Capital Markets: Observations and Insights - RIP 60/40 Asset Allocation? - Alger
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Summer 2021 Capital Markets: Observations and Insights RIP 60/40 Asset Allocation?
RIP 60/40
Fixed income investors worldwide…face a bleak future.
– Warren Buffett
2020 Berkshire Hathaway Annual Letter
While we understand the diversification properties of bonds, and why something akin to the 60% stock / 40% bond
portfolio mix has historically made sense for many investors, we have always been enamored by stocks and been
biased to a higher equity weighting. It is not just that we prefer a lumpy high-single digit annual return to a consistent
low-single digit return, but it’s our view that over the long-term equities produce compelling risk-adjusted returns.
Afterall, stocks “yield” significantly more than bonds and that earnings stream to equity holders has reliably increased.
In fact, in every 10-year period over the past half century it has grown, while bond coupons of course do not.
Fiscal and monetary forces have recently worked together to create unprecedented stimulus just as the Fed has
adopted higher or more flexible inflation goals than before. This dismal macroeconomic environment for bonds,
combined with historically low yields and the declining diversification benefits of fixed income, make us wonder
whether traditional asset allocation rules of thumb are becoming obsolete.
As stock pickers, we focus our effort on bottom-up, research intensive security selection using our time-tested
philosophy of Positive Dynamic Change. It is the change that we see in the economy that makes the equity
opportunity set so exciting. However, this dynamically growing economy combined with a bond market priced for
stagnation cautions us against fixed income.
Daniel C. Chung, CFA Brad Neuman, CFA
Chief Executive Officer Senior Vice President
Chief Investment Officer Director of Market Strategy
1Key Observations and Themes
RIP 60/40 3
I We believe the end of the bond bull market and waning diversification benefits
diminishes the value-add of fixed income to portfolios.
Grand Reopening 11
II With large stimulus and economic reopening, many areas of economic activity are
significantly above their pre-pandemic levels while others still have further to go.
Looking Abroad 16
III With the non-U.S. valuation discount historically large, investors may be able to find
the growth they crave at the values they want outside of the U.S.
Enduring Themes 20
IV Secular investment trends may transcend economic volatility, politics and central
bank actions, producing compelling investment opportunities over the long term.
Style Wars 27
V Value stocks have regained some lost ground, but powerful structural forces may
keep the long-term trend of Growth outperformance intact, in our view.
2I RIP 60/40
A Good Run
• While a balanced portfolio clearly gives up absolute return, its risk adjusted return has
I
been strong over the past 30 years
Annualized Return Sharpe Ratio
II 1990-2020 1990-2020
100% Stocks 0.75
10.7%
60% Stocks / 40% Bonds
III
0.56
IV 9.2%
V
Annualized Return Sharpe Ratio
Source: FactSet and Alger. Stocks represented by S&P 500 and bonds by Bloomberg Barclays U.S. Aggregate Bond Index. The performance data quoted represents past
performance, which is not an indication or a guarantee of future results.
3I RIP 60/40
Continued Allocation to Bonds
• Investors have plowed more than twice the amount of capital into fixed income funds and
I
ETFs as they have put into equities over the past decade
Cumulative Fund Flows II
Stocks Bonds
3,000
Bonds have
2,500 received $1.5 trillion III
2,000 more net inflows as
$ Billions
compared to
1,500 equities over the
1,000 past decade IV
500
0
V
-500
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source: Morningstar. Cumulative fund flows for decade ending May 2021 for active and passive open-end funds and ETFs. Equities include U.S. equities, international equities and
sector specific. Bonds include taxable and municipal.
4I RIP 60/40
A More Difficult Environment?
• What worked in a declining interest rate environment may not work going forward
I
• The next decade is unlikely to be as friendly to a balanced portfolio given very low bond
yields and the lack of further downside to interest rates, in our view
II
Macroeconomic Environment Impacts
Attractiveness of a 60/40 Portfolio
15% Sharpe ratio for stocks exceeds
III 60%/40% portfolio
10-Year Treasury Yield
10%
IV
5%
V
0%
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
2022
2026
2030
Source: FactSet and Alger. Stocks represented by S&P 500 and bonds by Bloomberg Barclays U.S. Aggregate Bond Index. Last datapoint is 6/30/21. The Sharpe ratio is a measure
of risk-adjusted return and is calculated as the difference of the return of a portfolio and the risk-free rate divided by the standard deviation of those excess returns.
5I RIP 60/40
Bonds for Income?
• Investing in bonds over stocks for current income is challenged by equity dividend yields
I
being similar to 10-year Treasury yields, while stocks are likely to distribute much more
cash to investors over time
‒ Over 10-year periods in the past half century, the S&P 500 dividend has not declined and
II
has grown an average of 6% annually, while a Treasury bond coupon does not grow
Similar Yields… …But Stock Dividends Can Grow!
S&P 500 Div Yield 10-Yr Treasury Yield S&P 500 Dividend III
Rolling 10-Year Annual Growth
16% 10%
14%
8%
12%
6% IV
10%
8% 4%
6%
2%
4% V
0%
2%
0% -2%
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021
Source: FactSet, Robert Shiller, Alger.
6I RIP 60/40
Bonds for Ballast?
• Many investors assume that bonds will provide diversification benefits
I
• But bond correlations to equities have risen, diminishing their ability to stabilize a portfolio
II Bonds Providing Less Diversification Benefits
0.50
Bond vs. Stock Correlation
0.40
0.30
III 0.20 Worse
0.10 Diversification
0.00
-0.10
IV -0.20
-0.30
-0.40
Better
-0.50 Diversification
V -0.60
2015 2016 2017 2018 2019 2020 2021
Source: FactSet. Correlation of S&P 500 vs. Bloomberg Barclays U.S. Aggregate Bond Index over rolling 90-day basis. Diversification does not assure a profit or protect against loss.
7I RIP 60/40
A Question of Value
• The Equity Risk Premium shows stocks are • Bonds are unattractive in our view,
I
reasonably valued relative to their historical given the historically low levels of both
average when incorporating interest rates nominal and real yields
II
Investors Can Harvest Ample Government Bonds Offer Investors
Equity Risk Premium Low Nominal and No Real Return
Estimated U.S. Equity Risk Premium
Nominal Real III
10-Year U.S. Treasury Yield
Cheaper 6%
8%
6% 4%
IV
4% 2%
2% More 0%
Expensive V
0% -2%
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
Source: Goldman Sachs and FactSet. Note: The market implied equity risk premium (ERP) is the rate that at each point in time makes the theoretical value from GS Dividend
Discount Model equal to the observed market price. U.S. equities are represented by the S&P 500 and the real 10-year U.S. Treasury yield is represented by the Treasury Inflation
Protected Security (TIPS).
8I 60/40 RIP
Searching for Returns
• There is a strong relationship between starting valuation and ensuing 10-year returns for
I
both stocks and bonds
• Current valuations suggest equities should outperform bonds over the coming decade
II
Equity CAPE vs. 10-Year Returns Bond Yield vs. 10-Year Returns
Since 1975 Since 1975
20% = Month
S&P 500 10-Year Annual Return
Bloomberg U.S. Aggregate Bond
III = Current 14%
15%
10-Year Annual Return
12%
10%
10% R² = 0.77 R² = 0.88
8%
5% 6%
IV
4%
0% 2%
0%
-5%
-2%
V 5x 10x 15x 20x 25x 30x 35x 40x 45x
-2% 0% 2% 4% 6% 8% 10% 12% 14%
S&P 500 Cyclically Adjusted Price/Earnings (CAPE) 10-Year Treasury Bond Yield
Source: FactSet. Each dot represents the P/E or yield during that month and the annual return generated over the subsequent 10 years. The starting P/E ratio is the price divided by
the next 12-month earnings per share estimate at the start of each 10-year period measured. Yearly data through 2020. R-squared is a statistical measure used to analyze how
differences in one variable can be explained by the difference in a second variable. The performance data quoted represents past performance, which is not an indication or a
guarantee of future results.
9I RIP 60/40
The Long View
• Adding bonds to a portfolio has historically reduced volatility in the short term, but over
I
longer durations, equity risk compares more favorably to bonds
‒ Over 20-year periods, stocks have significantly outperformed bonds on average
while having a lower standard deviation and a much higher minimum return
II
Range of Returns for Stocks vs. Bonds
1950-2020
52.3% Stocks Bonds
III
Stocks may be less risky
40.4%
over the long-term than
28.6% many investors believe
Annualized Return
21.6%
19.2% 15.6% 17.9%
12.1%
IV
5.6%
0.7%
-2.4% -2.1% -1.4% -0.1%
-14.9%
V
-37.0%
1-Year 5-Years 10-Years 20-Years
Source: Morningstar and Alger. Data is for 1950-2020 based on annual rolling periods. Stocks are S&P 500 and bonds are Ibbotson U.S. Long-Term Government Bond Index.
Standard Deviation measures how much the portfolio’s return has deviated from its average historical return. The performance data quoted represents past performance, which
is not an indication or a guarantee of future results.
10II Grand Reopening
New Peaks
• Many areas of the U.S. economy have fully recovered and are hitting new peaks such as
I
GDP, retail sales, corporate earnings, business spending, and the housing market
‒ Below are some of the best spending categories compared to pre-Covid
II
Economic Winners
% Change in Spending Relative to Pre-Pandemic
54%
III 49% 47% 44% 42%
36% 34% 32% 31% 29% 28% 27%
22% 22% 20% 17% 16%
IV
Bicycles
Carpets
Wine
Books
computers
equipment
Televisions
Tools
Pets & products
Video rental
Games and toys
Computer software
New light trucks
Jewelry
Furniture
Pleasure boats
Small appliances
Personal
Sporting
V
Source: U.S. Bureau of Economic Analysis and Alger. Data through May 2021 and is compared to December 2019.
11II Grand Reopening
Not There Yet
• Other areas of the U.S. economy have not recovered including employment, capacity
I
utilization, and various spending categories shown below such as travel and live
entertainment
Economic Laggards II
% Change in Spending Relative to Pre-Pandemic
-9% -5% III
-11% -11%
-26%
-36% -34% -32%
-45% -45%
-52%
-63%
-73% -71% IV
-87% -84% -83%
Movie theatres
Railways
Taxicabs
Amusement parks
Meals at bars
Dental services
Employment
Hotels & motels
Child care
Hair salons
Parking fees & tolls
Car repair
Live entertainment
Spectator sports
Nursing homes
Intracity mass transit
U.S. foreign travel
agencies
V
Source: U.S. Bureau of Economic Analysis and Alger. Data through May 2021 and is compared to December 2019.
12II Grand Reopening
Surging Savings
• Stimulus has driven very high savings levels, a portion of which will ultimately be spent
I
and may drive very strong consumer spending, in our view
U.S. Personal Savings Explodes Higher
II
4
Annual Rate in Trillions ($)
III 3 Trillions of dollars of
recent incremental
savings could come
2 back to the economy
IV
1
V
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 YTD
Source: U.S. Bureau of Economic Analysis. Data through May 2021 which was reported in late June 2021.
13II Grand Reopening
Fed to End the Party?
• The last taper tantrum didn’t end in tears • Equities have historically rallied through the
I
as interest rates and stocks rose together Fed tightening cycle
II
10 Yr Treasury Yield S&P 500 S&P 500 Fed Funds Increase
3.5% 1,900 130 3.5
Cumulative Percentage Point Increase
Bernanke
3.0
Total Return Indexed to 100
mentions 1,800
3.0% III
tapering 120
2.5
1,700
2.5% 2.0
110
1,600
1.5 IV
2.0%
1,500 1.0
100
1.5% 1,400 0.5
V
Oct-13
Apr-13
Jul-13
May-13
Nov-13
Dec-13
Jan-13
Mar-13
Jun-13
Aug-13
Sep-13
Feb-13
90 -
0 2 4 6 8 10 12 14 16 18 20 22 24
Months of Tightening Cycle
Source: FactSet, Alger. Average of the four most recent two-year tightening cycles beginning in February 1994, June 1999, June 2004, and December 2015. The performance data
quoted represents past performance, which is not an indication or a guarantee of future results.
14II Grand Reopening
No Debt Hangover Yet?
• Huge fiscal stimulus and easy financial • However, the cost to service the private
I
conditions have caused a surge in U.S. and federal debt is not high relative to
debt history
II
U.S. Debt Levels Are Very High… …But The U.S. Debt Service Burden Is Not
300% 20% 3%
U.S. Debt % of GDP Government,
III
Households & Corporations
Households & Corporations
16%
U.S. Debt Service Ratio
Federal Interest % of GDP
250% 2%
12%
IV
8%
200% 1%
4%
V
150% 0% 2000 0%
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Source: Bank for International Settlements, June 2021 and Federal Reserve Bank of St. Louis. Debt Service Ratio is the share of income used for interest payments and
amortizations in the non-financial private sector.
15III Looking Abroad
Playing Catch-up
• Many countries are behind the U.S. in battling the pandemic
I
• International and emerging markets may be attractive as they catch-up economically
II
Real GDP Relative to Pre-Pandemic
1.5%
1.0% Fully
III
Recovered
-1.3%
-1.8%
-2.7% IV
-3.7% Still
-4.4% Recovering
-5.9%
V
U.S. China Canada Japan Brazil Euro U.K. India
Zone
Source: FactSet. Each country’s pre-pandemic baseline is its end of 2019 real GDP. Data is through 2Q21 using estimates as of 6/30/21.
16III Looking Abroad
On Sale
• Non-U.S. stocks typically trade at a discount to U.S. equities, but that discount is more
I
than twice as large as it has been historically
II
Non-U.S. P/E Discount to U.S. Equities
III
Large discount may
make non-U.S.
Twice stocks attractive
IV Historical
Average -13%
V
-27%
Current 20-Year Average
Source: FactSet and Alger as of 6/30/21. Non-U.S. stocks represented by MSCI AC World ex-U.S. index. U.S. stocks represented by S&P 500.
17III Looking Abroad
Emerging Market Growth
• The demographics in emerging markets is • Drives materially stronger long-term
I
a significant growth factor earnings growth within emerging markets
The Asian Middle Class Is Expected to Grow Long-Term EPS Growth Greatest in EM II
2015 2020 2025 2030 19.1%
Billions of Middle Class People
4
III
3 16.6%
2
IV
1
0
Asia-Pacific Europe North America MSCI Emerging Markets S&P 500 V
Source: Middle class estimates from Brookings Institution. A middle-class family has an approximate income of $16,000 to $160,000 in purchasing power parity terms. EPS growth
estimates from FactSet as of 6/30/21.
18III Looking Abroad
Cheaper Growth
• Investors may be able to find the growth • Equities in key innovation categories often
I
they crave at the values they want in non- trade for much cheaper valuations in
U.S. stocks foreign markets as compared to those
within the U.S.
II
Growth is Cheaper Outside of the U.S. Innovative Themes Available For Less in Non-U.S.
Large Non-U.S
1.3x Industry
III Discount?
1.1x Communication Platform
as a Service
P/E-to-Growth
0.7x Business Process
IV
Automation
Renewables
V Electrification
E-Commerce
MSCI Emerging MSCI EAFE S&P 500
Markets
Source: FactSet and Alger as of 6/30/21. For more information on non-U.S. discount in innovative themes see Brad Neuman, “Where to Find Growth For Less,” Alger, 2021.
19IV Enduring Themes
Internet of Things
• The explosion in connected devices is creating the “Internet of Things” or IoT, transmitting
I
valuable and actionable information
‒ Applications include industrial monitoring and automation, health care, security,
agriculture, inventory management, smart cities, utility metering and connected cars
II
IoT Sensor Market Worldwide Drivers of IoT Spending
43 III
Compliance 22%
Improved ROI 31%
Revenue ($ Billions)
24% Business need 32%
Annual Customer service 33%
Growth IV
Reliability 36%
Competitiveness 36%
12
Efficiencies 40%
V
Data analytics 42%
Security 46%
2019 2025 Share of Respondents
Source: Sensor market forecast from MarketWatch, July 2020, and drivers of IoT spending from 451 Research survey, December 2019.
20IV Enduring Themes
Digital Payments
• Digital payments continue to outgrow the broad economy as they gain penetration, driven
I
by increasing e-commerce and mobile payments
‒ China has the largest volume of digital payments and Europe is growing fastest
II • Payment networks, processors and software companies can capitalize on the trend
Global Digital Transactions
E-Commerce Mobile Payments
III
10.5
14% CAGR
9.6
8.7
Trillions ($)
IV
7.8 4.7
4.1
6.7 3.5
5.5 3.0
2.5
2.0
V
5.2 5.6 5.9
4.2 4.8
3.5
2020 2021E 2022E 2023E 2024E 2025E
Source: Statista Digital Market Outlook 2021. CAGR is compound annual growth rate, the rate of return required for a quantity to grow from its beginning balance to its ending
balance. Mobile payments occur when smartphones are used to process transactions using wireless communication or scan QR barcodes.
21IV Enduring Themes
Cloud Computing
• Cloud computing optimizes IT assets, reducing costs and improving flexibility and
I
accessibility
‒ The growth in online streaming entertainment, e-commerce, work from home,
telehealth, e-sports, and virtual learning are all enabled by cloud computing
II
Cloud Computing Market Is Growing Rapidly
III
$397
Market in Billions ($)
$332
$270 IV
$243
$197
$145
V
2017 2018 2019 2020* 2021* 2022*
Source: Gartner, April 2021. *Forecast. Market includes cloud application services, infrastructure services, business process services, and security.
22IV Enduring Themes
5G Wireless
• The next generation of wireless technology, 5G, is bringing faster speeds, increased
I
capacity, much lower latency and more efficient spectrum utilization
‒ 5G helps enable telematics, advanced health care monitoring, remote work,
augmented/virtual reality and autonomous driving applications
II
5G Mobile Subscriptions
III
3.0
Billions of Subscribers
2.4
IV
1.8
1.0
V
0.6
0.2
2020 2021E 2022E 2023E 2024E 2025E
Source: 5G Americas, May 2021.
23IV Enduring Themes
Artificial Intelligence
• “AI systems can now compose text, audio, and images to a sufficiently high standard that
I
humans have a hard time telling the difference.” – Stanford University AI Report 2021
• Investment in AI has been most prolific in drug development, autonomous driving,
education, software development, speech, fraud detection/prevention*
II
Global AI Spending Leading AI Use Cases
11%
III
22% $110
Billions ($)
Annual 7%
7% 6% 6%
Growth
IV
$50
V
2020 2024 Automated Sales process Automated IT automation Fraud analysis
customer recommendation threat and
service agents and automation intelligence and investigation
prevention
Source: AI spending and use cases from IDC, August 2020. *Stanford Artificial Intelligence Index, 2021 annual report.
24IV Enduring Themes
Genomics Innovation
• Genetic analysis and manipulation will increasingly impact the practice of health care
I
‒ Turning sick care into preventive health care by giving insight into predisposed
diseases
II ‒ Delivering more efficacious treatments via targeted therapies (e.g., immuno-oncology)
Genetic Advances Drive Cell / Gene Therapies
III
$33
Market Size Billions ($)
>50%
IV Annual
Growth
V $4
2019 2024*
Source: Cell & gene therapy market data from Cryoport, 2020. *Estimated.
25IV Enduring Themes
Emission Reductions
• The rate of CO2 emissions is not sustainable in our view
I
• Reducing emissions may provide opportunities in alternative energy sources and in
electric vehicles and related products and services
II
CO2 Emissions
Actual Needed To Limit Warming
III
45
Billions of Annual Tonnes
40
35
30 IV
25
20
15
10 V
5
0
Source: Robbie Andrews (2019) based on Global Carbon Project & IPPC SR15. Carbon budget based on >66% probability of staying below 2oC warming, beginning in 2021.
26V Style Wars
Accelerating Change
• Innovation is accelerating across many areas of the economy, causing new products and
I
services to diffuse through society faster and disrupt businesses at a greater pace
• This may be a tailwind to growth companies, which we believe are the drivers of
innovation, and a headwind to value stocks, which may be victims of change
II
Years from Market Entry to 50% Penetration Years to Reach 1 Billion Users
III
IV
V
Source: Asymco, Visual Capitalist, company disclosures, Alger estimates.
27V Style Wars
Structural Issues Driving Growth vs. Value
• Even after underperforming this year, Growth stocks have dramatically outperformed
I
Value stocks over the past decade
• The driver has been the very weak performance of the Price-to-Book valuation metric,
which is used heavily in index classifications of Growth vs. Value stocks
II
• As accounting fails to keep up with the changing economy, book value may no longer
be as relevant (e.g., R&D is not capitalized in book value)
20%
III
10%
Style classification
0% too dependent upon
Cumulative Return
-10% outdated book value
IV
-20%
-30% Low P/B
-40% Russell 1000 Value / Growth
R² = 0.90 V
-50%
-60%
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Source: FactSet, Kenneth R. French, and Alger through May 2021. Low price-to-book returns are based on the B/P Frama/French factor for the CRSP universe which includes US
firms listed on the NYSE, AMEX, or NASDAQ . The performance data quoted represents past performance, which is not an indication or a guarantee of future results.
28V Style Wars
The Growth Advantage
• Three variables drive P/E multiples: growth, return on capital, and risk
I
• The Russell 1000 Growth Index has higher expected EPS growth, higher return
on equity, and lower risk in the form of better balance sheets as compared to the
Russell 1000 Value Index
II
Stronger Growth Higher Returns Lower Risk
Long-Term EPS Growth Return on Equity Net Debt / EBITDA
III 2.8x
31.7%
19.2%
13.5%
IV
10.3% 0.8x
V
Russell 1000 Russell 1000 Russell 1000 Russell 1000 Russell 1000 Russell 1000
Growth Value Growth Value Growth Value
Source: FactSet as of 6/30/21. Growth represents consensus long-term analyst estimates and actual future EPS growth rates might be materially different than the forecasts shown.
29V Style Wars
Great Expectations
• Growth stock prices and fundamentals • Value stock prices have outpaced their
I
have increased in-line with each other fundamentals, indicating lofty
expectations
S&P 500 Growth Year-to-Date Change S&P 500 Value Year-to-Date Change II
16%
14% Recovery
Baked In? III
12%
7%
IV
Revenue Total Return Revenue Total Return V
Source: FactSet as of 6/30/21. Revenue is based on consensus bottom-up estimates for next 12-month revenue forecasts. The performance data quoted represents past
performance, which is not an indication or a guarantee of future results.
30V Style Wars
What Does Growth Cost?
• Growth stocks remain in favor and trade at a valuation premium to Value stocks based
I
on faster growth, higher return on capital, and lower leverage
‒ Note that faster growth is theoretically worth more at lower levels of interest rates
II
Russell 1000 Growth Relative to Russell 1000 Value P/E
225%
200%
III
175%
150%
125%
IV
100%
Median: 41% 80%
75%
50%
V
25%
0%
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021
Source: FactSet as of 6/30/21. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.
31V Style Wars
A Powerful New Investing Factor?
• Studies have shown and our research demonstrates that the most innovative companies
I
grow their sales, earnings, and stock prices faster*
Innovative Companies Have Outperformed Over the Past Decade
II
Most Innovative
60% +4% per year
III
Cumulative Excess Return
40%
20%
IV
0%
-20% V
Least Innovative
-40% -3% per year
Source: FactSet. Most/least innovative stock excess performance is derived from highest and lowest S&P 1500 quintiles based on R&D as % of sales, normalized for market value,
using one month returns for 10 years ending May 2021. *Baruch Lev and Suresh Radhakrishnan, “The Stock Market Valuation of R&D Leaders.” The performance data quoted
represents past performance, which is not an indication or a guarantee of future results.
32Disclosure The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of July 2021. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities. Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness such as COVID-19 or other public health issues, recessions, or other events could have a significant impact on investments. Foreign securities and Emerging Markets involve special risks including currency fluctuations, inefficient trading, political and economic instability, and increased volatility. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments. Important Information for US Investors: This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund and ETF shares. Fred Alger & Company, LLC serves as distributor of the Alger mutual funds. Important Information for UK and EU Investors: This material is directed at investment professionals and qualified investors (as defined by MiFID/FCA regulations). It is for information purposes only and has been prepared and is made available for the benefit investors. This material does not constitute an offer or solicitation to any person in any jurisdiction in which it is not authorised or permitted, or to anyone who would be an unlawful recipient, and is only intended for use by original recipients and addressees. The original recipient is solely responsible for any actions in further distributing this material and should be satisfied in doing so that there is no breach of local legislation or regulation. Certain products may be subject to restrictions with regard to certain persons or in certain countries under national regulations applicable to such persons or countries. Alger Management, Ltd. (company house number 8634056, domiciled at 78 Brook Street, London W1K 5EF, UK) is authorised and regulated by the Financial Conduct Authority, for the distribution of regulated financial products and services. FAM and/or Weatherbie Capital, LLC, U.S. registered investment advisors, serve as sub-portfolio manager to financial products distributed by Alger Management, Ltd. Alger Group Holdings, LLC (parent company of FAM and Alger Management, Ltd.), FAM, and Fred Alger & Company, LLC are not authorized persons for the purposes of the Financial Services and Markets Act 2000 of the United Kingdom (“FSMA”) and this material has not been approved by an authorized person for the purposes of Section 21(2)(b) of the FSMA. Important information for Investors in Israel: This material is provided in Israel only to investors of the type listed in the first schedule of the Securities Law, 1968 (the "Securities Law") and the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995. The Fund units will not be sold to investors who are not of the type listed in the first schedule of the Securities Law. 33
Disclosure
The S&P 500 Index is an unmanaged index generally representative of the U.S. stock market. The S&P Composite 1500 is an unmanaged index that covers
approximately 90% of the U.S. market capitalization. The Russell 1000® Growth Index is an unmanaged index designed to measure the performance of the
largest 1000 companies in the Russell 3000 Index with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value Index measures
the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The Morgan Stanley Capital International
(MSCI) Emerging Markets Index (EM) is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global
emerging markets. The MSCI ACWI ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets countries (excluding the US)
and 27 Emerging Markets countries. The MSCI EAFE is an unmanaged index considered representative of stocks of Europe, Australasia and the Far East. The
Bloomberg Barclays US Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate term investment
grade bonds traded in the United States. The Ibbotson U.S. Long-Term Government Bond Index is an unweighted index which measures the performance of
twenty-year maturity U.S. Treasury Bonds. Treasury Inflation Protected Securities (TIPS) are a type of Treasury security issued by the U.S. government, which are
indexed to inflation in order to protect investors from a decline in the purchasing power of their money. The indices presented are provided for illustrative purposes,
reflect the reinvestment of dividends and do not assess fees and expenses that would have the effect of reducing returns. Investors cannot invest directly in any
index. The index performance does not represent the returns of any portfolio advised by Fred Alger Management, LLC and actual client results might differ
materially than the indices shown. Note that past performance is no guarantee of future results. Comparison to a different index might have materially different
results than those shown.
Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a
trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and / or Russell
ratings or underlying data and no party may rely on any Russell Indexes and / or Russell ratings and / or underlying data contained in this communication. No
further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this
communication.
Sharpe Ratio compares fund returns to a risk-free investment given a fund’s level of risk. A high Sharpe ratio ranking indicates that returns are generated by skill,
not by undertaking undue risk. FactSet is an independent source, which Alger believes to be a reliable source. FAM, however, makes no representation that it is
complete or accurate.
ALCAPPRESSPRP-0721
Fred Alger Management, LLC • 360 Park Avenue South, New York, NY 10010 • 800.992.3863 • www.alger.com
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