A fund manager who’s crushing nearly all of her peers breaks down 3 under-the radar stocks driving her strong performance
There's hardly any obvious link between playing the piano and investing. But Amy Zhang, who does both activities, can spot a few, including the importance of consistency, creativity, and practice. She also recalls the looming deadlines before each time her teacher would show up to evaluate what was learned during the previous lesson. "It forced me to be disciplined," Zhang said of her piano-learning days. She said those skills had carried over into her management of the $2.2 billion Alger Small Cap Focus Fund . As of Wednesday, the fund's 47% year-to-date gain was outranked by just one US portfolio in Morningstar's coverage universe. It also beat the best-performing large-cap growth funds, mirroring how smaller companies have gained more than their larger counterparts this year; the Russell 2,000 has rallied 11.5%, outperforming the S&P 500 by about 3.5 percentage points. The small-cap space is "a fertile ground for active management," Zhang told Business Insider in an interview on Tuesday. For one, there are nearly nine times as many US small caps (worth $200 million to $2 billion) as there are mega-cap companies worth more than $50 billion. This means there are far fewer analysts available to cover small-cap companies, the stocks are less liquid, and institutional ownership is less. This inefficiency means stock pickers who do the grunt work may find outsize opportunities that have fewer eyeballs. "People ask me if I'm surprised by the performance, and I don't want to sound arrogant, but I think it's a testament to long-term stock-picking investors like us," Zhang said. Though market cap is widely used to separate small caps from mega caps, Zhang prefers to use revenue to define company sizes — specifically those with no more than $500 million in revenue as a starting point.
It's all about data From there, companies she finds attractive tend to have one thing in common: their ability to turn
data into actionable information. Veeva Systems fit that profile.
It's essentially a tech company for the healthcare industry, providing content-management software. Pharma and biotech companies, for example, can use Veeva's cloud-based software to scan documents securely from mobile phones or track data during a clinical trial. Veeva's clients include Merck and Biogen. The company had $512 million in cash at the end of the second quarter and earned $209.6 million in revenue. Though Veeva is firmly in the life-sciences arena, it also creates software for companies in the consumer-goods and chemical industries.
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