Alger Morningstar Medalists

Reprinted by permission of Morningstar, Dec. 18, 2020

August. The median active share for actively managed large-growth category peers was 57% that month.

A proven manager duo with an experienced supporting cast earn this strategy an Above Average People rating.

brought on high-conviction managers, including Amy Zhang of Silver-rated Alger Small Cap Focus in 2015, Weatherbie Capital in 2017, and two managers from Redwood Investments in 2018. The firm created Z shares for its funds in 2010; they are cheaper than other Alger share classes but come in at average compared with the competition. The firm’s success rides on a few mandates, including Zhang’s and flagship Alger Spectra, rated Bronze and run by Patrick Kelly. Zhang and Kelly handle about half of the firm’s nearly $25 billion in assets under management, and though the firm is building dedicated investment teams alongside its central analyst pool, key-manager risk exists. Most Alger strategies have benefited from a market that has favored its style over the past five-plus years, but some strategies, such as Alger’s international offerings, have struggled and endured notable outflows. It’s critical to evaluate expenses, as they come directly out of returns. The share class on this report levies a fee that ranks in its Morningstar category’s middle quintile. That’s not great, but based on our assessment of the fund’s People, Process and Parent pillars in the context of these fees, we think this share class will still be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Bronze. Price Pillar | Tony Thomas, Claire Butz 11/20/2020

The fund may invest in private firms, but the managers are selective and keep such stakes small. As of August, Kelly and Crawford had a 0.2% position in (now public) big-data analytics firm Palantir PLTR and less than 0.1% in antiviral drug development firm Prosetta Biosciences. Performance Pillar | Tony Thomas, Claire Butz 11/20/2020 Over lead manager Patrick Kelly’s tenure, this strategy has had a topnotch record. Since Kelly took the reins in September 2004 through October 2020, the A shares’ 14.8% annualized gain topped the Russell 3000 Growth Index’s 11.5% and placed in the top decile of large-growth category peers. The fund’s aggressive growth profile resulted in more volatility, as measured by standard deviation, than both its benchmark and peers over that period, but the fund’s risk-adjusted results were still strong. The strategy tends to fall harder than its bogy during market drawdowns but gain more in market rallies. Over Kelly’s tenure, the strategy captured 104% of the benchmark’s losses, though it secured 113% of its gains. The strategy fared a bit better than its bogy during 2020’s market drawdown. From the benchmark’s Feb. 19 peak to its March 23 trough, the A shares fell 30.8% versus the benchmark’s 31.4% loss. Consumer discretionary picks such as Alibaba helped buoy the strategy during the market plummet. The strategy also outperformed during the subsequent market rebound due to communications services and healthcare names such as Pinterest PINS and diagnostics and research firm Danaher DHR, a leading company in COVID-19 testing. From the start of the year through October, the A shares gained 25.9% versus the benchmark’s 19.1% and the typical peer’s 16.6%.

Since taking the helm here and at Alger Capital Appreciation ACAZX (which cannot short stocks, unlike this strategy) in September 2004, lead manager Patrick Kelly has successfully executed the firm’s aggressive growth approach. Both strategies have consistently been top performers in the large-growth category, as has Alger Focus Equity ALZFX, which Kelly began managing in late 2012. The strategy benefits from comanager Ankur Crawford’s deep experience in the tech sector. Crawford joined Alger in 2004 and rose through the firm’s analyst ranks, ultimately leading the central analyst team’s tech group. Her analytical experience helps Kelly handle this strategy’s typically large tech stake. The managers continue to build out their dedicated analyst team. Five dedicated analysts, two of whom joined the strategy in 2020, provide research for the managers’ three-fund suite. Each averages 18 years of industry experience. Kelly and Crawford also regularly draw upon the firm’s approximately 15-person central analyst team, especially when analyzing names in the portfolio’s lighter sectors such as industrials.

Kelly invests at least $2.1 million total across the pair’s three shared strategies, and Crawford more than $300,000.

Parent Pillar

Average | Tony Thomas, Claire

Butz 07/20/2020 Fred Alger Management is home to some strong strategies, but a lot is riding on them. The firm earns an Average Parent rating. Like other investment boutiques, Alger faces industry challenges from investors’ preference for passive investing as well as fee pressure. Alger has responded by differentiating its signature growth approach by further concentrating some of its existing equity strategies or launching new focused options. Through that process it has

People Pillar

Above Average | Tony Thomas,

Claire Butz 11/20/2020

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