Small and Mid Cap Investing in Volatile Markets


Matt Weatherbie : Well, first and foremost, we are not changing our investment philosophy or process in any way; because we are not reinventing our playbook. We are using our tried and tested strategies honed over 25 years. Proactively, we are looking for opportunities and George, please add your thoughts. George Dai : As Matt indicated, the global economy is likely to be in recession, according to some leading economists. We are adding at the margin to our highest quality positions, and we have experienced similar situations before. And for example, in the 2008-2009 period, our portfolio companies held up better than the broader market. There were category leaders with strong competitive positions, solid balance sheets and therefore rebounded more quickly after the market bottomed. And we believe that this will be the same this time around. Brad Neuman : You've historically invested in innovative, smaller growth companies with a preference for services companies and somewhat mundane industries. Is the portfolio still positioned this way? Matt Weatherbie : Absolutely. What we refer to as diversified business services remains a cornerstone of the Alger Weatherbie Specialized Growth strategy research process. You're right, these can be in some more mundane industries, but, in our view, these companies all generally feature strong growth metrics, healthy balance sheets and great management teams. A good example in our Weatherbie 50 top 10 is Casella Waste Management. This is a solid waste services provider has an environmentally friendly business model that leverages technology in impressive ways. Whether the economy's doing well or poorly, people generate waste. Collection and disposal of that waste is part of the critical infrastructure of our economy. Casella is a leading waste player in the northeastern United States, implementing sound business practices to collect that waste and dispose of it or recycle portions in a way that's good for the world and for the communities that it serves. Casella is also implementing new technology to speed pickup times, improve route density and keep its equipment up and running efficiently. Add to that, the particularly favorable industry dynamics at the present time with its high demand for landfill access with limited supply in an industry that's ripe for consolidation with a stable competitive landscape, you can see it's pretty clear why this is a core position in the diversified business services dynamic growth area of our Weatherbie 50 portfolio.

Brad Neuman : That's an interesting example. It seems like you've done a very good job this year at protecting capital relative to the benchmark. But with your stocks still down, do you feel quality companies are being sold alongside worse-positioned companies such that some of your portfolio holdings are especially attractive here? George Dai : Our Weatherbie Way of investing has been practiced over multiple decades and withstood many turbulent times before. We own 50 of what we believe are the best smaller cap quality growth companies in the United States. And due to their sustainable competitive positions, they are driven by their own internal growth engines. Therefore, these companies, to a greater extent, control their own destiny and are less impacted by the macro environment. One good example is Chegg, which is an education service company. Chegg provide study aids to tens of millions of college students in the world in the form of Chegg Study, Chegg Tutoring, Chegg Writing and Chegg Math. Everything is driven by technology and it's 100% delivered online directly to end users. With widespread closures of colleges in the United States and in some other countries due to COVID-19, colleges are rapidly implementing remote learning and online instruction. There'll be much less face-to-face instruction and the demand for Chegg services could potentially increase. This is a good example that some of our companies may not only do well in normal times, but may also potentially benefit from an otherwise adverse situation such as COVID-19. Matt Weatherbie : Yes. We believe experience counts. Brad, I've seen a half a dozen of these crises in my career. We at Weatherbie Capital are a very experienced team of investment professionals, folks focused exclusively on smaller cap growth investing. We average 12 years of working together at Weatherbie Capital. When the COVID-19 pandemic finally reaches maximum impact and its spread is curtailed, we want our holdings, what we call the Weatherbie 50, to be positioned to snap back properly. As mentioned previously, historically that has been the case with our portfolio. For example, in 2008-2009, when our portfolio company earnings flattened out, doing much better than the average company, and then re-accelerated quicker and faster. Brad Neuman : Matt, do you have any final thoughts before we move on to Q&A?

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