Small Cap Investing in Volatile Markets


To that extent, the most innovative companies are still doing well. It’s just a temporary bump in the road. But it’s not permanent in the fundamentals whereas, some more economically sensitive industries will have more of that impact. As Brad mentioned before, growth versus value. I believe in that. With these low interest rates, the interest rates may even go lower, that long duration aspects will do well. One of the longest duration assets in equity is small cap growth. To that extent, I think small cap growth will be the first to come out. We don’t know the timing. But eventually those should be the assets that will outperform. BN: I would give you three reasons why I think small caps will outperform. One, Amy mentioned, they’re more domestically focused and I think the U.S. is in a better position to address the virus, certainly than Europe. Two, if you look at recessions, small caps actually tend to do better than large caps in recessions. And the reasons why is because as the market starts counting that we’re coming out of a recession, towards the end of it, small caps lead the way. So, small caps typically trough and go up faster towards the end of a recession, or would inside of the recession, than large caps. And it’s conceivable that we’ve already entered a recession here and small caps will lead the way out. The third thing is small cap valuations are pretty compelling to large caps. I’m lookingat the Russell 2000 P/E relative to the S&P 500 P/E and the premium is now about 14% on a forward basis. That compares to a 40% premium over time and this premium of only 14% is the lowest in nearly 20 years. So, small caps look cheap, they’re more domestically focused, and they typically leadon the way out of a recession. So, I look for them, you know, in thenext 12 months to outperform.

tactically in the portfolio going forward and then talk about its moat as well?

AZ: It’s certainly, in some ways, part of the solution in terms that they do masks, they do disinfectants. But they also have some challenges. Part of it is that as we anticipate they will temporarily suffer as colonoscopy elective surgery is pushed out. They also have some internal challenges. But, on the other hand, they’re still very well positioned. They generate a lot of cash flow. So, to that extent, it’s not of concern. Speaker Question: Could you give some indications about any liquidation pressures that you’re getting at the present time? AZ: We have not had liquidation pressure because I think we have a very diversified client base and strong distribution team. So, I think we have built a business that’s very diversified and also very resilient. I think people should stay the course because the worst is trying to sell low and buy high. I firmly discourage people to chase performance. BN: All right, we’re going to end the call here. We really appreciate everyone dialing in and taking the time. At Alger, we want to be transparent. We want to give you the resources to help you and we want you to know that we’re here for you through this difficult time. Good luck in managing through this and remember that we’re here for you. Take care.

AZ: Yes. Thank you for all your support, we greatly appreciate it.

Speaker Question: Can you talk a littlebit about Cantel and its cash flow position, how you see it positioned

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