Podcast: Amy Zhang, Managing Through Volatility
​​​
Small cap has always been volatile in the 16 years that I've been managing it.  We spend a lot of time differentiating bumps in the road versus permanent impairment of fundamentals.
In our latest podcast, Small Cap Portfolio Manager Amy Zhang discusses current volatility in the market and whether small cap equities may be too exposed or if they can actually offer additional investment ​opportunities.

BRAD NEUMAN:​ Hi.  This is Brad Neuman, Director of Market Strategy at Alger and you’re listening to the Alger Podcast.   Managing any type of equity investment portfolio can be challenging during periods of market volatility.  When it comes to small cap portfolios, many investors are undecided whether these vehicles are too exposed to volatility or if they can actually offer additional investment opportunities.  
To address some of these questions, I’m joined today by Amy Zhang, Portfolio Manager of the Alger Small Cap Growth and Small Cap Focus Strategies.  Amy has 23 years of investment experience and has spent a significant amount of that time managing small cap strategies.  Amy, thanks so much for joining us.
AMY ​ZHANG:  Thanks, Brad.
BRAD:​To start off, what factors do you think have driven the recent market volatility? 
AMY:  I think there are more machine trading and the proliferation of passive management.  Also, investors are becoming more shorter term oriented.  So, that has driven volatility more.  And recently, I think, volatility is really more driven by fear sentiment.​
BRAD: As a small cap portfolio manager with a considerable track record, how do you compare the recent volatility to some of the historic periods of volatility that you’ve experienced?​
AMY:  Small cap has always been volatile in the 16 years that I’ve been managing it.  I wouldn’t say I prefer it, but I’ve been doing this long enough that I think I’m pretty good at navigating through volatility.  For example, I’ve bought a lot on weakness.  And we spend a lot of time differentiating bumps in the road versus permanent impairment of fundamentals.  I think small cap investing particularly requires a specific mindset of patience and then tolerance for pain, because small caps do not grow in a straight line.  And for us here at Alger, we spend a lot of time stress testing our bear, base, bull cases.  We really focus on a long-term view and intrinsic value. I do get excited even though usually it’s accompanied by temporary pain.  But again you’ve got to take the good with the bad.  
At the end of last year/beginning of this year, when the market was very pessimistic, I really felt that was wrong.  So I didn’t change the way I manage, meaning I didn’t ever let the market reaction dictate my behavior.  It’s very important to stay disciplined and consistent. 
I was at a health care conference, and that was very robust in terms of the tone.  As you know, we invest a lot in health care, so it’s very important for both biopharmaceutical companies and the medical devices, diagnostic companies. The overall tone was very positive, very robust.  
So, I think it’s very important to take advantage of volatility.  I’ve seen numerous exampl​​es in my career as a small cap portfolio manager, so I think that definitely creates opportunity.
BRAD:  Do you think we’re likely to see recession this year? 
AMY:  I don’t think we’re in recession at all this year because fundamentals are still very strong for companies.  I think we have a very dovish Fed, and I think that helps in terms of the valuation of small cap stocks because we cannot just only think about fundamentals.  We do care about valuation, but in the small cap area, it’s a very fertile area for active management, and there are always opportunities for growth not priced in.  So that’s why we think it’s great to be in this space. 
BRAD:  Do you think small caps are particularly impacted by this kind of volatility?  
AMY:  Pattern recognition is very important, I think, as a portfolio manager.  So, I think I am grateful that I’ve been doing this for so long that I’ve seen a lot of times the same movie playing, and I think I can see the playbook.  We always use volatility as our friend when there’s a big disconnect between fundamentals and stock prices.  
BRAD:  Do you find yourself making particular adjustments during market volatility?
AMY:  Well, it’s not so much market volatility.  I differentiate volatility from risk.  When I think about risk, it’s business risk like earnings risk or company fundamentals, and is a company decelerating?  So, we of course pay more acute attention.  In an extreme volatility environment, it’s more asymmetrical – meaning companies are punished a lot more if the fundamentals are decelerating.  So, we pay more attention to that.  We want to make sure our companies have company-specific drivers that are still in place.  So, that’s what we’re doing.  
You’re never going to see this as a utility portfolio.  We’re still going to invest in health care and technology, some in consumer and some industrial.  It’s decidedly the growth sector.  But this is still going to be a growth portfolio, and I think the periods of extreme volatility probably will be one of those best periods to position it for future growth.
BRAD:  So, for the sectors you typically focus on, you continue to favor them during periods of volatility?
AMY:  Yes, because, well... I use the analogy of motorboats versus a sailboat in the sense that we’re thematic, and we want to invest in companies that have long-term powerful secular drivers.  And so those are the motorboats that have long-term value-creating engines, even though in the choppy water of volatility, the economic winds, they’re not going to tip over.  They’ve got to navigate like everybody else, but because their secular drivers are much stronger, they can generally trump the cyclicality.  Whereas if it’s a sailboat, it’s much more subject to economic winds.  That’s why I generally do not like to invest in a cyclical growth company.  
I mean there are some in the industrial space, and almost everything is somewhat cyclical, but we want to make sure the secular drivers are much more powerful.  
BRAD:  Amy, thanks so much for joining us today.
AMY:  Thanks, Brad.  Great talking to you.  Always a pleasure.
BRAD:  And thank you for listening.  For more information on the Alger Small Cap Growth and Small Cap Focus strategies, please visit alger.com. 
​Click here for​ more information on the Alger Small Cap Growth Strategies.​​​
​ ​
​​Fred Alger & Company, Incorporated is the parent company of Fred Alger Management, Inc. ​ The views expressed are the views of Fred Alger Management, Inc. as of February 2019. These views are subject to change at any time and should not be interpreted as a guarantee of the future performance of the markets, any security or any strategy managed by Fred Alger Management, Inc. These views should not be considered a recommendation to purchase or sell securities. Individual securities or industries/sectors mentioned, if any, should be considered in the context of an overall portfolio and therefore reference to them should not be construed as a recommendation or offer to purchase or sell securities.  References to or implications regarding the performance of an individual security or group of securities are not intended as an indication of the characteristics or performance of any specific sector, industry, security, group of securities or a portfolio and are for illustrative purposes only. Alger has used sources of information which it believes to be reliable; however, this publication is not intended to be and does not constitute investment advice. 

Risk Disclosures: Investing in the stock market involves risks, and may not be suitable for all investors. Growth stocks tend to be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. A significant portion of assets will be invested in technology companies, which may be significantly affected by competition, innovation, regulation, and product obsolescence, and may be more volatile than the securities of other companies. Investing in companies of small capitalizations involve the risk that such issuers may have limited product lines or financial resources, lack  management depth, or have limited liquidity. Assets may be focused in a small number of holdings, making them susceptible to risks associated with a single economic, political or regulatory event than a more diversified portfolio.
​
For U.S. Mutual Fund Investors: Before investing, carefully consider the Fund’s investment objective, risks, charges, and expenses. For a prospectus or summary prospectus containing this and other information about the Fund, call (800) 992-3863, visit www.alger.com, or consult your financial advisor. Read the prospectus carefully before investing. For a complete list of Fund portfolio holdings please visit www.alger.com. Distributor: Fred Alger & Company, Incorporated, Member NYSE Euronext, SIPC. NOT FDIC INSURED. NOT BANK GUARANTEED. MAY LOSE VALUE.

For Non-U.S. Investors: This document is directed at investment professionals and qualified investors (as defined by MiFID/FCA regulations). It is for information purposes only and has been prepared and is made available for the benefit of the investors in the Portfolio. This document does not constitute an offer or solicitation to any person in any jurisdiction in which it is not authorised or permitted, or to anyone who would be an unlawful recipient, and is only intended for use by original recipients and addressees. The original recipient is solely responsible for any actions in further distributing this document and should be satisfied in doing so that there is no breach of local legislation or regulation. This document is not for distribution in the United States.  
 
Any opinions expressed herein are those at the date this material is issued. Data, models and other statistics are sourced from our own records, unless otherwise stated herein. We caution that the value of investments in discretionary accounts, and the income derived, may fluctuate and it is possible that an investor may incur losses, including a loss of the principal invested. Investors should ensure that they fully understand the risks associated with the Portfolio and should consider their own investment objectives and risk tolerance levels.  Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments. 

These products may be subject to restrictions with regard to certain persons or in certain countries under national regulations applicable to such persons or countries. NOTABLY, THIS PRESENTATION IS EXCLUSIVELY INTENDED FOR PERSONS WHO ARE NOT U.S. PERSONS, AS SUCH TERM IS DEFINED IN REGULATIONS OF THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT) AND WHO ARE NOT PHYSICALLY PRESENT IN THE UNITED STATES.

No shares in the Alger SICAV or other sub-funds of the Alger SICAV may be offered or sold to U.S. persons or in jurisdictions where such offering or sale is prohibited. U.S. persons include citizens or residents of the United States of America. For a proper definition of U.S. Person, see the Alger SICAV prospectus. Investment in the Fund or other sub funds of the Alger SICAV may not be suitable for all investors. Investors with any doubts with regard to suitability should contact their independent investment advisors. Nothing in this presentation should be construed as advice. This presentation does not form part of the prospectus of the Alger SICAV and is not, and should not be construed as, an offer, invitation or solicitation to subscribe for the shares in the Fund or other sub funds of the Alger SICAV. The Alger SICAV is authorized by the Luxembourg Supervisory Authority as a UCITS and has only been authorized for public distribution in certain jurisdictions. It is the responsibility of any person in possession of this presentation to observe all applicable laws and regulations of any relevant jurisdiction with regard to sales and investment in the Fund or other sub funds of the Alger SICAV.

Investment products referenced in this presentation are not directed at and suitable for all types of investors. Potential subscribers are requested to carefully and independently assess the legal and commercial documentation provided and notably the risks entailed and to seek appropriate professional advice where necessary (including regulatory and fiscal aspects) in order to determine the investment product’s potential to reach predefined investment objectives.

Important Information for EU and UK Investors:
Alger Management, Ltd. (company house number 8634056, domiciled at 78 Brook Street, London W1K 5EF, UK) is authorised and regulated by the Financial Conduct Authority, for the distribution of regulated financial products and services. La Française AM International has a signed agreement with Alger Management Ltd, whereby La Française AM International is authorized to distribute Alger Management, Ltd. products in Europe. Fred Alger Management, Inc. and/or Weatherbie Capital, LLC, U.S. registered investment advisors, serve as sub-portfolio manager to financial products distributed by Alger Management, Ltd.

Fred Alger & Company, Incorporated (parent company of Fred Alger Management, Inc.), is not an authorized person for the purposes of the Financial Services and Markets Act 2000 of the United Kingdom (“FSMA”) and this presentation has not been approved by an authorized person for the purposes of Section 21(2)(b) of the FSMA.

The distribution of this presentation in the United Kingdom is restricted by law. Accordingly, this presentation is provided only for and is directed only at persons in the United Kingdom reasonably believed to be of a kind to whom such promotions may be communicated by an unauthorized person pursuant to an exemption under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”). Such persons include: (a) persons having professional experience in matters relating to investments and (b) high net worth bodies corporate, partnerships, unincorporated associations, trusts, etc. falling within Article 49 of the FPO. The services provided by Fred Alger & Company, Incorporated and the investment opportunities to which this presentation relates are available only to such persons, and persons of any other description may not rely on the information in this presentation. Most of the rules made under the FSMA for the protection of retail clients do not apply, and compensation under the United Kingdom Financial Services Compensation Scheme will not be available.