Mid-cap stocks usually refer to stocks with a market capitalization of between $2 billion and $10 billion, but Amy Zhang prefers to use revenue.

As the portfolio manager of the $475 million fund Alger Mid Cap Focus (AFOZX), Zhang Yun is looking forCompanies with revenues of between $500m and $1 billion, with strong free cash flow and a certain market share, allow shareholders to enjoy compound interest growth."in baseball, for example, these companies are in the third or fourth inning," she said. "

Alger Mid Cap Focus had a three-year annualised return of 14.9 per cent, ranking among the top 10 per cent of similar funds and easily outperforming the Russell mid-market growth index. The fund has performed poorly over the past year because value stocks outperformed growth stocks in a market downturn, but Zhang Yun is still buying her favorite mid-cap technology stocks at a bargain.

Zhang Yun's differentiated investment comes from 20 years of experience in managing small cap growth stock strategies, including 13 years of co-management of Brown Capital Management Small Company (BCSIX), a fund that won the Morningstar Gold Award. Zhang Yun joined Alger in 2015, launched Alger Small Cap Focus (AGOZX), and launched Alger Mid Cap Focus, which won the Morningstar four-star rating and Morningstar Silver Award in 2019.

Zhang Yun is looking for companies with business models that lead to lasting revenue growth and profitability, such as subscription models or companies that provide key components. Companies that can capture market share and maintain an edge with time-saving or problem-solving products are the ideal investments. "these companies have differentiated value and pricing power, and are very suitable investors in the current market," she said. "

Strong managers are very important.Zhang Yun's favorite company has both a visionary CEO and a profitability-focused CFO to strike a balance between growth and profitability, avoiding companies that lack focus or effective sales strategies.

Alger Mid Cap Focus's portfolio is made up of about 50 companies and is highly concentrated. Zhang Yun usually holds for three to five years and uses intrinsic value as one of the reasons to buy or sell. The fund has had big ups and downs in the three years since its launch, with a turnover rate that far exceeded Zhang Yun's expectations, reaching as high as 250 per cent last year.

After Alger Mid Cap Focus achieved a return of nearly 85% in 2020, Zhang Yun sold several high-priced stocks, including user certification companies.$Okta (OKTA.US)$And videoconferencing company$Zoom Video Communications (ZM.US)$She believes that the valuations of these companies are too high. Rising inflation and higher interest rates by the Federal Reserve also prompted her to sell some stocks.

Alger Mid Cap Focus's returns so far this year and one-year are down 28 per cent and 33 per cent, respectively, as the current market cycle favours value stocks.

Another reason for Alger Mid Cap Focus's underperformance is that the fund has slightly more technology stocks than its peers and indices this year. Zhang Yun believes that this actually brings an opportunity, and she hopes to find gems in the "rubble" of falling technology stocks this year. While some technology stocks have fallen in price-to-earnings ratios, they are still high-quality companies, she says.

One of the stocks Zhang Yun bought during the tech stock crash earlier this year was$CrowdStrike (CRWD.US)$She built a position again after a profitable understanding of the stock at the end of 2021. Ms. Zhang said the sell-off in technology stocks in the first quarter made her see the company's long-term investment value again.

Zhang Yun believes that CrowdStrike is the emerging leader in the enterprise terminal security market (end-user equipment security systems).$Qualcomm (QCOM.US)$And McAfee and other companies to grab market share. Cloud-based systems are different from competitors' products because once customers buy the system, they usually add additional services to create a lasting revenue stream for the company. "CrowdStrike is characterized by both high growth and expanding market share," Zhang said. "

Another company that has recently been included in the portfolio is the compensation service provider.$Paylocity (PCTY.US)$. Zhang Yun pointed out that the company competes with companies such as ADP and Paychex and currently has about 33000 customers, compared with 1 million customers for ADP and Paychex. Paylocity is also expanding into human capital management and increased its business during the outbreak, with the potential to allow shareholders to enjoy compound interest growth.

Alger Mid Cap Focus owns a number of companies with pricing power, and investing in these companies can offset some of the inflationary pressure.$Heico (HEI.US)$Is one of them, the company has two business units, one is to provide replacement parts for aircraft, and the other is to provide electronics for aerospace and defense. As a third-party parts supplier approved by the Federal Aviation Administration (FAA), Heico's parts are 20% to 40% cheaper than original equipment manufacturers and are the largest of its kind. Zhang Yun pointed out that the aftermarket parts suppliers approved by FAA currently account for only 3% to 4% of the commercial aerospace aftermarket, and there is still a lot of room for growth.

After volatility in recent years, Alger Mid Cap Focus's portfolio has stabilized and Zhang Yun invests in a company with a strong balance sheet and little need to raise money from the capital markets, insulating it from rising interest rates.

"I am very optimistic about the performance of these companies over the next one to three years, and most of the bad news related to rising interest rates has been reflected in stock prices," she said. Some companies, though small, can grow in an environment of rising interest rates because they have strong balance sheets, can raise their own capital, and have some really unique drivers. "