Capital Markets: Observations & Insights

Winter 2020

Capital Markets: Observations and Insights

Casting a Vote for Fundamentals

Casting a Vote for Fundamentals

“The empires of the future are the empires of the mind.” – Winston Churchill

Many people view the 2020 U.S. presidential election as the biggest and most important election in a century. So then it must be immensely important for the stock market’s subsequent performance, right? No, not in our opinion. We believe the expectations leading up to the election are likely to produce swings in sentiment and stock prices, but the results of the election are unlikely to drive U.S. equity performance over the next few years for two reasons. First, major legislation is unlikely to be passed without a sweep of one party, which is improbable. Second, business fundamentals have proven to be more important than changes arising from legislation. For example, domestically focused companies that should have benefitted disproportionally from the policies of the current administration, such as the corporate tax rate reduction, have not done particularly well. In fact, over the past three years, the most innovative companies in the S&P 500 have outperformed domestically oriented companies as well as the broader market. Over the next four years, regardless of which party is in power, we believe that innovative, secularly growing companies will prosper.

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

The Election In our view, evidence suggests investing in innovation and fundamentals is likely to outperform strategies that attempt to profit from policy changes.

3

I

Accelerating Innovation Innovation is speeding up and changing the way the economy behaves, increasingly driving stock performance.

9

II

Style Wars Powerful structural forces have caused Growth to diverge from Value. Investors looking for a reversion to the mean may be disappointed.

14

III

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

17

IV

Economic Outlook Low interest rates and improving confidence may combine for an improvement in economic growth.

22

V

Valuation Equities may appear expensive but after accounting for low interest rates and changing business models, they may look more attractive.

25

VI

2

I

Afraid of Change The Election

I • Historically, the stock market has been anxious regarding political change ‒ The fourth year of a presidency, or the year immediately prior to a new election, has been the worst of the four-year cycle

II

U.S. Equity Returns in Year of Presidential Cycle

III

15.4%

10.7%

IV

8.1%

5.5%

V

Year 1

Year 2

Year 3

Year 4

VI

Source: FactSet and Alger. S&P 500 average price performance from November through October since 1980. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

3

I

Gridlock Is Good The Election

I • Market returns have historically been higher in periods when no one party controlled both the White House and the Congress

II

U.S. Equity Returns by Party Control

12%

III

9%

Split control of government has been good for stocks

IV

V

Sweep

Split

VI

Source: FactSet and Alger. S&P 500 median price performance from November through October since 1950. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

4

I

It’s the Economy The Election

I • The economy may be a good indicator of whether the incumbent will be re-elected ‒ No recession in the preceding two years has historically meant successful re-election

Recession in Past Two Years?

Year

Candidate

Re-Elected?

II

2012

Obama

2004

GW Bush

1996

Clinton

III

X

1992

GH Bush

1984

Reagan

X X

1980

Carter

1976

Ford

IV

1972

Nixon

1964

Johnson

1956

Eisenhower

1948

Truman

V

1944

Roosevelt

1940

Roosevelt

1936

Roosevelt

X

1932

Hoover

VI

Source: Bruce Mehlman: The Roaring 2020s and Alger.

5

I

Meaningful Policy Changes? Not Without a Sweep The Election

• Republicans appear likely to retain control of the Senate ‒ Three out of four of the “toss-up” races (AL, AZ, CO, ME) are Republican incumbents

• Democrats appear likely to retain control of the House ‒ Over two-thirds of “toss-up” races are Democrat incumbents

I

II

Senate Signals?

Head of the House?

216

50

III

192

46

IV

V

26

4

Likely Democrat Likely Republican Toss-Up

Likely Democrat Likely Republican Toss-Up

VI

Source: Cook Political Report

6

I

Something in Common The Election

I • Growing consensus in both parties that fiscal stimulus, either through lower taxes or higher spending, which results in larger deficits is acceptable and even desirable

‒ This may benefit the entire stock market more than many expect

Republicans

Democrats

II

• Lower Taxes • America First/ Tariffs as Weapons • Border Control • Gun Rights • Pro-Life • Private Sector Health Care • Reduced Regulations

• Higher Taxes; Higher Wages • Coalitions to Work with Allies • More Free Borders

III

Deficit Spending

IV

• Gun Control • Pro-Choice

• Government Health Care • Environmental and Worker Protection

V

VI

Source: Alger

7

I

Fundamentals > Politics The Election

I • Domestically focused companies that should have benefitted from the administration’s policies have actually underperformed while the most innovative companies outperformed

‒ Investors may want to consider secular growth companies irrespective of politics

II

Most Innovative Companies

15%

9%

10%

III

5%

0%

IV

-6%

-5%

-10%

High Domestic Exposure

Cumulative Excess Return

V

-15%

Oct-16

Apr-17

Oct-17

Apr-18

Oct-18

Apr-19

Oct-19

Jun-17

Jun-18

Jun-19

Feb-17

Feb-18

Feb-19

Dec-16

Aug-17

Dec-17

Aug-18

Dec-18

Aug-19

VI

Source: Alger using FactSet Alpha Testing. High domestic exposure is companies in highest quintile of U.S. sales as percent of total sales in S&P 500. Most Innovative Companies are the highest quintile of R&D % of sales in the S&P 500. Both are normalized for sector exposure. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

8

II

Stepping on the Gas Accelerating Innovation

• Data has indicated that innovation is accelerating across many areas of the economy

I

• As a result, new products and services are diffusing through society faster, disrupting businesses at a greater pace

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.

9

II

A New Era Emerges Accelerating Innovation

• Research has shown that technological revolutions occur continuously about every half century ‒ We believe we are in the irruptive phase of a new revolution, the Age of Connected Intelligence, when intelligent computing will be ubiquitous and pervasive

I

II

The Lifecycle of Technological Revolutions

III

IV

V

VI

Source: Carlota Perez, “Technological Revolutions and Financial Capital,” Edward Elgar Publishing, 2002; Alger.

10

II

Growing Intelligence Accelerating Innovation

• With artificial intelligence (AI) further penetrating software and services, it is no wonder companies are increasingly discussing their plans for the technology with investors • However, only a minority of companies are regularly talking about artificial intelligence, indicating we are still in the early innings of the adoption of this technological revolution

I

II

Number of S&P 500 Companies Discussing AI on Earnings Calls

III

81

+31%

A 31% increase in companies discussing AI

62

IV

V

VI

4Q18

4Q19

Source: FactSet and Alger.

11

II

Beating Economic Volatility? Accelerating Innovation

• Innovation can triumph over economic volatility

I

‒ History shows that there are areas of innovation and growth throughout recessions, depressions, and panics over the past 150 years*

‒ This may be why Growth stock fundamentals have held up better in recessions

II

U.S. Internet Ad Revenue

U.S. E-Commerce

U.S. Total Retail Sales

140

III

130

120

+30% Growth

IV

110

100

V

90

80

VI

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Source: Bureau of Economic Analysis, PwC, Census Bureau. *See Alger’s white paper “The Enduring Force of Innovation.”

12

II

Innovation as Wealth Creator Accelerating Innovation

• 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

Most Innovative +4% per year

60%

III

40%

20%

IV

0%

-20%

Least Innovative -4% per year

-40%

V

Cumulative Excess Return

-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 11/30/19. * 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.

13

III

Structural Issues Driving Growth vs. Value Style Wars

• Growth stocks have dramatically outperformed Value stocks over the past decade by over 35% • 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)

I

II

III

Style classification too dependent upon outdated book value

120

100

80

Low P/B

IV

Russell 1000 Value / Growth

60

40

V

20

Total Return Index

0

VI

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Source: FactSet as of 12/31/19. Low price-to-book returns are based on the B/P Northfield factor for the Northfield broad U.S. market database. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

14

III

The Growth Advantage Style Wars

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

I

• 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

Stronger Growth

Higher Returns

Lower Risk

Long-Term EPS Growth

Net Debt / EBITDA

Return on Equity

III

2.8x

29.6%

IV

14.1%

0.9x

11.5%

7.3%

V

Russell 1000 Growth

Russell 1000 Value

Russell 1000 Growth

Russell 1000 Value

Russell 1000 Growth

Russell 1000 Value

VI

Source: FactSet as of 12/31/19. Growth represents consensus long-term analyst estimates and actual future EPS growth rates might be materially different than the forecasts shown.

15

III

Growth and Value Near Equilibrium Style Wars

• Despite their outperformance over the past several years, Growth stocks are not very expensive compared to their Value equity counterparts relative to expected growth rates or history

I

II

Russell 1000 Growth vs. Russell 1000 Value PEG Ratio

Russell 1000 Growth Relative to Russell 1000 Value P/E

225%

200%

III

2.1x

175%

Growth stocks are cheaper relative to long-term growth

150%

125%

IV

1.6x

100%

75%

52%

Median: 40%

Value is Attractive

50%

V

25%

Growth is Attractive

0%

Russell 1000 Value

Russell 1000 Growth

1979 1984 1989 1994 1999 2004 2009 2014 2019

VI

Source: FactSet, Bank of America as of 12/31/19. 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.

16

IV

Chasing Yield and Pursuing Safety Lending vs. Owning

• Despite very low interest rates, investors have been allocating away from equities and into bonds as well as cash

I

II

Investors Have Plowed Money into Bonds

…And into Cash

1,600

Stocks

Bonds

1,400

1,200

III

1,200

1,000

1,000

800

800

600

IV

600

400

($ billions)

($ billions)

400

200

200

Cumulative Fund Flow

V

0

Retail Money Market Funds

0

Jun-17

Jun-18

Jun-19

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Mar-17

Mar-18

Mar-19

Dec-16

Dec-17

Dec-18

Dec-19

Sep-17

Sep-18

Sep-19

VI

Source: Morningstar, Investment Company Institute, Alger. Bond flows include taxable and municipals and stock flows include U.S. equity and international equity—all include passive and ETF flows.

17

IV

Putting More Cash in Your Pocket Lending vs. Owning

• Equity dividend yields are nearly as high as 10-year Treasury yields, while stocks are likely to distribute much more cash to investors over time ‒ Over 10-year periods in the past half century, the S&P 500 dividend has grown an average of nearly 6% annually or over 70%, while a Treasury bond coupon does not grow

I

II

Similar Yields…

…But Stock Dividends Can Grow!

S&P 500 Div Yield 10-Yr Treasury Yield

S&P 500 Dividend Treasury Bond Coupon

III

10% 12% 14% 16%

10%

8%

6%

IV

0% 2% 4% 6% 8%

4%

2%

0%

V

-2%

Rolling 10-Yr Annual Growth

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

2018

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

2018

VI

Source: FactSet, Robert Shiller, Alger.

18

IV

Searching for Yield Lending vs. Owning

• Stocks’ total “yield,” which accounts for all of the cash that companies “return” to investors and comprises dividends plus share repurchases, is attractive relative to bonds and particularly compelling relative to history

I

II

Total Equity “Yield”

S&P 500 Total “Yield” Less BAA Bond Yield

2%

5.1%

Total

III

0%

1.8%

Dividends

-2%

IV

-4%

Repurchases

-6%

3.4%

V

-8%

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

S&P 500

VI

Source: FactSet and Alger as of December 2019. Bloomberg Barclays U.S. Aggregate Bond.

19

IV

An Easy Choice? Lending vs. Owning

• Investors are paying a big premium 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 grown an average of nearly 7% annually, or over 90%, while a Treasury bond coupon does not grow

I

II

Stock P/E Is Attractive Relative to Treasuries…

…And Equity EPS Can Grow!

S&P 500 P/E 10-Yr Treasury "P/E"

S&P 500 EPS Treasury Bond Coupon

III

60x

12%

10%

50x

8%

40x

IV

6%

30x

4%

20x

2%

10x

0%

V

0x

-2%

Rolling 10-Yr Annual Growth

1970

1977

1984

1991

1998

2005

2012

2019

1970

1977

1984

1991

1998

2005

2012

2019

VI

Source: FactSet, Robert Shiller, Alger. Notes: periods used were annual. Treasury “P/E” is inverse of yield to maturity. Earnings per share (EPS) is the portion of a company's earnings or profit allocated to each share of common stock.

20

IV

Many Happy Returns? Lending vs. Owning

• There is a strong relationship between starting valuation and ensuing 10-year returns for both stocks and bonds

I

‒ Current valuations suggest equities should outperform bonds over the coming decade

II

Treasury Bond Yield vs. U.S. Aggregate Bond 10-Year Returns

S&P 500 P/E vs. 10-Year Returns

12%

25%

= month

III

R² = 0.91

R² = 0.84

= current

10%

20%

8%

15%

6%

10%

IV

4%

5%

2%

0%

0%

V

-5%

1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

Bloomberg Barclays U.S. Aggregate Bond 10-Year Annualized Return

5x

10x

15x

20x

25x

30x

S&P 500 10-Year Annualized Return

S&P 500 Price/Earnings

10-Year Treasury Bond Yield

Source: FactSet. Each dot represents the P/E during that month and the returns generated over the subsequent 10 years. The starting P/E ratio is the price divided by the next 12- month earnings per share estimate at the start of each 10-year period measured. Monthly data through December 2019 and beginning in January 1986. 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

21

V

Global Easing Economic Outlook

• Central banks loosened monetary policy in 2019, which should increase activity in 2020

I

‒ Interest rate sensitive areas of the economy such as housing are already getting a boost

II

Global Monetary Policy Tracker

10

8

Tightening

6

III

4

2

Global tightening has given way to global easing

0

IV

-2

-4

(Easing) Index

-6

Easing

Net Global Tightening /

-8

V

-10

2015

2016

2017

2018

2019

2020

VI

Source: Council on Foreign Relations. Global Monetary Policy Tracker compiles data from 54 countries to highlight significant global trends in monetary policy. The index ranges from -10, which indicates that all countries are easing, to 10, which indicates that all are tightening. Index weighted by share of global foreign exchange reserves.

22

V

Confidence Game Economic Outlook

• Economic and policy uncertainty may have peaked given recent events

I

• This is reflected in declining credit spreads and expectations for credit, which indicate business spending should accelerate

II

Credit Outlook Has Improved…

…Which May Boost Capital Expenditures

0

1%

10%

III

-1

8%

-2

Corporate Capex

2%

6%

-3

-4

IV

4%

-5

3%

2%

Credit Spreads

-6

?

0%

-7

V

4%

-2%

-8

Expected Credit Conditions

2013

2014

2015

2016

2017

2018

2019

2020

2017

2018

2019

2020

VI

Source: National Federation of Independent Business, Bureau of Economic Analysis, and FactSet. Expected Credit Conditions is based on a survey of small and independent business owners and reflects financing availability. Capex growth is U.S. real nonresidential gross private domestic investment.

23

V

Not Bogged Down Economic Outlook

• Despite higher levels of debt as a % of GDP, the U.S. non-financial private sector debt service ratio is much lower than in the past two recessions

I

II

U.S. Debt Service Ratio

20%

Debt service ratio indicates households and corporations are not burdened by debt payments

III

18%

16%

IV

14%

V

12%

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

VI

Source: Bank for International Settlements, December 2019. Debt Service Ratio is the share of income used for interest payments and amortizations in the non-financial private sector. Shaded regions indicate recessions.

24

VI

Cheaper Than You Think Valuation

I • 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

II

Equity Risk Premiums Show Stocks Are Inexpensive

US World

III

0% 1% 2% 3% 4% 5% 6% 7% 8% 9%

Cheaper

IV

More Expensive

V

Estimated Equity Risk Premium

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

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%).

25

VI

More Than Meets the Eye Valuation

• The stock market looks cheaper on free cash flow than earnings

I

‒ Companies’ increasing reliance on intangible assets that are expensed rather than capitalized has depressed earnings relative to free cash flow

II

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

III

17%

IV

-2%

V

Price-to-Earnings

Price-to-Free Cash Flow

VI

Source: FactSet as of 12/31/2019. Note: Price-to-earnings is 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.

26

VI

Higher Than Average But Not Expensive Valuation

• Price-to-earnings multiples are moderately above their historical average

I

‒ Reasonable relative to low interest rates and improved free cash flow generation

Price-to-Earnings Multiple +/- 2 Standard Deviations from 20-Year Average

= current

II

= +2 std dev

25x

= average

= -2 std dev

20x

III

EM is least expensive in absolute terms while

15x

EAFE is cheapest relative to history

IV

10x

5x

S&P 500 MSCI AC World MSCI EAFE MSCI EM

V

Z-Score (Standard Deviations Above/Below Mean)

1.0

0.6

0.1

1.4

Source: FactSet. Monthly estimates over past 20 years ending 12/31/19. MSCI AC World represents developed and emerging markets globally. MSCI EAFE represents developed countries in Europe, Australasia and the Far East. MSCI EM represents emerging markets globally. A Z-Score is the number of standard deviations a data point is from the mean. If a z-score is equal to zero, it is on the mean. If a z-score is equal to +1, it is 1 standard deviation above the mean. Standard deviation measures how much the data has deviated from its average. If data has a high standard deviation, there is large deviation from its mean, and vice versa. Standard deviation is generally used to compare the relative volatility of data sets.

VI

27

VI

Smaller Capitalization Stocks Look Attractive Valuation

• Compelling valuation : Small cap P/E multiple premium is low relative to history

I

• Stronger fundamentals : Small caps are expected to grow much faster than large caps

• More levered to domestic economy : U.S. small caps have less exposure to international economies

II

Price-to-Earnings Russell 2000 / Russell 1000

Estimated Long-Term EPS Growth

60%

14%

III

50%

11%

40%

30%

IV

Median

20%

10%

0%

V

Russell 2000

Russell 1000

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

VI

Source: FactSet. EPS are consensus estimates and actual earnings per share might be materially different than shown.

28

Disclosure

The views expressed are the views of Fred Alger Management, LLC (“FAM”) and Alger Management Ltd. (together with their affiliated entities “Alger”) as of January 2020. Alger has used sources of information which it believes to be reliable; however, this publication is not intended to be and does not constitute investment advice. 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 Alger. 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. 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 Investors: The distribution of this material in the United Kingdom is restricted by law. Accordingly, this material is provided only for and is directed only at persons in the United Kingdom reasonably believed to be of a kind to whom such promotions may be communicated by an unauthorized person pursuant to an exemption under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”). Such persons include: (a) persons having professional experience in matters relating to investments and (b) high net worth bodies corporate, partnerships, unincorporated associations, trusts, etc. falling within Article 49 of the FPO. Most of the rules made under the FSMA for the protection of retail clients do not apply, and compensation under the United Kingdom Financial Services Compensation Scheme will not be available. 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.

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

29

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 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 1000 Index is a stock market index that tracks the highest-ranking 1,000 stocks in the Russell 3000 Index, which represent about 90% of the total market capitalization of that index. 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 Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. 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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