Alger Small Cap Focus A US |
by Tony Thomas
A strategy that’s well within its manager’s wheelhouse makes Alger Small Cap Focus an attractive long-term investment. The U.S. mutual fund earns Morningstar Analyst Ratings of Silver or Bronze, depending on share class fees; its Luxembourg offering gets mostly Bronze ratings (and one Neutral). Despite its name, the strategy seeks small companies (rather than small-cap companies) with operating revenues up to $500 million. Manager Amy Zhang adopted this successful approach from her prior firm, Brown Capital Management, when she came to Alger in 2015. The growth-stock selloff since late 2021 has put this potent strategy’s risks on display. In her first six years, many of Zhang’s best picks were high-growth technology and healthcare stocks. Markets generally rewarded this approach, particularly in 2018 and 2020. But many holdings started to look pricey relative to their earnings, and such stocks took beatings in late 2021 into 2022 when interest rates rose and offered investors decent returns in other areas. As a result, the strategy’s performance looks like that of many growth funds that raced up and then fell back over the past five years. Though that was an unsettling ride, it’s one Zhang expects. Stocks of high-growth companies often move in fits and starts, but Zhang and her eight-analyst team are willing to buy and hold, thinking that their firms’ long-run growth prospects will win out. That’s not to say things are completely sanguine here. Zhang’s team has lost five analysts and hired five others since 2020, and the group splits its time between this strategy and a mid-cap version (Alger Mid Cap Focus AFOZX) where macroeconomic concerns spur jockeying between dozens of holdings. That frenetic style seemed to bleed into this strategy, too, in 2021, but Zhang’s steadier hand in 2022 eased some concerns. Put in context, this strategy’s positioning was fortunate entering 2018 and unfortunate going into late 2021, all without changing its stripes much. Much like Zhang and her team, fundholders here should focus on the strategy’s long-term prospects, not its shorter-term ups and downs. |
Morningstar Pillars | |
People | Above Average |
Parent | Average |
Process | Above Average |
Morningstar reserve its rights to charge for access to these Ratings and/or Rating report. |
Permissions/Reprints E-mail Morningstar |