Alger Mid Cap 40 ETF (FRTY)

The Alger Mid Cap 40 ETF (FRTY) is unusual among exchange-traded funds for a fundamental reason: it is actively managed. Instead of tracking an index, it holds a hand-picked collection of exactly 40 mid-sized companies that the investment team at Alger believes will outperform over a multi-year horizon. This blend of active management and ETF structure appeals to investors who want the conviction of an active manager paired with the transparency, daily liquidity, and tax efficiency of an exchange-traded wrapper.

The fund’s defining characteristic is its extreme concentration. Most ETFs hold scores or hundreds of positions to dilute risk. FRTY holds only 40, and many of those represent substantial bets. Concentration forces differentiation and exposes the investment thesis: the team is willing to stake its reputation on the idea that these 40 companies, selected from the broad mid-cap universe, will deliver outsize returns. In practice, this means FRTY moves more sharply than the Russell Mid Cap Growth Index it implicitly benchmarks against. In years when mid-cap growth outperforms, and Alger’s stock picks land, FRTY can surge. In downturns or periods when the fund’s choices lag, the losses can sting proportionally harder.

The philosophy and process

Alger, a subsidiary of Affiliated Managers Group (AMG), has managed money since 1964 with a reputation for growth investing. The philosophy behind FRTY is straightforward: identify mid-sized companies with strong growth prospects that the broader market has not yet fully appreciated. The fund looks for businesses with expanding addressable markets, competitive advantages, pricing power, and management teams with a track record of execution. The geographic focus is primarily North America, though some holdings may be globally diversified businesses domiciled in the US.

The 40-stock mandate imposes discipline. A traditional mutual fund might hold 60–100 positions; here, the cap forces the team to say no to “pretty good” ideas and focus only on the highest-conviction bets. Each holding is meaningfully sized, so underperformance by any single company materially affects net asset value. This arrangement aligns the fund’s incentive with long-term outperformance: Alger’s reputation—and FRTY’s relative returns—depends on the team’s ability to identify and hold winners.

Holdings and sector exposure

The portfolio typically leans toward growth sectors: software, healthcare services, consumer discretionary businesses, financial services, and specialty industrials. The fund avoids utilities, pure commodities, and businesses defined by dividend yield; this is a growth vehicle, not income-focused. Holdings are mid-cap by definition, typically companies with market capitalizations between $2 billion and $10 billion, though the fund may include some companies that have grown into larger weights over time.

Because the fund is actively managed and positions are updated continuously as the market moves and the fund’s views evolve, any snapshot of holdings becomes stale quickly. A reader researching FRTY should check the latest fact sheet for the most current list and weightings. What matters for understanding the fund is not the names themselves but the selection criteria: the team hunts for franchises with durable competitive advantages operating in expanding markets, and concentrates capital on those ideas.

Costs and tax efficiency

Active management carries fees. FRTY’s expense ratio sits above that of a passive mid-cap index ETF, typically in the range of 0.6–0.75% annually. That premium reflects the cost of the investment team, research, and portfolio turnover. Over long periods, the fund must deliver excess returns beyond that fee level to justify its existence. Some years it will; others it will not. This is the standard bet in active management: you pay a known cost upfront hoping to capture skill over time.

One advantage of the ETF structure is tax efficiency. Because FRTY is an exchange-traded fund rather than a traditional mutual fund, shareholders can avoid forced capital-gains distributions in most years if they simply hold the fund. A shareholder who buys and sells individual mutual fund shares incurs tax drag from the fund’s internal portfolio trading; with an ETF, you incur taxes only when you personally sell your shares. For buy-and-hold investors, this is a meaningful efficiency over a multi-decade holding period.

Risks and expectations

Concentration carries risk. A 40-stock portfolio can be hit hard by a single wrong call or by a sudden reversal in the market’s appetite for growth. If the market rotates sharply toward value or defensive stocks, a growth-focused concentrated fund often underperforms. Similarly, sector concentration can hurt: if the fund is overweight software and software stocks crash, FRTY will fall more than the broad mid-cap market.

Active management also faces style risk. Alger’s philosophy has performed brilliantly in some eras and lagged in others. The 2010s, for instance, favored mega-cap technology; Alger’s mid-cap focus and avoidance of the very largest companies meant the fund trailed. By contrast, in more recent years, when investors have rotated back toward diversified growth and away from concentrated mega-cap positioning, Alger’s approach has resonated. Timing this rotation is difficult; buyers should be prepared for multi-year stretches of underperformance.

How to research and track FRTY

An investor drawn to FRTY should start with Alger’s own commentary on the fund’s strategy and philosophy, available on the fund sponsor’s website. Read the latest portfolio holdings and think about what they have in common. Are they concentrated in a single sector? Do they share a common theme (e.g., digital transformation, healthcare innovation)? What is the median market cap of the holdings, and does it align with the stated mid-cap mandate? Check the fund’s performance versus the Russell Mid Cap Growth Index and versus comparable active mid-cap growth funds; three-year and five-year returns matter more than one-year performance because of the style-rotation noise. Monitor expense ratio changes and flows; if the fund is losing assets steadily, that may signal either poor relative performance or a broader investor shift away from active management. Finally, be honest about your time horizon and risk tolerance: a concentrated, actively managed fund is not a core equity holding but a satellite position for investors with conviction and patience.