​​Podcast: Digitalization Penetrates Across Sectors

Tech is pervasive in our portfolio, whether it's healthcare, industrial or consumer. For us, the digital transformation theme is now universal across sectors. In our latest podcast, Portfolio Manager Amy Zhang discusses how companies have evolved and accelerated their digital strategies during the current pandemic.

ALEX BERNSTEIN: Hello, I’m Alex Bernstein and you’re listening to the Alger Podcast:  Investing in Growth and Change.  I last spoke with Alger Executive Vice President and Portfolio Manager for the Alger Small- and Mid-Cap strategies Amy Zhang, back in early April when the markets were first experiencing record volatility. Now that it’s been a few months, I wanted to check back in with Amy to see how her companies have fared during this period. Amy, thanks so much for talking with me this afternoon.
AMY ZHANG: Thanks, Alex.

ALEX: Amy, were your companies significantly impacted by the crisis?

AMY: We spend a lot of time differentiating between bumps in the road versus permanent impairment of fundamentals.  So, we have the companies that I think will be part of the solution for COVID and a new normal.  We also have other companies that are temporarily impacted by COVID that I think will recover as we eventually normalize coming out of the COVID crisis. 

For example, medical devices companies.  As you know, we have very significant exposure in healthcare, and they still have mission-critical, lifesaving surgeries.  Right?  So, I mean those elective procedures have been delayed just by the nature of COVID.  Part of it, hospitals have to make room for COVID patients and also their safety concerns.  So, a lot of them are lifesaving procedures that have just been delayed, but I think there’s going to be a pent-up demand when things get better.  It’s just a matter of time.  So, I think that’s not a permanent change.  

But it’s going to impact their earnings, revenue and earnings growth.  So, we were opportunistic on those companies back in, for example, March and April, and a lot of them have recovered, but I think those companies will continue to do well.  So, it’s really about differentiating, again, a short-term bump versus long-term deterioration of fundamentals.  

ALEX: Amy, how important is the theme of digital transformation in your portfolios?  

AMY: I mean Digital transformation is a very long-term trend and really, it’s across sectors for us.  Because innovation is a common theme that we really look for companies that can transform an industry and transform and disrupt an industry that is dominant in a particular market and that has a large, expanding market with a very strong and wide moat.  

So, for example, in software clearly there’s cloud computing.  It’s a very important theme for us that most of our companies have that cloud data analytics advantage.  They have massive data optimized and can turn that data into actionable information.  It’s not just in technology and cloud computing, but it’s in artificial intelligence, machine learning with big data.  That’s pervasive for healthcare, industrial, even consumer.  

Because in healthcare, for example, doctors need to have massive clinical data streamlined and automated, turning into actionable insights.  

On the industrial front, we have industrial automation, for example  machine vision that automates manufacturing.  So, the other themes we believe in very strongly are clearly in the front and center of digital transformation.  

So, for us, the digital transformation theme, it’s really universal, across sectors. And I think those companies are really well-positioned to win in the next decade, and they have a very strong tailwind.  That’s why I still feel very positive about their growth prospects.  

ALEX: Have the companies you follow been evolving over the last few months?  

AMY: I wouldn’t say they significantly evolved or adapted, but – a company that I’ve followed for over eight years, they had the first antigen test approved, so that’s point of care diagnostic, but their forte before was in flu diagnostics.

So clearly, as soon as COVID hit, I thought they’re going to do well.  One is that they would be part of the solution.  One is that people wanted to do more flu testing to differentiate flu from COVID, and also, it’s in their warehouse to do COVID testing.  So sure enough, they are now on the forefront of COVID testing both the antigen test which is for active COVID, and they also have antibody tests for that, and then they’re coming up with a combo test that is going to do both COVID and flu just in one which will be very much needed in the flu season.  

So again, Rome was not built overnight.  I think our forte is again investing a company early on the corporate lifestyle to be on the right side of that positive dynamic change.  Then they can easily adapt and benefit when there’s a need, whether it’s in technology, healthcare, industrial or consumer.  They are just like pain points of customers, solving problems for customers.  

Consumer is really about providing a very compelling, very strong value proposition for consumers.  We have a company that even though it’s a chicken wing company – it sells chicken wings – but they might as well be a technology company.  So, I feel it’s more like a technology company that sells chicken wings.  

To your point, they adapted and evolved very quickly to accelerate their digital strategy, which is already in place. And now they have their digital strategy, which is pick up and delivery, has accelerated significantly. And also, they already had a ghost kitchen, for example,  in the U.K., and now they started the first one in the U.S.; a ghost kitchen meaning it’s only for off-premises.  You don’t need to have any eat-ins, so that saves a lot of real estate cost  and also saves a lot of labor.  So continuously that would clearly be a big plus for them. 

ALEX: Did you say, “chicken wings”? 

AMY: Chicken wings. But it doesn’t matter which sector.  Tech is like pervasive in our portfolio, whether it’s healthcare, industrial, consumer.  I think all the companies we invest in have a technology edge which is very important,  because I think technology is a key driver to real growth of the economy.

ALEX: Amy, have the past four months changed your investing philosophy at all?

AMY: No, I think with the COVID challenge that the stronger companies have become stronger.  So, we’re always wanting, I think, companies that are resilient.  They were crash-tested in this COVID challenge.  So, I think again we continue to focus on company fundamentals. 

So, I think to be resilient in the bad times but continue to do well in the good times.  So, investing in change, which is what we do at Alger, investing in positive dynamic change I think is a very valid strategy. 

ALEX: Amy, clearly you take your work very seriously.  How do you decompress at the end of the day?  

AMY: Usually I have very long days, and we have a lot of digital meetings which is great.  So, I try to work out, and also on weekends I catch up on a lot of reading and also, I run, and I also practice piano over the weekend.  

ALEX: What piano pieces are you playing?  

AMY: I like a lot of Bach.  I have Mozart.  You know it’s very structured and very robust and very peaceful, and I play a lot of sonatas in the sense that it’s also structured.  It’s sort of cheerful, and I think it helps me center in terms of my daily thinking.  

ALEX: How’s your son doing? 

AMY: He’s doing great.  He’s actually very much into online learning. He does online learning in the summer.  He also practices piano.  

ALEX: Do you do duets?

AMY: We’ve done some very simple duets but not sort of like the duets I used to do, but yes.  So that’s been fun playing with him, and he’s made significant progress in the summer.  He practices a lot more now which makes me happy. 

ALEX: Amy, thanks so much for talking with me this afternoon.  

AMY: Great talking to you, Alex.  

ALEX: And thank you for listening. For more information on Alger’s small- and mid-cap strategies, and for more of our latest insights, please visit www.alger.com.

The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of August 2020.  These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities. 

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