Capital Markets Autumn 2019 Press Release
Sheila Kulik 203-475-2523
Scott A. Anderson 212-806-2972
FOR IMMEDIATE DISTRIBUTION
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:
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