was on March 18 and during that call you gave us several reasons about being optimistic about small cap investing. Can you talk about how you've been spending your time over the past month? Amy Zhang : Thank you, Brad, and thank you all for being on the call. We have been working harder than ever over the last 30 days since our last call. We've had a surge in manager meetings and because now management are also working from home they actually have a lot more free time, which is a positive for us. And we've been doing a lot of channel checks, a lot of them recurring channel checks of our companies. I think that it is very important for us to understand our holdings, thinking about managing through this pandemic and
overall for the long term. It's about navigating well through the short term but also positioning even better for the long term.
Change is a constant for all companies and I think we're doing well. We are maximizing our effort to manage that change. We’re also working very hard on valuation work. I feel valuation is extremely important. We always have bear/base/bull cases and we stress test a lot of different scenarios. But this year we have established uber bear cases for existing companies and prospects with assumptions that are much lower than before, of course. But those are not “the world is coming to an end” kind of assumptions, but a recession and the worst case scenario for all companies. So we have taken advantage of that to add to our existing positions and also watch lists in which to add a new names and we are using this opportunity to upgrade the portfolio. Brad Newman : Okay. And you mentioned that you're talking to company management a lot and doing a lot of these channel checks. What kind of questions are you asking and what have you learned from all that research? Amy Zhang : It's about understanding the current thinking, to adapt to the new environment. I think it's the most important for any company. We don't want them to overreact to over manage. It's manage through this downturn, but also position for the future growth because we're looking for compounders can still go on to be two, three, four, five, 10 times over the long term. First and foremost, how do they sell is the most important, right? Because most companies are going to have softness in revenue. How are they adjusting their sales force? We have a pretty good understanding of their sales model, right? They can use digital engagement, not face to face, less of face to face. How are they adjusting that high ticket item or low ticket items? Is it more about interfacing with the clients in this time, how they’re maximizing customer service effort and what are they seeing here from their customers? How are they adjusting accordingly? What are they doing with pricing? And to what extent are they going to shorten the contract?
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