Alger Mid Cap 40 ETF

FRTY

Market cap $122M

I am initiating coverage of the Alger Mid Cap 40 ETF with a Hold rating. Benchmarked against the ​Russell MidCap Growth Index, FRTY is growth-oriented, with just 40 stocks in the portfolio. Though having a moment in 2025, FRTY has significantly underperformed the ETF that tracks its benchmark since its inception, as well as IVV, QQQ, and SCHG.

Halftime in 2025 threw a spotlight on active small- and midcap funds via the SPIVA U.S. Mid-Year 2025 report. The trend of active ETF launches is outpacing their passive peers this year.

FRTY is a focused mid-cap growth ETF comprised of 40 U.S. stocks undergoing "Positive Dynamic Change". Its ER is 0.60% after waivers and the ETF has $85 million in AUM. FRTY's current holdings are increasing sales at a faster rate than they were three and five years ago, making the fund a standout among nearly all U.S. Equity ETFs. However, Alger's strategy appears reckless. I calculated a 1.60 five-year portfolio beta, a 36.56x forward P/E ratio, and a weighted average ROE that's substantially lower than its peers.

On Tuesday, Alger released the Alger Russell Innovation ETF (INVN), the latest addition to Alger's growing fund library.  INVN looks to provide results similar to that of the Alger Russell Innovation Index.

Thanks to an improving U.S. economy and reassuring earnings released so far, market sentiments remain strong, overriding worries over the presidential election, uncertainty regarding the magnitude and timing of Fed rate cuts, and volatility in the oil patch due to geopolitical tensions. Stimulus measures in China also supported the rally as this quelled global growth worries a bit.

Mid-cap ETFs often offer the best of the both worlds -- large and small-caps.

US equities, as measured by the S&P 500 Index, have performed strongly so far in 2023.