​Podcast: Everyone Needs a Plan B​

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The reality is every so often a low-probability, high-impact event happens. And Covid-19 acutely reminds us that we need to be as prepared as possible. In our latest podcast, Weatherbie Specialized Growth Portfolio Manager Ed Minn discusses ​how this year's crisis has caused companies to quickly evolve their administrative infrastructure.

ALEX BERNSTEIN: Hello,I’m Alex Bernstein and you’re listening to The Alger Podcast: Investing in Growth and Change. Earlier in this economic cycle we featured podcasts with some of our Weatherbie Capital portfolio managers. Today, I’m excited to be talking once again to Ed Minn, who’s been managing the Weatherbie Select 15 portfolio, and has now also just joined the Weatherbie Specialized Growth team as a co-portfolio manager.  Welcome, Ed.
ED MINN: Thanks, Alex.

ALEX: And congratulations on becoming a portfolio manager on Specialized Growth.

ED: Thanks very much, Alex.

ALEX: How’s the transition to portfolio manager on that strategy been going?

ED: I think the transition to the Specialized Growth team as a portfolio manager has been seamless.  I had have been a research analyst on Specialized Growth since joining Weatherbie Capital in 2013, and that responsibility continues unchanged.  The difference is now that I’m managing a sleeve of Specialized Growth.  

ALEX: Ed, have you and the team been making any adjustments to the portfolio, as the current economic environment has played out?

ED: We’ve been making relatively modest adjustments to the portfolio.  We believe Oour holdings to begin with are high-quality companies with robust growth profiles and tend to be much less reliant upon the general macroeconomic growth for their own prosperity.  We did shift a bit more weight to companies that we expect will emerge stronger from the pandemic.  One example is a deep discount retailer which has managed to stay open throughout the crisis.  Most of its merchandise for customers comes from liquidation deals that it sources from struggling vendors and other retailers in the space.  We think it’s likely to see some of the best deal flow in this company’s history in the upcoming quarters, which should delight its customer base and help it attract new customers.

ALEX: Ed, I know one of the areas that you’re focusing on during this period of volatility is cybersecurity.  Can you talk about that? 

ED: One of the investment implications of CovidCOVID-19 I think is a greater appreciation for risk mitigation.  So that naturally lends itself to companies reconsidering their cybersecurity needs.  Additionally with more companies having to protect themselves with a more distributed workforce with so many people working from home, that changes the attack vectors and risk profiles facing these companies and causes, in many cases, a reevaluation of their cybersecurity needs, and so some areas within cybersecurity seeing a bit better demand include e-mail security, identity and access management.  

We have two of the holdings in Specialized Growth that are focused on cybersecurity, providing the solutions to companies and direct beneficiaries of any upticks in spending in this area. 

ALEX: Have these companies seen significant growth over the past few months? 

ED: Well, I would say the customers have gone through different phases, and you can’t paint all the customers with the same brush. 

For example, we started a position in an e-mail security company that’s cloud -based and has a broad suite of related modules, and we believe this purchase was timely given the surge in different types of e-mail attacks that have been happening during the pandemic.  Unfortunately, this phenomenon of increased attacks is common to see during crises as hackers try to take advantage of the confusion.  

So, it’s an evolving situation, but we’re optimistic that looking out over the next year or two, there should be some silver linings for these cybersecurity solution providers. 

ALEX: You also mentioned to me the growing importance of modern companies now requiring a virtual “Plan B” readily available to them.  What do you mean by a “Plan B”?

ED: In our view, one of the implications that CovidOVID-19 will have is a rethink on the importance of Plan Bs and risk mitigation in general.  Unfortunately, the reality is every so often a low-probability, high-impact event happens, and CovidOVID-19 acutely reminds us that we need to be as prepared as possible.  One very direct investment implication is increased demand for software solutions that help businesses manage through critical events, whether it’s keeping track of employees, sending alerts and automating various workflows.  One of our holdings in Specialized Growth is a very direct beneficiary of this type of increased demand.  

ALEX: Is a Plan B just “work from home,” or is it more than that?

ED: It can be a lot more than that, Alex.  It can involve having identified alternate suppliers for critical components and reskilling certain employees so the business can continue functioning with reasonable efficiency.  We tend to focus on the implications in the software space in terms of Plan Bs because it looks like there are more attractive opportunities there in helping customers implement Plan Bs.

I think companies will gravitate towards perhaps more vertical integration, more onshoring, geographic diversity, more automation in their processes.  One interesting company that’s a holding that’s a direct beneficiary of CovidOVID-19 for us is a Software-as-a-Service provider of critical event management.    

This company offers a cloud-based platform with nearly a dozen modules, the most common one being mass notification.  This company helps its customer during critical events by notifying employees with important information, keeping track of employees and their safety, monitoring the situation with real-time data feeds and helping to automate and navigate the return-to-work process.  So, by offering so many modules, they can help customers in a very holistic manner, and they’re increasingly providing out-of-the-box templates to help customers get value out of their solutions from day one.  

ALEX: Ed, what do you think the landscape of companies will be once this starts coming to an end? 

ED: I haven’t met or spoken with a single company that isn’t considering at least loosening their work-from-home policy.  Even executives who were very passionate about having everybody in the same room to collaborate, even those stalwarts are more open minded to the possibility of a permanent shift towards some portion of their workforce at least part of the time working from home.  So, there’s definitely been a structural change.  

Whether it’s training your employees with an online learning system or reaching more customers with a telemedicine-based mobile app, becoming a more digital business is for many the only way to survive and prosper. 

ALEX: Ed, I just wanted to ask, how’s your family been doing with you working from home?

ED: Yes.  It was quite an adjustment for the family at first.  The ten-year-old handled it very well and is relatively self-sufficient, but my seven-year-old needed a lot of help because she can be quite wiggly and get distracted easily. I’m super grateful to my wife for taking care of the chaos and the upheaval with the major shift in our home routine and helping our kids adapt to the online learning and online schooling, and that’s enabled me to continue doing my job.  

ALEX: Ed, thanks so much for talking with me today.

ED: Thanks Alex.  Great talking with you.

ALEX: And thank you for listening.  For more of our latest insights, and for more information on Weatherbie Specialized Growth, please visit www.alger.com.​​

The views expressed are the views of Fred Alger Management, LLC (“FAM”)and its affiliates as of July 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 Fred FAM Alger Management, LLC. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities. 

Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may 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 and healthcare 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 and medium 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. Foreign securities and Emerging Markets involve special risks including currency fluctuations, inefficient trading, political and economic instability, and increased volatility.Technology companies may be significantly affected by competition, innovation, regulation, and product obsolescence, and may be more volatile than the securities of other companies. 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​.

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