Ankur Crawford Call Transcript

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PM Update: Spectra and Alger 25

Ankur Crawford, CFA Executive Vice President Portfolio Manager

Dr. Ankur Crawford recently provided a portfolio update for clients in Spectra and Alger 25. The call was hosted by Dennis Hearns, senior vice president and divisional manager.

In 2004 we were fortunate enough to recruit her to Alger, where she began her investment career as a research associate. She went through the rigorous Alger training program and rose through the ranks from research associate to senior analyst and assumed her first portfolio manager responsibilities in 2010. She became head of the technology sector in 2013, holding that role until 2016. In 2015, Dr. Crawford was named portfolio manager alongside Patrick Kelly on Alger’s flagship large cap growth strategies and became a partner in the Alger’s Partner Plan. Dr. Crawford launched the Alger 25 strategy at the end of 2017. Earlier this year, Dr. Crawford was recognized as a top woman and asset management honoree by the Money Management Executive organization. For further information on Ankur, you can learn additional details about her background on our website, which is alger.com. From there, go to our insights tab and look for a section called Profiles in Success, where there are additional insights and background on Ankur, which I believe you’ll find very interesting. Ankur, welcome. Ankur Crawford: Thank you, Dennis. And thanks for the introduction. Thank you to our audience for joining us today. I hope each of you and your families are healthy and safe. Dennis Hearns: To get things started, can you give us an overview of where we are in the markets now and how that relates to the positioning of the Alger Spectra and Alger 25 strategies?

Please note this transcript is from a call on September 30, 2020, and it has been edited for clarity and brevity.

Dennis Hearns: Good morning, everyone. And thank you very much for joining us. I’m a senior vice president and divisional manager here. We’re joined of course by Dr. Ankur Crawford, who’s an executive vice president and portfolio manager here at Alger. We greatly appreciate all of you on the line for taking time out of your busy day to hear from Alger and more specifically about the Alger Spectra Fund and the Alger 25 Fund, which Dr. Crawford will be discussing today. Before we get started, I’d like to introduce Ankur. In addition to being an executive vice president, she’s one of six members of the Alger Partners Plan. She’s a portfolio manager to multiple Alger large cap strategies, including Capital Appreciation, Focus Equity, Spectra and Alger 25. Dr. Crawford earned her B.S. from the University of California, Berkeley and also earned an M.S. and a Ph.D. in Materials Sciences and Engineering from Stanford University. After her time at Stanford, Dr. Crawford was awarded a fellowship from Intel, worked there as an engineer focusing on semiconductor design. As a result of this experience, she holds several U.S. patents focused on semiconductors.

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Ankur Crawford: Sure. I’d love to. I’ll start with what has happened in the market thus far and how we changed positioning.

cash flow yield today in aggregate is 4-3/4 percent. Now, that’s on a trailing 12-month basis as well as a calendar year 2021.

You know the market has really been about a tale of two cities, the haves and have-nots, one might call it. The key driver dictating positive performance this year has been companies that are either embracing digital transformation or providing the technology for digital transformations. You know these businesses are seeing an acceleration in their business model. COVID turned out to be the catalyst that I say accelerated this transformation even faster than it was already occurring. And we’re seeing it in the numbers. Luckily, we had been actually espousing this viewpoint for years. If you watch some of the Alger On the Record videos, you’ll see we have been touching on this changing environment and looking for these businesses that were front foot forward on digital transformation. Quite honestly, the philosophy and insights that we’ve gleaned over all of these years have helped us to be prepared to take advantage of what has transpired during this pandemic. Now, to the broader market view, we often get asked about the multiple on the market. Is it not risk prone? Isn’t it over? Are we going to have a crash now? I’d like to view this from a perspective or a lens of yield. The market should be experiencing multiple expansion in the current environment especially when the 10 year is sitting at .6 percent. In addition, the Fed has expressed that they would rather overheat the economy just a tad rather than raise rates too early. That is a clear indication that they have no intent to tighten. This alongside global central banks holding rates lower is effectively pinning our 10 year making equities a more attractive asset class relative to bonds, relative to cash. Additionally, if you see the free cash flow generation that we are experiencing for many of the businesses that not only we owned but for the market, it’s much higher than the 10-year yield. The entire S&P 500 free

This is higher than the average of 4-1/2 percent, which dates back to the late ‘70s. Given that the free cash flow yield compared to the 10 year shows such a wide discrepancy, probably the widest we’ve ever seen, I think investors will continue to pay a premium for businesses that have growth, stability, visibility and the free cash flow generation that accompanies that growth. We think that the multiple expansion that we’ve seen in some of these growth businesses with duration is warranted because they almost represent business models that have the stability of bonds or have a bond- like kind of characteristic but better cash flow and better returns. Dennis Hearns: Given the shock to the economy we’ve witnessed this year caused by the coronavirus, how did you change the portfolio composition throughout the year on Spectra and Alger 25? And how are they positioned now? Ankur Crawford: Philosophically the portfolio composition didn’t change all that much. The singular names have changed. But I want to stress that the philosophical method by which we look at and study the market didn’t change at all. You know we believe in investing in businesses that have compounding growth. And that ran through for the whole year. For those of you who have listened to us over the years, we have been talking about how the changes we are seeing are so structural to our society that we are seeing a generational opportunity as investors. Before COVID, we had highlighted how we had never seen so much opportunity ahead for growth investors and for our careers. We still see that. Many CEOs have cited how years of technical adoption have been pulled forward. We were already thinking that the winners of this year would be longer term winners. And we’re invested that way. If you look at the top portion of the portfolio, the composition didn’t really change that much.

Conference Call 2/11

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Ankur Crawford (continued): There were more nuanced changes. I think reflecting upon the first half of the year, we started to express a higher weighting in e- commerce companies that were coming under pressure as the market was selling off. We also found dynamic businesses in the online gaming sector. We bought those when the world was really worried about liquidity.

are enhancing their positioning as we progress through this.

In terms of the positioning right now, probably the biggest change in our portfolio composition from the beginning of the year has been an increase in the consumer discretionary sector. We are 400 or 500 basis points overweight consumer discretionary. And that was probably the biggest singular change if you look from January 1st to August. Dennis Hearns: Ankur, you coauthored a white paper at Alger titled The Age of Connected Intelligence, which can be accessed through alger.com’s website under the insights section if you haven’t read it yet. Can you talk a little bit about what your premise in it and how it shapes your thinking about investing? Ankur Crawford: What we talk about in the paper is actually really relevant to the market not only last year, but it will be relevant to the market over the next five years. The point of the paper was to highlight three things. The genesis of this paper was the incoming questions that I kept getting from clients. I thought maybe it’s best to just codify it and then hand it to our clients. But the point was to have at least three things. The first was we are at the beginning of the fourth industrial revolution. The timeline for this revolution is going to be significantly compressed relative to timelines we have seen for other industrial revolutions. And because of this compression of time, companies are in a position where they have to either adapt now or die. This is not evolutionary. It does not span three generations like other industrial revolutions have done. This is not evolutionary. It is revolutionary. And this concept was already in motion but has been exacerbated by COVID. The second point is that there is no industry that is not touched by this revolution. In the early 2000s, if you look back to the internet bubble, it had no effect on financial. No effect on the consumer.

We leaned into consumer businesses that were technology forward. There is definitely a thematic that runs through all of these names that we added.

Currently, we are trying to find those businesses that have characteristics of being both beneficiaries of a normalization but are still deploying techniques that will enhance their growth. For example, take a company like PayPal, which has been a big beneficiary of the move to a cash flow society and has benefits from the return to travel because they have a significant portion of their business tied to cross border. So, they may have a driver of their growth when a vaccine becomes available and our behavioral patterns normalize. Also, a high-quality franchise like a Starbucks should benefit from normalization of work habits but is also going to emerge from the pandemic stronger and should gain share and benefit from their digital first strategy. The idea is that there are opportunities in a market that is perceived to be permanently impaired. But if we have a lens that is longer than 12 months, we could see a path to earnings normalization, which sets up for compelling risk reward. Currently, that’s kind of where we’re hunting. But again, I would emphasize that the core philosophy that drove the decision path is still the same. We’re investing in businesses that are driving change, the change that we see all around us. Most importantly, we are looking for businesses that will emerge stronger from the crisis because they have already pivoted their businesses to the new world and are benefitting from that or somehow are positioned better at the end of this pandemic because their competition failed to make it through or they’ve made some strategic initiatives that

Conference Call 3/11

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Ankur Crawford (continued): Energy was untouched. Health care was untouched. It was just this tech bubble that we’ve known about.

kind of the lens that we’re looking at and the philosophy that we’re abiding by.

Dennis Hearns: Earlier you mentioned digitization is one of the most significant themes in both the Spectra and the Alger 25 strategies. Can you give us some examples of areas where digitization is being expressed in the portfolios? Ankur Crawford: I love this question because digitization is all encompassing. Every company and every sector are being touched by it. Perhaps it is best for me to illustrate this by example to make it a little bit more tangible. We look at payments. The move to a cash flow society is accelerating. We know that. The beneficiaries we see are PayPal, Visa. In consumer, we see companies like Nike embracing digital transformation. You know it might be surprising for you guys to hear this, but last quarter when we were all locked down and sitting at home, Nike’s digital growth was 83 percent. Digital, which is basically an online sale, is 30 percent of their total revenues. This is an example of companies using data to not only enhance their sales but make their entire supply chain more efficient. And both of those have direct benefits for us, the shareholders. Another example, which I love to give, is always surprising to people: Progressive Insurance. It’s another example of a very forward-thinking management that is in a relatively slow industry. They are using data to better understand who they’re selling to and identify how they can take share by targeting the best driver. They use telematics to learn more once you become a customer. They have been growing their topline at a rate of three to four times the industry average and their bottom line at four to five times the average: in the mid to high teens. In their last earnings call, their CEO said this is three years ahead of plan. Now they expect it to be 50 percent of overall sales in their near future.

This time, almost every sector is feeling the seismic change of this move to digitization. Every sector must quickly adapt. So that was the second point.

The third point was to question whether value was about to outperform growth as many kept asking. Although the valuation spread between value and growth were quite wide even then, it seemed as though to me that the spread could be justified in part because we were beginning to question the terminal value of some of these traditional value businesses, which were being out-innovated. A great example is a traditional retailer they may seem very cheap at 10 times earnings. But what is the earnings power of that entity in five years? The way I view it is if you can’t model it, how can you ascribe it any value? So what ends up happening and surprising investors in cases like this is that as these businesses have deteriorating fundamentals, the earnings that you might have thought would go from x to x plus as anyone might think in a Value type market where it mean reverts, end up deteriorating. The stocks actually look a lot more expensive than they were today. Just this morning for example, I was looking at a stock that we own. I was just looking out to 2024 and 2025. The growth rate of the stock is so incredible that by 2025, on our estimate, it trades at 10 times. Now, this is a leader in their market. It is a share gainer. It is a front foot forward business. One might view that as a much better alternative to a traditional retailer especially if you can put on a longer lens. Business models are being disrupted at a rate we haven’t experienced. When this happens, value becomes value traps. And that is what we have seen in kind of the permanence of value underperforming over the last few years.

So those are the three points in that paper if you don’t want to read it. I just gave you the footnotes. That is

Conference Call 4/11

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Ankur Crawford (continued): For an auto insurance company, this is what can happen when you’re embracing this digitization. Another example is a company called CoStar Group. This is digitizing commercial real estate and all the data surrounding it: transactions, data, advertising. This is the largest and most comprehensive digitized data source for commercial real estate and now for rental apartments. They basically consolidate the industry and are effectively an oligopoly and have pricing power. For someone renting an apartment, they’d go to apartments.com. That’s one arm of their business. But they have like 80 percent share of that online market. The power of this platform allowed them to grow 16 percent during the worst of the lockdowns. One would think, who is looking for real estate right now? Who is actually paying for any of these fee services? But when people do need to move, they’re reaching for these kinds of technologies. The point of the above examples was just to show you how digitization is standing across so many different industries. The way we choose where to invest is we look for those businesses that are adapting to and embracing the new world. Dennis Hearns: Ankur, you became a portfolio manager on the Spectra strategy in 2015 and you’ve been a PM on the Alger 25 strategy since its launch at the beginning of 2018. While most folks on the call are familiar with the Spectra strategy and its long history, I don’t believe many on the call are familiar with the Alger 25 strategy. Ankur Crawford: Yes. Philosophically, I think it is a sibling to the rest of our strategies. It is not philosophically different in what we look for in businesses. However, it is different in that it is completely sector agnostic. I’ve never looked at the weightings of the main holding in a portfolio relative to the S&P on a sector basis. Can you tell us about your approach to that strategy?

All I’m looking for is 25 of the best businesses in the market. I invest in businesses that adhere to the characteristics of having compounding growth with duration. They have great management teams since the management teams are truly the stewards of the capital that we trust them with. Businesses that have pricing power, businesses that have strong business models, which allow them to have things like pricing power and therefore margin expansion and free cash flow growth. There’s always room in the portfolio for businesses that are more opportunistic in nature so where the risk reward is highly compelling and where they have aspects of the other characteristics. But maybe it’s a fallen angel or the opportunity in the market is so big that they’re taking a tiny share today. So, the opportunity is just big. We’d call that more opportunistic. It’s an exciting and kind of fun strategy to run because the large weightings in almost every position make each one highly impactful to the portfolio. Sometimes people ask me how is running this portfolio different versus a more diversified portfolio. I think sometimes the hardest part here is deciding which of the names should hold a position in the portfolio because there’re so many different businesses that have unique characteristics and that are great businesses. Sometimes that ends up being the most difficult portion of running Alger 25 because you want it to be balanced. I’ve tried for it to be balanced in terms of risk reward, in terms of the risk I know of across end markets. It has been an interesting journey on this 25-stock highly focused portfolio. And I am excited to bring it to market. Their turnover tends to run a little bit lower. The sector rates can vary greatly because again all we’re looking for is great businesses regardless of a sector.

Dennis Hearns: The results have been really impressive. Congratulations on that.

Conference Call 5/11

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Ankur Crawford: Well, it’s the team as well.

Speaker Question: Just a question on the themes that are driving the fourth industrial revolution. All this makes tremendous sense, e.g., the rise of FinTech. My firm came out with a paper on ESG. We think that there is going to be trillions of dollars moving into ESG. I’m curious as to how you see that yourself when you look at all the trends and the themes that are taking place. How do you factor environmental, social, governance into your stock selection? Ankur Crawford: Thanks for that question. I think it’s a really relevant one and one that Alger has been making more of an initiative on. We actually have an ESG team, a team inside of our research group that is looking at how to become more ESG compliant. We got a rating recently that acts like an ESG stamp of approval. But when we look at the fourth industrial revolution, and the beneficiaries or the tech companies that are driving it, if you look under the cover, some of them scored very highly on ESG. I’ll give you an example. One of our larger positions is salesforce.com. They’re one of the highest ranked on ESG because of the way they run their business. It’s not something that they’re targeting. It is the way they think about their business. I went to Dreamforce I think it was last year at this time. They didn’t serve any beef for lunches at Dreamforce. Why? Because they perceive that beef was environmentally damaging. They’ll make moves like that to increase diversity, increase gender diversity. If you look at Alger 25, the ESG score is quite high. We didn’t mean for it to be that way, but now, if a business has a poor ESG rating, it is something that I think about more before including it into the portfolio. We own a business called NXP Semiconductors. In the beginning of last year, their ESG score was horrendous. We met with the management team. We met the CEO and have known the CEO for years. At some point, I said, “I don’t know if I can own the stock with this kind of ESG score.”

Speaker Question: Could you talk about turnover? And then can you also talk about your sell discipline and what motivates you to liquidate a position either all or in part? Ankur Crawford: Yes. So turnover for Spectra this year, I want to say that it’s about 100 percent. But I would highlight that on the long side, it is much lower than that. Spectra has a shorting aspect to it and the turnover on the shorts is much higher than on the longs. It’s actually generating performance by having a slightly leveraged strategy. In terms of the sell discipline, there are a few reasons why we might sell a stock. The risk reward greatly changes, i.e., the stock reaches not only our one-year price target but starts to approach our three-year price target, for example. It might have baked in the growth that we are seeing over the next couple of years as well. And in that case, it doesn’t mean that the business is broken. All it means is that the market may have recognized what we had recognized. And maybe it’s recognizing it faster. That would be at minimum a trim if not a sell. Another reason might be the fundamentals just deteriorate. And our thesis is wrong. Or maybe the management hasn’t executed in a way that we had expected them to execute. I like to always say that we are humble enough to say that we can be wrong. However, there is no reason to dwell on it and sit there and lick our wound. We will happily exit if we are fundamentally wrong. I think in Alger 25, sometimes the turnover is because there are only 25 names; if you add one that seems like a compelling risk reward or compelling opportunity, you’re forced to sell another. For Alger 25, this year, it’s running at about 58 percent last I checked if you annualize it.

Conference Call 6/11

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Ankur Crawford (continued): There was a discussion. Since that discussion, our ESG team checked in with them more recently. They said it was because of that discussion that they started focusing on ESG and their ESG score has improved significantly. So, while we’re not saying, “Well, we’re only going to buy high ESG businesses,” I think we can act in a positive way to influence businesses to become better global citizens.

taking the Apple business on the iPhone and effectively enabled a competitor called Taiwan Semiconductor. In the process, they lost their key competitive advantage.

Instead of Intel, I recently bought Taiwan Semiconductor because if you look at this business, it’s one of two players in the market that manufacture all leading-edge chips. It’s arms dealer to the world. They have a huge share in the market. Intel is rumored to actually start manufacturing with them for their core CPU. They have pricing power. They have growing margins and a growing moat. When I think semis, I think that because people perceive them to be a slightly more complicated group to understand, investors kind of shy away from them saying, “These are very cyclical.” But there’s a powerful growth story behind semiconductors over the next five years. Speaker Question: My question really has to do with the huge volatility we are seeing sometimes in individual names. How do you guys pare a position because I’m finding it to be something that you need to be ready to jump on and very quickly. I just want to know how that process goes. Sometimes information is being taken in by the market incorrectly and people shoot first.

Dennis Hearns: I might add that PRI gave Alger a score of A.

Speaker Question: Wondered your thoughts on chipmakers, your Intels, your AMD, etc. Do you prefer one or the other? Do you like the area?

Ankur Crawford: As you know, I was a semiconductor analyst. This is a question I could expound upon for a long time. If you look at the coverage in our tech portfolio, the biggest change over the last six months has been an overweight positioning in semiconductors. This has been catalyzed by the fact that if you look at semis in general, you will see that software is driving the digital transformation, software is great, software is eating the world–but who do you think is actually doing all the compute for that software? I think that whether it’s autonomous driving, whether it’s IoT, whether it’s AI, whether it’s machine learning, each of those has a brain or an engine behind it. Semis are those brains. If you look at the valuations, the valuations actually are on a free cash flow and earnings basis. They’re significantly more palatable than some of the valuations that we’re seeing in their software brethren. I’m actually pretty excited about what’s going on in semis. We do not own Intel. Intel’s prowess was manufacturing. And they have fallen behind for a multitude of reasons in part because they made what I believe are some strategic mistakes early on by not There’s a chip. There’s a brain behind all of that computation.

How do you go about paring a stock or actually selling if you have to? Just want to understand how that goes about and whether there’s a call or whatever it is.

Ankur Crawford: I will tell you the benefit of having the team be as cohesive as it is: when things are slow, for example, right now there’s no conferences, there’s no earnings, my calendar is filled with going through models with our team, models of companies that we own, models of companies that we don’t own understanding risk rewards, understanding what buy points are, understanding what the sell points are, understanding what’s getting baked into the stocks at each of those buy or sell points.

Conference Call 7/11

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Ankur Crawford (continued): Oftentimes what I am doing is looking at each of these businesses and saying, “Where do I think that the risk reward for either a Wayfair or a Qualcomm or a TSM–where is that risk reward compelling? And where is it full?” I’ll give you a great example. We bought Shopify during the crisis. At some point, the stock had gotten to like $380 or something and had fallen apart. And we bought Shopify. The stock proceeded to go to $1,200. And we trimmed it because we thought that the growth for the next few years was being fully kind of baked in given our numbers at the time. And recently, it came down 25 percent. They did an offering. The stock went down to as low as 850: from 13-something to 850. We’ve set an opportunity to take the position back up. Speaker Question: I understand. Do you do it over a course of a couple of days? Or do you basically just say, “Listen. Regardless of the price the streets are thinking of on Shopify, we think that the stock is more than appropriately priced. And if it goes down more, that’s OK. We just buy it all in one day.” Ankur Crawford: No. I usually pare in a little bit. I usually don’t ramp the position up all in one day because it could keep going down. I want to be able to get the position on at a price that is good for our clients. I’ll give you an example of when we bought Qualcom. I didn’t pare into that because that was an event that made it very clear what was going on. Also, when I started buying TSM, I was more aggressive at that buy. There was an event that changed the dynamic of how I thought the stock would trade versus these one offs, the market selling off. For businesses that we think have duration, it gives us the ability to buy into that kind of pullback when other people are scared.

a bigger position in Tesla. Tesla kind of meets the criteria of everything that I was just talking about. It is driving an entirely different kind of industry where it is shepherding in the change in the auto industry and is so many years beyond its competition that it has a definitive first move. That’s the auto portion of their business. I also think about what is going on in battery, what is going on in other kind of light vehicles, what is going on in buses. That is an opportunity that we haven’t really even tapped into. They had a battery day and had been highlighting how big the opportunity for them can be. You know they think their revenue opportunity is tens of billions. I think this is one of those businesses that has several levers of growth in it, and some of which we haven’t fully contemplated, so it’s a really dynamic, interesting business. What has held us back historically has been a few red flags on the governance aspect, for example, for Tesla. There was a period of time when I think three or four of the board members just picked up and left. That has given us a bit of pause because we want to make sure that the stewards of the capital in the businesses that we’re investing in are doing the right thing and have the right governance structure.

But it’s truly a remarkable company. Elon Musk is, I might venture to say, a genius and a visionary at least.

Speaker Question: Do you think at some point in the future you would potentially increase your position in Tesla?

Ankur Crawford: Yes. If it pulls in and the risk reward looks favorable, of course we will. We’ll do what we think will give us the best returns.

Dennis Hearns: I have one question that was emailed to me. Can you talk about how research has changed now that we’re work from home? Are you and your analysts getting more access? Is management getting better at providing information? Is working from home allowing for more or less effective analysis of companies?

Speaker Question: Want to get your opinion on what you think of Tesla.

Ankur Crawford: When I look back at the mistakes I’ve made, one mistake that I made this year was not having

Conference Call 8/11

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Ankur Crawford: Really good question. I would say, first of all, our research process and our team dynamic are no different than before. What has been incredibly surprising is how seamless this process has been. It is remarkable that all of us are sitting at home right now. That’s another kind of shout out to the technological advances that we’ve made over that last 10 years. Had this happened even five years ago, I think the economy would be in a completely different spot. In terms of the research, it’s funny because the core of our research has been changing. We’re still doing the same processes we do, including customer calls, talking to the management. For a duration of April, May, June, July, that time, managements were actually very proactive because they themselves didn’t know what was going on in their businesses. They were proactively doing update calls. Mastercard and Visa were updating their viewpoints every few weeks just to let people know what was going on because it was a very confusing time. There are several managements and several sectors that had been doing that. We did get more information than management usually allows for us to have mid quarter. Additionally, they would publicly state their numbers in terms of how the month to month was trending. In terms of management access, it has been quite interesting because it does make me question all the travel that was required to get that management access sometimes, whether it was going to conferences in Florida or California or wherever they might be in order to meet with management teams. It is interesting that we are able to get the same access on Zoom. What we do miss is I personally know a lot of these management teams from my years of covering the stocks and interfacing with them on a face-to-face basis. I don’t know how one can build a relationship with any of them and truly understand the person that they are to lead the business, the culture that they carry if you’re not having some face-to-face interaction. That is yet to

be seen, I think. But for the most part, management teams have been accessible.

They actually prefer it since they don’t have to go anywhere to meet with us; they don’t have to socialize with any of the investors or answer these questions over and over again in a hotel room. You know what you see around the hotel desk at a hotel room and they keep answering questions and at the end of the day they’re completely bored. But a lot of them are appreciating the fact that they can reach investors in a way that’s less difficult. I do think there’s going to be some real change in our industry. It does make you question how efficient we can be or how inefficient we might have been. Dennis Hearns: You know I always like to conclude with this last question. We often hear from investors who ask whether it is a good time to invest in larger caps. Why now, why Alger and why your funds? index was composed of businesses that weren’t necessarily growing. I mean there are more mature businesses. They were good businesses. They were growing. But they were businesses that were slower growth and often mature. And our product cycle was rewarded handsomely oftentimes like with Apple in the early 2000s. When there was a new product cycle that drove growth, that was very exciting for large cap investors. This time and I hate to say it this way because someone’s going to be like everyone says that this time might be different because large caps are at the center of the change that we see. I mean, what business could have built a cloud business within a course of five to eight years? The amount of capital and prowess like intelligence and engineering prowess that is required, it can really only come from a large cap company. Ankur Crawford: I’ll start with why large cap. If you look at the large cap landscape call it 20 years ago, the

Conference Call 9/11

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Ankur Crawford (continued): If you look at the large cap space, I think you will see more growth in large cap into absolute growth than we’ve seen historically in some of those high growers in part because these are now platforms for the change. These are the businesses that are driving the change and have the ability; these are global companies. They’re global retailers. They’re global tech companies, which is really a different paradigm than we have seen historically. I mean when we used to look at retail and consumer discretionary, there was no global retailer. Amazon is a global retailer effectively. I would say why large cap? It’s because so much of that dynamic change is actually being led by these large caps. Why Alger? For all the reasons that I have been talking about on this call. We have been steeped in looking for change for 55 years. If you go back to the magazine articles that feature interviews of David and Fred in the ‘70s, the ‘80s, the ‘90s, they say the same thing. Look for Positive Dynamic Change. Look for high unit volume growth. Look for change. Where there is change, there is opportunity. The market often underestimates change. And why Alger? It’s because that is how we think about the market. We are not changing ourselves to suit the market. This is what we have been built for. This is what we have been trained to do. This is our core competency: looking for change. What we see over the next 10 years is so much change in the market that you want to be relying on people who can recognize that change. That is why I think the time for Alger is now. Why Spectra and Alger 25? We have a team that is of one mind. We filter the market. We are a cohesive team that is looking for driving performance. And we do great fundamental research. I know that a lot of people probably say they do great fundamental research. I wish that all of you could come into our offices and really experience a day at Alger and what it is that we do and how we do it because I do think it’s different. I do think that the thoughtfulness, the effort that goes into

the research and to the numbers illustrates a lot of effort and a lot of thoughtfulness.

Spectra, Alger 25, our large cap portfolios — they express all of our investment talents in one place. In Spectra, we have the ability to go down market. We’re able to do large, mid and small cap investing. We are able to short, which is an exciting nuance to the strategy. In Alger 25, it is just about owning great businesses that we love and great businesses that we think will compound greater than market returns over the next five years. What I want to leave you with is that we are a pretty competitive team that likes to win. We like to win for our clients. It’s really important to us. We always know who it is that we’re investing for. We don’t take it lightly. You have to have that fire. I think you want to be invested with people who have the desire to win and a process to win. That’s why large cap, that’s why Alger and that’s why Spectra, Alger 25 and our other large cap strategies. Dennis Hearns: Ankur, thank you so much for providing this insightful and actionable information today. More importantly, to our audience, all of us at Alger want to thank you for taking the time to join us.

Conference Call 10/11

DISCLOSURE

The S&P 500 is a market capitalization-weighted index of the 500 largest U.S. publicly traded companies.

Incorporated, no position; AirPrime, private; Shopify Inc., no position; Tesla, Inc., no position; Amazon.com, Inc., 9.93%; Mastercard Incorporated, no position; Zoom Video Communications, Inc., no position; Apple Inc., 6.56%.

The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of September 2020. 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. Holdings and sector allocations are subject to change. 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. A significant portion of assets will be invested in technology and healthcare companies, which may be significantly affected by competition, innovation, regulation, and product obsolescence, and may be more volatile than the securities of other companies. Investing in companies of small and medium capitalizations involve the risk that such issuers may have limited product lines or financial resources, lack management depth, or have limited liquidity. Assets may be focused in a small number of holdings, making them susceptible to risks associated with a single economic, political or regulatory event than a more diversified portfolio. Foreign securities and Emerging Markets involve special risks including currency fluctuations, inefficient trading, political and economic instability, and increased volatility. Please visit www.alger.com for additional risk disclosures. Investments in the Consumer Discretionary Sector may be affected by domestic and international economies, consumer’s disposable income, consumer preferences and social trends. Short sales could increase market exposure, magnifying losses and increasing volatility. Leverage increases volatility in both up and down markets and its costs may exceed the returns of borrowed securities. The Alger 25 fund is classified as a “non-diversified fund” under federal securities laws because it can invest in fewer individual companies than a diversified fund. 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. The following positions represented the noted percentages of Spectra assets as of 6/30/20: PayPal Holdings, Inc., 2.21%; Starbucks Corporation, 0.84%; Visa Inc., 4.67%; NIKE, Inc., 1.24%; Progressive Insurance, private; CoStar Group, Inc., 0.99%; salesforce.com, inc., 2.75%; NXP Semiconductors N.V., 1.17%; Intel Corporation, -0.10%; Advanced Micro Devices, Inc., no position; Taiwan Semiconductor Manufacturing Company Limited, 0.39%; Wayfair Inc., no position; QUALCOMM Incorporated, no position; AirPrime, private; Shopify Inc., 0.41%; Tesla, Inc., 0.33%; Amazon.com, Inc., 7.28%; Mastercard Incorporated, no position; Zoom Video Communications, Inc., no position; Apple Inc., 6.35%. The following positions represented the noted percentages of Alger 25 assets as of 6/30/20: PayPal Holdings, Inc., 4.58%; Starbucks Corporation, 2.44%; Visa Inc., 5.62%; NIKE, Inc., no position; Progressive Insurance, private; CoStar Group, Inc., no position; salesforce.com, inc., 3.52%; NXP Semiconductors N.V., 2.76%; Intel Corporation, no position; Advanced Micro Devices, Inc., no position; Taiwan Semiconductor Manufacturing Company Limited, no position; Wayfair Inc., no position; QUALCOMM

For standard performance and important disclosures, please refer to the Spectra factsheet and Alger 25 factsheet .

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 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 Fred Alger & Company, LLC are not an 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. Before investing, carefully consider the Fund’s investment objective, risks, charges, and expenses. For a prospectus and summary prospectus containing this and other information or for the Fund’s most recent month-end performance data, visit www.alger.com, call (800) 992-3863 or consult your financial advisor. Read the prospectus and summary prospectus carefully before investing. Distributor: Fred Alger & Company, LLC. Member NYSE Euronext, SIPC. NOT FDIC INSURED. NOT BANK GUARANTEED. MAY LOSE VALUE.

Fred Alger & Company, LLC 360 Park Avenue South, New York, NY 10010 / www.alger.com

AZCCT 9 2020

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