Investing in Enduring Growth, with Alger Weatherbie

Focusing on the Middle

As noted in the ETF’s description, there is a distinct focus on growth-focused US mid-cap equities. As stated by the Financial Industry Regulatory Authority (FINRA), midcap equities fall within the market capitalization range of $2 billion to $10 billion. In looking at the Russell mid-cap Index fact sheet, as of February 2023, there are approximately 817 US companies that are considered midcap. Though the number of publicly traded US small-cap companies (i.e., Russell 2000 Index: 1,928) and US large-cap companies (i.e., Russell 1000: 1,026) outnumber those categorized as US mid-cap, the performance of the equity category over time has been noteworthy. Over the past decade, as of December 2022, US mid-cap equities have demonstrated their ability to keep pace with their large-cap peers – exhibiting a relatively similar return profile.

The mid-cap equity category has both fast-growing, young companies that have outgrown their small-cap origins, as well as mature companies operating in stable and profitable corners of the market. Though small-cap equities tend to exhibit greater volatility, and large-cap equities tend to be slow-growing, mid-cap equities capture the best of both worlds, as they are less volatile than fast-growing small-caps and have more growth potential than mammoth large-cap companies.

Emphasizing Growth

The ETF’s growth-oriented nature and concentrated holding stipulation (i.e., 30 or fewer) indicate that a best-in-class approach will be taken in identifying equity securities for inclusion. In looking at the long-run performance of the Russell Midcap Growth Index, we can gain some insight into the fund’s potential performance. 

The Russell Midcap Growth Index, overall, has exhibited strong performance over the past decade; though against the backdrop of a rising rate interest rate environment and general economic uncertainty – performance has fallen in recent years.  

As noted by research conducted by Alger Asset Management, growth stocks have exhibited stronger business fundamentals in past recessions than more economically sensitive value stocks. Over the past three recessions, the average decline in growth stock EPS of -16% was about one-third that of value stocks (-54%). Given that growth equities are propelled more by secular progress, driven by market share gains through industry disruption, as the market environment becomes increasingly tense, the firm believes that growth-oriented firms are better positioned to gain market share and expand, regardless of the macroeconomic environment. 

Source: Alger Asset Management. March 2023 

Integrating ESG

Though the idea of ESG integration within investing has recently become a politicized topic, even so far that President Biden used his first veto to preserve a recent US Department of Labor rule about ESG funds in 401(k) plans, Alger Asset Management believes that as long-term investors, assessing companies for ESG policies and risks can potentially benefit clients.

The firm believes that incorporating ESG into its research process allows for a holistic view of the business to be formed, capturing both the quantitative and qualitative aspects of the business and bringing to light the ESG issues that currently exist. Alger utilizes the ESG research and insights derived from Sustainalytics. When a company they own or have an interest in owning receives a poor Sustainalytics score, an ESG review is initiated. This includes a formal writeup in which they identify the drivers of the ESG score, taking industry and sector-specific risks into account.     

As they construct a portfolio of growth-focused midcap equities, utilizing ESG research will ensure that the portfolio is reflective of best-in-class companies capable of growing sustainably over a long investment time horizon. 

For investors interested in gaining exposure to growth-focused companies, with potential for future development, this ETF could be worth consideration. 

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.