Bulletin
Investor Alert
Philip van Doorn

Deep Dive Archives | Email alerts

Feb. 13, 2019, 7:04 a.m. EST

This stock picker continues to outperform by using volatility as a ‘friend’

Amy Zhang of the Alger Small Cap Focus Fund gives an update on her holdings

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Alger Small Cap Focus Fund;A (AOFAX)
  • X
    Russell 2000 Growth Index (RUO)
  • X
    Dow Jones Industrial Average (DJIA)

or Cancel Already have a watchlist? Log In

By Philip van Doorn, MarketWatch

1 2

Zhang said she began buying shares of CareDX late in 2017 after the company had reached an “inflection point.” This was the beginning of Medicare reimbursements for AlloSure, which were effective as of Oct. 9, 2017. “We invested after that because Medicare covers 80% of kidney-transplant costs, regardless of the age of the patient,” she said.

“I was confident they were in the process of cleaning up their balance sheet. Fast forward, they become debt-free in 2018. That is a transformation,” Zhang said. She estimates that kidney-transplant-rejection testing is a “$2.7 billion-plus total addressable [annual] market.” CareDX estimated that its 2018 sales totaled between $76.2 million and $76.5 million .

“So there is a large runway for growth — they are definitely the market leader,” Zhang said, especially because CareDX is the only company receiving Medicare reimbursement for kidney-transplant testing.

Veeva update

Veeva Systems /zigman2/quotes/202850210/composite VEEV +1.74%  was the largest holding of the Alger Small Cap Focus Fund when we interviewed Zhang in April, and it was the fund’s sixth-largest holding as of Dec. 31.

Zhang first bought shares of Veeva in 2015 on the strength of its Vault content-management software for the life-sciences industry, which she says has been growing as expected, while the company’s traditional CRM [customer relationship management] software acts as “a cash cow.”

“In calendar year 2015, Vault was 22% of Veeva’s total revenue. Now it is 45% of total revenue. They are still growing over 50% [a year] so there is a very positive product mix,” she said.

Meanwhile, Veeva’s gross margin (sales, less the cost of goods sold, divided by sales) has continued to expand, Zhang said. [According to FactSet, the company’s gross margin for the most recently reported quarter was 72.7%, expanding from 69.9% a year earlier.] One reason for the company’s overall margin expansion is that Vault has a higher margin than Veeva’s traditional CRM software, “which requires a sales force,” she said.

“We still think Vault is at an early stage of growth,” Zhang said, in part because Veeva is expanding it beyond the life-sciences industry, as it can be used for “any regulated content solution.” These might include consumer-packaged goods, chemicals, cosmetics and industrials/manufacturing, she said.

Looking ahead, Veeva expects to roll out Vault Safety this year to replace legacy systems, including those used in the pharmaceutical industry, and two more software products: Nitro, a commercial cloud application meant to help life-sciences companies meld incompatible data from legacy systems, and Andi, which will use artificial intelligence (AI) to help manage sales teams.

“Veeva is an extremely innovative company that spends a lot on R&D. On top of that, they still have the highest GAAP operating margin of all SaaS [software as a service] companies,” Zhang said.

Fund holdings

Here are the top nine holdings of the Alger Small Cap Focus Fund (leaving out Apptio, which was acquired in January), as of Dec. 31:

Company Ticker Share of portfolio Total return - 2019 Total return - 2018
Tandem Diabetes Care Inc. /zigman2/quotes/208680527/composite TNDM 4.4% 11% 1,509%
CareDx Inc. /zigman2/quotes/200138382/composite CDNA 4.1% -3% 243%
Abiomed Inc. /zigman2/quotes/202106417/composite ABMD 4.1% 5% 73%
Cantel Medical Corp. /zigman2/quotes/208355023/composite CMD 3.5% 8% -28%
Veeva Systems Inc. Class A /zigman2/quotes/202850210/composite VEEV 3.3% 29% 62%
Bio-Techne Corp. /zigman2/quotes/203973516/composite TECH 3.1% 27% 13%
Inogen Inc. /zigman2/quotes/208161856/composite INGN 2.9% 10% 4%
Shopify Inc. Class A /zigman2/quotes/209033712/composite SHOP 2.7% 27% 37%
Medidata Solutions Inc. 2.7% 9% 6%
Sources: Alger, FactSet

Fund performance

The Alger Small Cap Focus Fund has five share classes, most of which are distributed through brokers and investment advisers. Minimum investment amounts among share classes can change, depending on the relationship between your broker or adviser and Alger. The class A shares have a 5.25% sales charge but the sales charges can be reduced depending on the amount of money you invest. The Class C shares have a 1% deferred sales charge on shares that are sold.

It is important to look into all the fees, charges and account minimums for every share class when considering an investment. You can find this information about any mutual fund in its prospectus and if you are working with an adviser, take the adviser’s own fees into consideration.

Here are the annual expense ratios for each share class of the Alger Small Cap Focus Fund:

Fund share class Ticker Annual expense ratio Basic initial account minimum
Class A 1.20% $1,000
Class C 1.95% $1,000
Class I 1.20% None
Class Y 0.90% $500,000
Class Z 0.90% $500.000
Source: Alger

Some expenses are waived for extended periods but the waivers can end.

Here’s how the five share classes have performed against the Russell 2000 Growth Index and the fund’s Morningstar category. The performance figures are net of expenses but exclude sales charges. They also don’t reflect any additional annual fees you pay your adviser:

Fund share class Ticker Total return - 2019 through Feb. 8 Average annual return - 3 years Average annual return - 5 years Average annual return - 10 years
Class A 14.2% 31.8% 13.6% 17.9%
Class C 14.2% 30.8% 12.8% 17.1%
Class I 14.2% 31.8% 13.7% 18.1%
Class Y 14.3% 32.0% 13.9% 18.2%
Class Z 14.3% 32.2% 14.1% 18.4%
Russell 2000 Growth Index 12.2% 19.1% 8.2% 15.0%
Morningstar Small Growth Category 12.4% 19.9% 8.4% 15.0%
Sources: Morningstar, FactSet

Don’t miss: Proof that you can outperform with the right actively managed stock fund

<STRONG /> <STRONG /> <STRONG>Create an email alert for Philip van Doorn’s Deep Dive columns <INTERNAL-PAGE URL="/tools/alerts/newsColumn.asp">here.</INTERNAL-PAGE></STRONG>

/zigman2/quotes/202850210/composite
US : U.S.: NYSE
$ 273.96
+4.68 +1.74%
Volume: 518,326
Sept. 25, 2020 4:00p
P/E Ratio
133.03
Dividend Yield
N/A
Market Cap
$41.32 billion
Rev. per Employee
$397,149
loading...
/zigman2/quotes/208680527/composite
US : U.S.: Nasdaq
$ 108.40
+1.86 +1.75%
Volume: 906,961
Sept. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$6.60 billion
Rev. per Employee
$281,571
loading...
/zigman2/quotes/200138382/composite
US : U.S.: Nasdaq
$ 32.77
+1.89 +6.12%
Volume: 813,737
Sept. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.60 billion
Rev. per Employee
$331,468
loading...
/zigman2/quotes/202106417/composite
US : U.S.: Nasdaq
$ 266.44
+3.97 +1.51%
Volume: 224,338
Sept. 25, 2020 4:00p
P/E Ratio
76.65
Dividend Yield
N/A
Market Cap
$12.00 billion
Rev. per Employee
$644,608
loading...
/zigman2/quotes/208355023/composite
US : U.S.: NYSE
$ 44.96
+0.76 +1.72%
Volume: 1.39M
Sept. 25, 2020 4:00p
P/E Ratio
111.23
Dividend Yield
0.00%
Market Cap
$1.90 billion
Rev. per Employee
$332,807
loading...
/zigman2/quotes/202850210/composite
US : U.S.: NYSE
$ 273.96
+4.68 +1.74%
Volume: 518,326
Sept. 25, 2020 4:00p
P/E Ratio
133.03
Dividend Yield
N/A
Market Cap
$41.32 billion
Rev. per Employee
$397,149
loading...
/zigman2/quotes/203973516/composite
US : U.S.: Nasdaq
$ 241.74
+9.52 +4.10%
Volume: 313,052
Sept. 25, 2020 4:00p
P/E Ratio
41.75
Dividend Yield
0.53%
Market Cap
$9.32 billion
Rev. per Employee
$350,853
loading...
/zigman2/quotes/208161856/composite
US : U.S.: Nasdaq
$ 28.43
+0.92 +3.34%
Volume: 155,011
Sept. 25, 2020 4:00p
P/E Ratio
98.03
Dividend Yield
N/A
Market Cap
$627.34 million
Rev. per Employee
$325,852
loading...
/zigman2/quotes/209033712/composite
US : U.S.: NYSE
$ 960.92
+52.31 +5.76%
Volume: 1.98M
Sept. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$116.96 billion
Rev. per Employee
$268,307
loading...

Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

1 2
This Story has 0 Comments
Be the first to comment
More News In
Investing

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.