Links To China Helped This Top Fund Early in Coronavirus Pandemic

VOL. 37, NO.8

W W W . I N V E S T O R S . C O M

WEEK OF JUNE 1, 2020

FUNDS & PERSONAL FINANCE

MUTUAL FUND PROF I LE

Links To China Helped This Top Fund Early In Coronavirus Pandemic

Alger Weatherbie Portfolio Managers made buys, sells before many investors foresaw diease's impact.

vices. Nevro is a medical device maker. Progyny is a fertility ser- vices business. The fund also trimmed its position in Wayfair W , an e-com- merce company that sells furni- ture and home goods, "because more than half of its goods were sourced from China," Dai said. Those moves reflect the flex- ibility that help makes this one of the best mutual funds. "We differ from our traditional peers," Dai said, "in that we not only hunt in the technology and health care spaces for ideas. We also hunt in more mundane in- dustries." Two of those nonexotic in- dustries are waste management and residential real estate ser- vices. That has led the fund to such diverse holdings as Casella Waste Systems CWST and First- Service FSV . For its buys, the fund's co- managers think long-term, not like in-and-out speculators. "We evaluate each company as if we were outside buyers who want to own a business," co-manager Josh Bennett said. The fund targets small- and midcap stocks. Initial buys are $300 million in market capital- ization to no larger than $2.5 billion. The fund's third manager is MatthewWeatherbie, co-found- er, CEO and co-chief investment officer of Weatherbie Capital. Weatherbie is a subsidiary of Al- ger Associates. Amix of quantitative and qual- itative criteria also help make this one of the best mutual funds.

Alger Weatherbie Spec. Gr Prt I-2

Sector weightings as of

2/29/20

% of stock assets

% of S&P 500

Cyclical

18.10%

Basic materials Consumer cyclical Financial services

0.00 2.10% 5.85 10.26 6.15 13.58

BY PAUL KATZEFF INVESTOR’S BUSINESS DAILY

Real estate

6.10

2.92

Lots of mutual fund managers bought stocks when share prices dropped during the coronavirus stock market correction. Alger Weatherbie Specialized Growth Portfolio AAMOX , one of the indus- try's best mutual funds, got a head start on many. Co-manager George Dai, born in China, heard from relatives and friends in his birth country that a new disease was arising. The disease was severe and would likely be disruptive, they told him. "Starting in early February, we realized that this coronavi- rus would be more serious than Wall Street appreciated," Dai said. "Thirty years ago I came from China. I still have family and friends in China. Some fol- lowed the coronavirus situation closely. They said the situation was far worse than people be- lieved." As a result, the still-small $2.04 million fund reviewed its portfolio and made offensive as well as defensive moves. The fund added to its stakes in high- conviction holdings, including Epam Systems EPAM , Nevro NVRO and Progyny PGNY . Epam provides software product development and digi- tal platform engineering ser-

Economically sensitive 45.70 Communication services 0.00 10.84 Energy 0.48 3.05 Industrials 12.43 8.40 Technology 32.79 22.36 Defensive 36.20 Consumer defensive 9.05 7.75 Health care 27.15 15.49 Utilities 0.00 3.27

Josh Bennett

George Dai

Max. front load: None Expenses: 1.05% Symbol:

AAMOX

2019: 38.31% 3-yr. avg.: 20.28% YTD: 9.52% 5-yr. avg.: 14.13% 10-yr. avg.: 14.56% Total returns as of 5/26/20

Alger Weatherbie Spec. Gr Prt I-2 Large-cap growth funds S&P 500

Total returns as of 5/26/20

11 14 17 20%

2 5 8

1 year

10-yr avg

Source: Morningstar Direct

Among their quantitative criteria, the managers look for stocks whose earnings are growing at least at a high teens rate and preferably at least 20% annually. "We are true growth investors, not GARP investors," Bennett said, referring to the acronym for the growth-at- a-reasonable-price approach to investing. GARP investors tend to be more conservative about how much they'll pay for a stock, preferring to pay lower valuations for their stocks. Another quantitative criteria they look at is debt. "We're OK with debt, but we want compa-

nies that use debt as a tool, not as a crutch," Bennett said. "If they have debt, theymust have the free cash flow to support it. Theymust be able to pay it down in three to five years, not 10 years." On the qualitative side, the fund manager want companies that have outgrown what Ben- nett calls the perils of infancy. Second, they prefer com- panies whose management owns a stake in the business or whose compensation is tied to performance. That way, company managers' priorities and financial interests overlap with their shareholders'.

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