Alger Prefers Owning to Lending as Outlined In New Report: Loving to Lend or Opting to Own?
NEW YORK, October 14, 2019 – Investors who are considering rotating from stocks to bonds given declining interest rates and economic and political uncertainty may be disappointed given current valuations, according to Alger’s Autumn 2019 Capital Markets report , “Loving to Lend or Opting to Own?” The $27.6 billion growth equity asset manager believes equities should outperform bonds over the coming decade and sees the strongest potential in growth stocks, as outlined in the firm’s report published today. “We see the potential reward in high-quality growth companies and believe equities will outperform fixed income over the long term,” said Dan Chung, CEO and Chief Investment Officer of Alger. “We are contrarians to the herd of investors chasing bonds higher and yields lower, and encourage investors to maintain a long-term, growth-oriented mindset.” Stocks still have an edge over bonds: Using the equity risk premium, stocks are about as cheap as they have been in the past couple of decades, and current valuations suggest equities may outperform bonds over the coming decade. Passive investing can lead investors astray: The vast majority of passive investing allows relative performance to drive relative weighting changes, irrespective of fundamentals. However, this can exacerbate problems, such as in Information Technology in the late 1990s or in Financials prior to the Global Financial Crisis as the peak weighting of each of these sectors occurred at the wrong time. Growth stocks have an edge over value stocks: Despite a blip of a reversal in September, growth stocks have dramatically outperformed value stocks over the past decade (>35%). The driver has been the very weak performance of the price-to-book valuation metric, which is used heavily in index classification. Investors looking for a reversion to the mean may be disappointed. “For several years now, we have raised the concern that current methods of style classification may be structurally inaccurate and believe investors should closely examine the metrics used to determine stock classification. Our belief is that growth will continue to outperform value over the long run,” said Neuman. Co-authors of the research report, Mr. Chung and Brad Neuman, Alger’s Director of Market Strategy, highlight what they believe are three of the greatest opportunities and observations for investors to keep in mind today:
Further, Neuman points to a recently published research paper by academics Baruch Lev and Anup Srivastava, “Explaining the Demise of Value Investing,” which further supports the assertion that the likelihood of a resurgence in value investing seems low.
To access a copy of Alger’s report, visit its website.
About Alger Founded in 1964, Alger is widely recognized as a pioneer of growth-style investment management. Headquartered in New York City with affiliate offices in Boston and London, Alger provides U.S. and non-U.S. institutional investors and financial advisors access to a suite of growth equity separate accounts, mutual funds, and privately offered investment vehicles. The firm’s investment philosophy, discovering companies undergoing Positive Dynamic Change, has been in place for over 50 years. Weatherbie Capital, LLC, a Boston-based investment adviser specializing in small and mid-cap growth equity investing is a wholly-owned subsidiary of Alger. For more information, please visit www.alger.com. Risk Disclosures : Investing in the stock market involves certain risks, and may not be suitable for all investors. Growth stocks tend to 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. The views expressed are the views of Fred Alger Management, LLC as of October 2019. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security or any funds managed by Fred Alger Management, LLC. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities. Past performance is not indicative of future performance.
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