Alger Morningstar Medalist Report: Capital Appreciation

Reprinted by permission of Morningstar, Dec. 18, 2020

Alger Capital Appreciation Z ACAZX A winning team and approach.

Morningstar's Take ACAZX

The managers have skillfully picked winning growth firms. The team looks for companies poised for growth in one of two stages. Some are emerging firms with strong business models, increasing product demand, and growing market share. Others are established businesses undergoing changes that could spur growth, such as new management or product advancements. Kelly and Crawford aren’t afraid to go against the grain; as of August 2020, the portfolio’s largest active weightings were in firms such as Alibaba BABA and Visa V, while the duo was underweight three of the five FAANG names. This approach has stood the test of time. From Kelly’s September 2004 start through October 2020, the A shares’ 13.7% annualized gain topped the Russell 1000 Growth Index’s 11.6% and placed in the top decile of large-growth Morningstar Category peers. The strategy has fared well so far through 2020’s market volatility. From the start of the year through October, the A shares rose 25.3% versus the benchmark’s 20.1% and the typical peer’s 16.6%. Strong healthcare and consumer discretionary picks drove the recent outperformance.

The duo then turns to its analyst team for deeper research. The analysts generate one-, three-, and five-year target prices for each company, modeling earnings and cash flows out five years. Kelly and Crawford pick stocks they believe have the most upside potential relative to their price targets and the pair has latitude to deviate from the Russell 1000 Growth Index's sector weightings. The managers are willing to pay up for growth, but they are not insensitive to valuations. They monitor risk/ reward trade-offs and often trim positions once they come within 10% of their price targets, a discipline which contributes to the portfolio's above-average portfolio turnover of 93% over the past five calendar years through 2019 versus the typical large-growth category peer’s 60%. Managers Patrick Kelly and Ankur Crawford manage a top-heavy strategy. As of August 2020, the approximately 80-stock portfolio’s 10 largest weightings consumed 53% of assets versus the Russell 1000 Growth Index’s 47%. Overweightings to Alibaba and Visa V drove much of the large top-10 allocation. The portfolio’s weightings to index titans Facebook FB, Amazon AMZN, Apple AAPL, Netflix NFLX, and Alphabet GOOG (or the FAANG stocks) in August was 25.2% versus the benchmark’s 30.3%. Kelly and Crawford determine position sizes based on each holding’s risk/reward

Morningstar Rating


Morningstar Analyst Rating


Morningstar Pillars Process

Above Average


People Parent

Above Average



Role In Portfolio Core Fund Performance Year

Total Return (%)

+/- Category

YTD 2019 2018 2017 2016

37.92 33.62 -0.66 31.69

7.73 1.72 1.43 4.02 -2.56


Data through 11-30-20

11-20-20 | by Tony Thomas, Claire Butz

Alger Capital Appreciation’s experienced team employs a time-tested aggressive-growth approach. All share classes earn a Morningstar Analyst Rating of Bronze except the pricier C shares, which warrant a Neutral rating. Managers Patrick Kelly and Ankur Crawford are proven leaders. Kelly is an industry and firm veteran; he has managed this strategy with competitive results since September 2004. Crawford joined the strategy in June 2015 after rising through the analyst ranks at Alger. Her technology sector expertise is an asset for this tech-heavy portfolio. The managers continue to add to their experienced lineup of five dedicated analysts, hiring two in 2020. The analysts average 18 years of industry experience. Kelly and Crawford also regularly tap Alger’s approximately 15-person central analyst team.

Associate analyst Claire Butz contributed to this report.

profile and valuation. They’ve deviated meaningfully from the benchmark’s sector

allocations at times, but weightings have remained within about 5 percentage points over the trailing year through October.

Process Pillar

Above Average | Tony Thomas,

Claire Butz 11/20/2020 Managers Patrick Kelly and Ankur Crawford's skilled use of Alger's firmwide growth approach to investing merits an Above Average Process rating. Like their colleagues, Kelly and Crawford look for companies that are poised for growth in one of two stages. Some are emerging firms with strong business models, increasing product demand, and growing market share. Others are established businesses undergoing beneficial changes such as new management or product advancements.

The strategy’s active share (a measure of how differentiated a portfolio is from an index) has decreased as the portfolio’s name count has steadily dropped in recent years. In July 2014, the 150-stock portfolio’s active share was 65%; active share and name count were down to just 50% and 82, respectively, as of August. The active share median of actively managed large-growth Morningstar Category peers was 57% that month.

© 2020 Morningstar, Inc. All rights reserved. The Morningstar name is a registered trademark of Morningstar, Inc.

Made with FlippingBook - Online Brochure Maker