Ankur Crawford Call Transcript

TRANSCRIPT

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