Capital Markets Autumn 2020

Autumn 2020

Capital Markets: Observations and Insights

Investing Beyond the Election

Beyond The Election

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” – Ben Graham

Voting in an election is like investing. Investors “vote” for candidates and companies, which reflects their collective sentiment. However, over the long term, stocks have historically reflected their fundamentals rather than sentiment with the greatest returns achieved by those companies who showed the strongest earnings and free cash flow growth. At Alger, we are most focused on the research-intensive endeavor of forecasting which companies will grow fastest over time. Importantly, we do not believe that politics will play a large role in the fundamental development of growth companies over the long term. That is because companies largely hold their destiny in their own hands, in our view. Disruptive innovations can be accelerated or hindered by government policies, but they cannot be stopped. We believe value-added products and services guided by talented and diligent management teams will gain market share, irrespective of macroeconomic conditions. In the pages that follow, we offer our view of investment themes that we believe will transcend politics and last much longer than the next four years. At Alger, we aim to understand who will win and lose in the global economic marketplace as a result of disruptive change. It is this philosophy of investing in Positive Dynamic Change that we believe has generated strong results for our clients over more than a half century.

Daniel C. Chung, CFA Chief Executive Officer Chief Investment Officer

Brad Neuman, CFA Senior Vice President Director of Market Strategy

1

Key Observations and Themes

Beyond The Election We believe there are enduring investment trends that will transcend politics and last much longer than the next four years. These drivers of change may produce compelling investment opportunities over the long term.

3

I

Lending vs. Owning With interest rates at very low levels, stocks look attractive relative to bonds. We believe equities will outperform fixed income over the long term.

12

II

Valuation Equity valuation looks more attractive after accounting for low interest rates and changing business models, which generate increased cash relative to earnings.

16

III

The Economy On the rebound from the global pandemic shock, the economy has some significant tailwinds.

20

IV

Style Wars Powerful structural forces have caused Growth to diverge from Value. Shifts in leadership are likely but the long-term trend should stay intact, in our view.

23

V

2

I

Convergence Beyond the Election

• We believe we are in one of the most innovative times in history

I

• In the pages that follow, we highlight some of the trends below as well as others that we believe will separate the corporate winners and losers

II

Corporate Technology Adoption Currently In Use Or Planned To Use Within Two Years

Gigabit Wi-Fi networking

III

IT automation

Internet of Things

Hyperconverged infrastructure

Edge computing

IV

Artificial intelligence

Serverless computing

3D printing

V

5G technology

Virtual reality

Blockchain technology

0% 10% 20% 30% 40% 50% 60% 70% 80%

VI

Source: Spiceworks 2019 survey of over 1,000 business technology purchasers, edited by Alger.

3

I

Internet of Things Beyond the Election

• The explosion in connected devices is creating the “Internet of Things” or IoT, transmitting valuable and actionable information ‒ Applications include industrial monitoring and automation, health care, security, agriculture, inventory management, smart cities, utility metering, and connected cars

I

II

Drivers of IoT Spending

Data Volume of IoT Connected Devices Worldwide

III

22%

Compliance

79

31%

Improved ROI

32%

Business need

33%

Customer service

IV

36%

Reliability

36%

Competitiveness

Zettabytes

40%

Efficiencies

14

V

42%

Data analytics

46%

Security

2019

2025

Share of Respondents

VI

Source: Data volume forecast from IDC, July 2020, and drivers of IoT spending from 451 Research survey, December 2019.

4

I

Digital Payments Beyond the Election

I • Digital payments continue to outgrow the broad economy as they gain penetration, driven by increasing e-commerce and mobile payments

‒ China has the largest volume of digital payments and Europe is growing fastest

• Payment networks, processors, and software companies can capitalize on the trend

II

Global Digital Transactions

Mobile Payments

E-Commerce

III

8.3

16.5% CAGR

7.3

6.4

4.2

IV

5.4

3.4

4.4

2.7

3.9

$ Trillions

2.1

1.5

1.1

V

4.1

3.9

3.7

3.3

2.9

2.8

2019

2020E

2021E

2022E

2023E

2024E

VI

Source: Statista Digital Market Outlook 2020. CAGR is compound annual growth rate, the rate of return required for a quantity to grow from its beginning balance to its ending balance. Mobile payments occur when smartphones are used to process transactions using wireless communication or scan QR barcodes.

5

I

Cloud Computing Beyond the Election

• Cloud computing optimizes IT assets, reducing costs and improving flexibility and accessibility ‒ The growth in online streaming entertainment, e-commerce, work from home, telehealth, e-sports, and virtual learning are all enabled by cloud computing

I

II

Cloud Computing Market Is Growing Rapidly

III

$364

$307

$258

$243

IV

$197

$145

V

Market in Billions ($)

2017

2018

2019 2020*

2021*

2022*

VI

Source: Gartner, July 2020. *Forecast

6

I

5G Wireless Beyond the Election

I • The next generation of wireless technology, 5G, is bringing faster speeds, increased capacity, much lower latency, and more efficient spectrum utilization ‒ 5G helps enable telematics, advanced health care monitoring, remote work, augmented/virtual reality, and autonomous driving applications

II

5G Mobile Subscriptions

III

2.8

1.9

IV

1.3

V

0.7

Billions of Subscribers

0.2

0.1

0.0

VI

2019 2020E 2021E 2022E 2023E 2024E 2025E

Source: Ericsson, July 2020.

7

I

Artificial Intelligence Beyond the Election

• As data growth explodes and computing becomes more powerful, artificial intelligence is likely to become more advanced and begin to permeate decision making • AI investment has been most prolific in autonomous driving, drug studies, facial recognition, and digital content*

I

II

Global AI Spending

Leading AI Use Cases

11%

III

$110

7%

7%

6%

6%

IV

$50

Billions ($)

V

2020

2024

Automated customer service agents

Sales process recommendation and automation

Automated threat intelligence and prevention

IT automation Fraud analysis and investigation

VI

Source: AI spending and use cases from IDC, August 2020. *Stanford Artificial Intelligence Index, 2019 annual report.

8

I

Genomics Innovation Beyond the Election

• Genetic analysis and manipulation will increasingly impact the practice of health care

I

‒ Turning sick care into preventive health care by giving insight into predisposed diseases

‒ Delivering more efficacious treatments via targeted therapies (e.g., immuno-oncology)

II

The Genetic Sequencing Market Expected to Grow

As The Cost to Sequence A Genome Declines

$18.0

$9,047,003

III

$16,712

$4,211

IV

$942

$3.4

Market Size Billions ($)

V

2007 Cost Per Human Genome 2011

2015

2019

2018

2028*

VI

Source: Cost to sequence a genome from the National Human Genome Research Institute and sequencing based monitoring and diagnostic test market from BIS Research. *Estimated.

9

I

Emission Reductions Beyond the Election

• The rate of CO 2

emissions is not sustainable in our view

I

• Reducing emissions may provide opportunities in alternative energy sources and in electric vehicles and related products and services

II

CO

Emissions

2

Actual

Needed To Limit Warming

III

45

40

35

30

IV

25

20

15

V

10

Billions of Annual Tonnes

5

0

VI

1850

1857

1864

1871

1878

1885

1892

1899

1906

1913

1920

1927

1934

1941

1948

1955

1962

1969

1976

1983

1990

1997

2004

2011

2018

2026

2033

2040

2047

2054

2061

2068

2075

2082

2089

2096

Source: Robbie Andrews (2019) based on Global Carbon Project & IPPC SR15. Carbon budget based on >66% probability of staying below 2 o C warming, beginning in 2020.

10

I

Evolving Demographics Beyond the Election

• A burgeoning middle class will considerably impact spending patterns such as meat consumption and automobile ownership

• An aging population has important economic implications such as increased health care spending

I

II

The Asian Middle Class Is Expected to Grow

The World Expected to Be Older in 2100

1950 2100

2015 2020 2025 2030

4

III

48

47

46

3

30

29

2

IV

22

Median Age

1

V

0

Asia-Pacific Billions of Middle Class People

North America Europe

Asia

Europe

North America

VI

Source: Median age from United Nations Department of Economic and Social Affairs and middle class estimates from Brookings Institution. A middle-class family has an approximate income of $16,000 to $160,000 in purchasing power parity terms.

11

II

More Cash in Your Pocket? Lending vs. Owning

• In an unusual occurrence, equity dividend yields are higher than 10-year Treasury yields

I

‒ Over 10-year periods in the past half century, the S&P 500 dividend has grown an average of nearly 6% annually, while a Treasury bond coupon does not grow

II

…But Stock Dividends Can Grow!

Similar Yields…

S&P 500 Div Yield

10-Yr Treasury Yield

S&P 500 Dividend Growth

16%

12%

III

14%

10%

12%

8%

10%

6%

IV

8%

4%

6%

2%

4%

0%

2%

V

0%

-2%

Rolling 10-Yr Annual Growth

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

VI

Source: FactSet, Robert Shiller, Alger. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

12

II

A Better “Yield” Lending vs. Owning

• Investors are accepting much lower “yields” for the safety of Treasuries relative to equities but how risky are stock fundamentals over the long term? ‒ Over 10-year periods in the past half century, S&P 500 EPS has always grown (even through this pandemic), averaging nearly 7% annually, while bond coupons do not grow

I

II

Equity “Yield” Is Attractive Relative to Treasuries…

…And Equity EPS Can Grow!

S&P 500 EPS Growth

S&P 500 Earnings Yield 10-Yr Treasury Yield

III

16%

12%

10%

12%

8%

IV

6%

8%

4%

2%

4%

0%

V

0%

-2%

Rolling 10-Yr Annual Growth

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

VI

Source: FactSet, Robert Shiller, Alger. Notes: periods used were annual. Equity yield is LTM EPS / Price. Earnings per share (EPS) is the portion of a company's earnings or profit allocated to each share of common stock.

13

II

Many Happy Returns? Lending vs. Owning

• Strong relationship between starting valuations and ensuing 10-year returns with current data suggesting equities will outperform bonds over the coming decade ‒ Note that low real interest rates and stronger free cash flow generation imply higher multiples relative to history (see pages 16 & 17)

I

II

S&P 500 CAPE vs. 10-Year Returns Since 1950

25%

III

= month = current

R² = 0.68

20%

15%

10%

IV

5%

Return

0%

-5%

V

-10%

5x S&P 500 10-Year Annualized 10x

15x

20x

25x

30x

35x

40x

45x

S&P 500 Cyclically Adjusted Price/Earnings (CAPE)

Source: FactSet. Each dot represents the P/E during that year and the returns generated over the subsequent 10 years. The starting CAPE ratio is the price divided by the cyclically adjusted EPS, which is the average of the EPS over the last decade at the start of each 10-year period measured. Annual data utilized from 1950 through 2019. R-squared is a statistical measure used to analyze how differences in one variable can be explained by the difference in a second variable. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

VI

14

II

Long-Term Appeal of Stocks Lending vs. Owning

• U.S. stocks outperformed intermediate-term U.S. government bonds about two thirds of the time over one-year periods during the last 70 years, but beat bonds in every 20-year rolling period • The standard deviation of returns for stocks is almost three times larger than for bonds over one-year intervals but nearly equal over 20-year rolling periods

I

II

Proportion of Time That Stocks Outperform Bonds

III

100%

82%

74%

67%

IV

V

1 year

5 Years

10 Years

20 Years

VI

Source: Morningstar and Alger. Stocks are represented by the S&P 500 and bonds are the Ibbotson U.S. Intermediate-Term Government Bond Index. Data is annual rolling returns 1950 through 2019. Standard Deviation measures how much the portfolio’s return has deviated from its average historical return. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

15

III

Reasonable Relative to Interest Rates Valuation

• One good way to incorporate interest rates into valuation is to calculate investors’ required rate of return above the prevailing risk-free interest rate ‒ Using the so-called Equity Risk Premium shows stocks are attractively valued relative to their historical average

I

II

Equity Risk Premiums Show Stocks Are Inexpensive

US World

III

10%

Cheaper

8%

6%

IV

0% Estimated Equity Risk Premium 2% 4%

More Expensive

V

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

VI

Source: Goldman Sachs. Note: The market implied equity risk premium (ERP) is the rate that at each point in time makes the theoretical value from GS Dividend Discount Model equal to the observed market price. U.S. equities are represented by the S&P 500. World equities are represented by a weighted average of MSCI Asia Pac ex-Japan (20%), TOPIX (10%), Stoxx 600 (30%), and S&P 500 (40%).

16

III

More than Meets the Eye Valuation

• Companies are increasingly investing more in intangible assets (e.g., R&D), that are expensed rather than capitalized

• The result is depressed earnings relative to free cash flow, making the stock market look cheaper on free cash flow than earnings

I

II

Intangible vs. Tangible Investment

S&P 500 Valuation Relative to Past 25-Year Median

Intangible

Tangible

III

41%

90%

70%

IV

50%

-7%

30%

V

Share of U.S. Investment

10%

Price-to-Earnings

Price-to-Free Cash Flow

1980

1985

1990

1995

2000

2005

2010

2015

2020

VI

Source: Share of U.S. investment is based on gross private nonresidential domestic investment from the Bureau of Economic Analysis. Valuation is from FactSet as of 09/30/2020 with price-to-earnings being the current market price of a company divided by its last 12 months of earnings. Price-to-free cash flow is the current price of a company divided by its last 12 months of free cash flow.

17

III

Bargains Abroad? Valuation

• International developed and emerging markets are trading at historically large discounts to the S&P 500

I

II

Non-U.S. Stocks are Inexpensive Relative to U.S. Equities

MSCI EAFE MSCI EM

10%

III

0%

-10%

IV

Non-U.S. stocks look relatively inexpensive

-20%

-30%

-40%

V

Discount to S&P 500

-50%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

VI

Source: Alger and FactSet through September 2020

18

III

Smaller Capitalization Stocks Look Attractive Valuation

• Small caps are expected to grow much faster than large caps

• Underperformance has compressed small cap valuations as compared to history

I

II

Estimated Earnings Per Share Trajectory

Price-to-Earnings S&P Small Cap 600 / S&P 500

S&P Small Cap 600

S&P 500

40%

100 120 140 160 180 200 220 240 260

III

20%

Small caps growing faster

0%

IV

-20%

-40%

EPS Indexed to 100

V

-60%

2020

2021

2022

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

VI

Source: FactSet as of 09/30/20. P/E is price divided by earnings per share over last 12-months. Estimated EPS trajectory based on consensus estimates from FactSet.

19

IV

Mind the Output Gap The Economy

• The U.S. economy is operating substantially below its potential, implying significant room is left in the expansion in our view

I

Large Output Gap Implies A Lot of Growth Left

II

Recession U.S. Output Gap

3%

2%

Less Sustainable Growth Remaining

III

1%

0%

-1%

IV

-2%

-3%

-4%

More Sustainable Growth Remaining

-5%

GDP / Potential GDP -1

V

-6%

-7%

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

VI

Source: Congressional Budget Office. The output gap indicates the difference between the actual output of an economy and the maximum potential output (the economy’s maximum sustainable output with underlying inputs including the natural rate of unemployment, various measures of the labor supply, capital services, and productivity) of an economy .

20

IV

Banking It The Economy

• The U.S. consumer has been saving at an elevated rate, which should support spending going forward in our view

I

II

U.S. Personal Savings as a % of Disposable Income

30%

III

25%

The U.S. consumer

20%

savings rate is historically high

15%

IV

10%

5%

V

0%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

VI

Source: U.S. Bureau of Economic Analysis. Three-month moving average through August 2020.

21

IV

Degrees of Debt The Economy

• Credit to U.S. households and non-financial corporations is over $33 trillion and the highest relative to GDP since 2011

• However, the debt service ratio, or share of income used for interest payments and amortizations, is relatively low

I

II

…But The U.S. Debt Service Burden Is Not

U.S. Debt Levels Are High…

20%

35

III

30

18%

25

Deficit Spending 16%

IV

20

15

14%

10

V

12%

5 U.S. Debt Trillions ($) Households & Corporations

U.S. Debt Service Ratio Households & Corporations

10%

0

VI

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

Source: Bank for International Settlements, September 2020. Debt Service Ratio is the share of income used for interest payments and amortizations in the non-financial private sector.

22

V

Accelerating Change Style Wars

I • Innovation is accelerating across many areas of the economy, causing new products and services to diffuse through society faster and disrupt businesses at a greater pace • This may be a tailwind to growth companies, which we believe are the drivers of innovation, and a headwind to value stocks, which may be victims of change

II

Years from Market Entry to 50% Penetration

Years to Reach 1 Billion Users

III

IV

V

VI

Source: Asymco, Visual Capitalist, company disclosures, Alger estimates.

23

V

Structural Issues Driving Growth vs. Value Style Wars

• Growth stocks have dramatically outperformed Value stocks over the past decade

I

• The driver has been the very weak performance of the Price-to-Book valuation metric, which is used heavily in index classifications of Growth vs. Value stocks • As accounting fails to keep up with the changing economy, book value may no longer be as relevant (e.g., R&D is not capitalized in book value)

II

20%

III

10%

Style classification too dependent upon outdated book value

0%

-10%

IV

-20%

-30%

-40%

Russell 1000 Value / Growth

Cumulative Return

V

-50%

R² = 0.86

Low P/B

-60%

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

VI

Source: FactSet, Kenneth R. French, and Alger as of September 2020. Low price-to-book returns are based on the B/P Frama/French factor for the CRSP universe which includes US firms listed on the NYSE, AMEX, or NASDAQ . The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

24

V

The Growth Advantage Style Wars

I • Three variables drive P/E multiples: growth, return on capital, and risk

• The Russell 1000 Growth Index has higher expected EPS growth, higher return on equity, and lower risk in the form of better balance sheets as compared to the Russell 1000 Value Index

II

Lower Risk

Higher Returns

Stronger Growth

Return on Equity

Net Debt / EBITDA

Long-Term EPS Growth

III

2.9x

29.5%

IV

17.4%

9.1%

0.7x

6.7%

V

Russell 1000 Growth

Russell 1000 Value

Russell 1000 Growth

Russell 1000 Value

Russell 1000 Growth

Russell 1000 Value

VI

Source: FactSet as of 9/30/20. Growth represents consensus long-term analyst estimates and actual future EPS growth rates might be materially different than the forecasts shown.

25

V

Winners vs. Losers Style Wars

• Analyst estimates suggest Growth fundamentals are far stronger than Value

• Data shows that the spread between economic winners and losers is at historic highs

I

Growth Stocks’ EPS Expected to Outperform

Corporate Sales Dispersion Has Jumped

II

Estimated Long-Term EPS Growth Spread for Russell 1000 Growth Less Russell 1000 Value (bps)

The Rate At Which Sales Are Shifting Between U.S. Companies

1,400

III

7

1,200

Higher Sales Dispersion

6

1,000

5

800

IV

4

600

3

400

2

Lower Sales Dispersion

V

200

1

0

0

2016 2017 2018 2019 2020

2016

2017

2018

2019

2020

VI

Source: Survey of Business Uncertainty conducted by the Federal Reserve Bank of Atlanta, Stanford University, and the University of Chicago Booth School of Business to calculate the Expected Excess Sales Reallocation Rate (left chart) through August 2020; and FactSet data through September 2020 (right chart). Long-term EPS growth represents consensus long-term analyst estimates and actual future EPS growth rates might be materially different than the forecasts shown.

26

V

Multiples vs. Fundamentals Style Wars

I • The large and widening spread in fundamentals helps offset the elevated premium at which Growth stocks trade, making them cheaper per unit of growth

Russell 1000 Growth vs. Russell 1000 Value PEG Ratio

Russell 1000 Growth Relative to Russell 1000 Value P/E

II

225%

200%

Growth stocks are cheaper relative to long-term growth

2.6x

III

175%

150%

1.8x

125%

IV

100%

77%

Median: 41%

75%

50%

V

25%

0%

Russell 1000 Value

Russell 1000 Growth

1979 1984 1989 1994 1999 2004 2009 2014 2019

VI

Source: FactSet, Bank of America as of 9/30/20. PEG ratio is P/E divided by long-term growth rate. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

27

V

Innovation as Asset Class? Style Wars

• Studies have shown and our research demonstrates that the most innovative companies grow their sales, earnings, and stock prices faster*

I

Innovative Companies Have Outperformed Over the Past Decade

II

100%

Most Innovative +6% per year

80%

III

60%

40%

20%

IV

0%

-20%

Least Innovative -3% per year

-40%

Cumulative Excess Return

V

-60%

VI

Source: FactSet. Most/least innovative stock excess performance is derived from highest and lowest S&P 1500 quintiles based on R&D as % of sales, normalized for market value, using one month returns for 10 years ending August 2020. * Baruch Lev and Suresh Radhakrishnan, “The Stock Market Valuation of R&D Leaders.” The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

28

Disclosure

The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of October 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. 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. 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.

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 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. Important information for Investors in Israel : This material is provided in Israel only to investors of the type listed in the first schedule of the Securities Law, 1968 (the "Securities Law") and the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995. The Fund units will not be sold to investors who are not of the type listed in the first schedule of the Securities Law.

Fred Alger Management, LLC • 360 Park Avenue South, New York, NY 10010 • 800.992.3863 • www.alger.com

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Disclosure

The S&P 500 Index is an unmanaged index generally representative of the U.S. stock market without regard to company size. The S&P 500 Growth and Value style indices are weighted by float market capitalization and they measure the performance of U.S. equities fully or partially categorized as either growth or value stocks, as determined by Style Scores for each security. The S&P Composite 1500 is an unmanaged index that covers approximately 90% of the U.S. market capitalization. The Russell 1000® Growth Index is an unmanaged index designed to measure the performance of the largest 1000 companies in the Russell 3000 Index with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. The MSCI AC Asia Pacific ex Japan Index captures large and mid cap representation across 4 of 5 Developed Markets countries (excluding Japan) and 9 Emerging Markets countries in the Asia Pacific region. TOPIX (Tokyo Stock Price Index) is a free-float adjusted market capitalization- weighted index that is calculated based on all the domestic common stocks listed on the Tokyo Stock Exchange First Section. The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index. The STOXX Europe 600 Index represents large, mid and small capitalization companies across 17 countries of the European region. The STOXX Europe Total Market Index represents the Western Europe region as a whole. It covers approximately 95 percent of the free float market capitalization across 17 European countries. The Ibbotson U.S. Intermediate-Term Government Bond Index is measured using a one-bond portfolio with a maturity near five years. The Morgan Stanley Capital International (MSCI) Emerging Markets Index (EM) is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. MSCI Emerging Markets Europe, Middle East and Africa Index (EAFE) is a free float-adjusted market-cap index that measures equity market performance in the emerging market countries of Europe, the Middle East and Africa. S&P SmallCap 600 Index is a market-value weighted index considered representative of small-cap US stocks. The indices presented are provided for illustrative purposes, reflect the reinvestment of dividends and do not assess fees and expenses that would have the effect of reducing returns. Investors cannot invest directly in any index. The index performance does not represent the returns of any portfolio advised by Fred Alger Management, LLC and actual client results might differ materially than the indices shown. Note that past performance is no guarantee of future results. Comparison to a different index might have materially different results than those shown. Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell ® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and / or Russell ratings or underlying data and no party may rely on any Russell Indexes and / or Russell ratings and / or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.

FactSet is an independent source, which Alger believes to be a reliable source. FAM, however, makes no representation that it is complete or accurate.

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Fred Alger Management, LLC • 360 Park Avenue South, New York, NY 10010 • 800.992.3863 • www.alger.com

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