Reprinted by permission of Morningstar, Jun. 22, 2020
Alger Small Cap Focus Z AGOZX A winner in this manager's hands.
Morningstar's Take AGOZX
services. She then looks for growing firms with healthy balance sheets, durable business models, and promising growth potential. From there, she is picky, building a portfolio of about 50 holdings. The approach is not without risks. Zhang's interest in fast-growing, competitively advantaged companies typically leads to tech and healthcare stocks dominating her portfolio. Although stocks of growing companies are often in demand, Zhang doesn't shy away from pricey names--thus, her portfolio's average valuation metrics, such as price/earnings, regularly look inflated. But Zhang has managed these risks well. Her strategy sports an impressive reward/risk profile. From her February 2015 start through March 2020, the Z share class gained 11.9% annualized. That blew past the typical small-growth Morningstar Category peer's 3.3%. The Russell 2500 Growth Index, which is a good comparison given this portfolio's mix of small- and mid-cap companies, rose 4.6%. The strategy wasn't much more volatile than its peers or the index during that period, and its tendency to outperform in rising markets and hold up better in downturns is a recipe for long- term success. With Zhang in charge, this is a strong small-growth offering. High | Tony Thomas 04/28/2020 This differentiated, well-executed approach earns a Process rating upgrade to High from Above Average. Unlike many strategies that define small companies by market capitalization, manager Amy Zhang looks for firms with operating revenues of $500 million or less. She modeled her approach on the proven method used at Brown Capital Management Small Company BCSIX, where she was a comanager from 2002 to 2015. Using operating revenues helps Zhang and her team target firms with viable products or services. Zhang Process Pillar
also prefers firms with healthy balance sheets, durable business models, and attractive long-term growth prospects--as well as founder CEOs or management teams capable of delivering that growth. Zhang then builds a focused portfolio of about 50 holdings. Her penchant for fast growers and strong competitive positions regularly leads her to tech and healthcare stocks, as do themes such as the rising need for animal diagnostics. Caps on individual position sizes and industry exposure--no more than 8% and 33% of assets each, respectively--help moderate concentration risk. Zhang will let winners ride, giving the portfolio a mix of small- and mid-cap companies and making the Russell 2500 Growth Index a better comparison than the Russell 2000 Growth prospectus benchmark. Amy Zhang's preferences for high-growth, competitively advantaged firms often lead her to tech and healthcare stocks. The two sectors held 82% of the January 2020 portfolio's assets--about typical for Zhang's five-year tenure here. By contrast, those areas made up 44% of the typical small-growth Morningstar Category peer's portfolio and nearly half of the Russell 2500 Growth Index in January. Zhang is willing to pay a premium for good growth prospects, and valuation risk is significant. The January portfolio's average price/projected earnings ratio was a lofty 52, well above the index's 23 and the category average of 26. That's no fluke: It has been at least twice the index's rate for most of Zhang's time at the helm. The portfolio's price/book and price/sales ratios are also regularly high.
Morningstar Analyst Rating
Morningstar Pillars Process
Role In Portfolio Supporting Player Fund Performance Year
Total Return (%)
YTD 2019 2018 2017 2016
16.09 24.52 14.51 29.27
19.93 -3.16 20.27 7.77 -2.72
Data through 5-31-20
5-27-20 | by Tony Thomas
A proven manager, a differentiated process, and an impressive track record earn Alger Small Cap Focus a Morningstar Analyst Rating of Silver across all share classes. The fund is closed to most new investors. Amy Zhang is an adept portfolio manager. She sharpened her skills in nearly 13 years comanaging Gold-rated Brown Capital Management Small Company BCSIX. Leaving Brown for Alger (and this strategy) in 2015, she retained key elements of Brown's proven approach. She built a small, dedicated research team, but the young group has had turnover recently. It is a reminder that Zhang is essential to this strategy and its prospects. That strategy is alluring. Like Brown, she small companies by operating revenue rather than market capitalization. This helps her focus on companies generating cash with viable products or
Sticking with winners stokes the portfolio's stakes in mid-cap companies. Mid-caps soaked up 48% of