Capital Markets: Observations & Insights

Capital Markets: Observations and Insights Party Without the Punch? Spring 2018

Party Without the Punch?

In what is a long-standing analogy, the Fed provides the punch at the economic party to keep executives and investors happy, but when the Fed raises interest rates and takes away the proverbial punchbowl, the party becomes much less fun (and profitable). After many years of economic expansion, short-term interest rates around the world are now rising. In addition, global central bank balance sheets are likely to peak in the next year and then begin to contract. As interest rates rise, there will likely be broad implications for asset classes as well as specific sectors and securities. In mid-2016, amid the craze for income-generating investments, we asked whether investors were “ Searching for Yield and Asking for Trouble ?” in our capital markets update. Since then, bond-like equity sectors such as telecommunications and real estate have generated negative returns, dramatically underperforming the broader market. Now, the press is full of headlines regarding the outlook for interest rates and their impact. In our view, there is too much fear from an equity perspective and not enough anxiety in bonds and real estate. So how will this tightening cycle play out? How do you have fun at a party where the punch is being removed? On the pages that follow we’ll try and answer those questions, but in short, our view is don’t party too hard and aim to have fun at either a lively shindig or a quiet get-together. In investing, that means focusing on innovation rather than the economic cycle.

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

Brad Neuman, CFA Senior Vice President Client Investment Strategist

Page 1

Key Observations

• Monetary conditions are tightening but stocks and the economy should be able to absorb moderate increases in interest rates • Business spending has begun to accelerate and outpace the broader economy, driven by strong earnings growth, tax reform, solid business confidence, and accommodative lending conditions • Leading indicators suggest the economy will continue to expand and corporate profits will continue to rise

Table of Contents

Party Without the Punch?

Pages 3-10

Performance

Pages 11-16

Fundamentals

Pages 17-23

Valuation

Pages 24-27

Page 2

Tightening Underway ​ Party Without the Punch?

• As the Federal Reserve normalizes policy… • …It is driving short-term interest rates higher

• This is largely a worldwide phenomenon…

• ...Because of the interconnectedness of the global economies

U.S. 2-Year Treasury Yield

G7 + China 2-Year Government Yield Year-over-Year Change

2.5%

120

2.0%

80

40

1.5%

0

1.0%

-40

Basis Points

0.5%

-80

-120

0.0%

Italy

U.S.

U.K.

China

Japan

Jul-16

Jul-17

France

Jan-17

Jan-18

Mar-16

Mar-17

Mar-18

Nov-16

Nov-17

Sep-16

Sep-17

May-16

May-17

Canada

Germany

Source: FactSet as of 3/29/18.

Page 3

Party Without the Punch?

Interest Rate Tailwinds

• Global central banks are moving from monetary stimulus and quantitative easing (i.e., bond buying) to monetary tightening and fiscal stimulus (i.e., bond selling/issuance) • Inflation is rising as the economy is now operating above its potential (i.e., tight asset/labor utilization)

Central Bank Balance Sheets (U.S., ECB, BOJ)

16

30%

14

25%

Year-over-Year Change

12

20%

Central banks are ending extremely accommodative policy

10

15%

8

10%

$ Trillions

6

5%

4

0%

2

0

-5%

2011

2012

2013

2014

2015

2016

2017

2018E

2019E

Source: Evercore ISI as of March 2018.

Page 4

Addressing Rising Rate Concerns – Valuation ​ Party Without the Punch?

• Concern: will rising interest rates weigh on P/E multiples?

• Our take: P/Es never priced in how low interest rates had become (see gap below) so we believe earnings multiples may not suffer when rates rise

S&P 500 EPS Yield

Treasury Bond Yield

16%

14%

Interest rates can rise without impact on stock valuations

12%

10%

8%

6%

>300 bps

4%

2%

0%

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Source: FactSet, Federal Reserve, and S&P, as of 3/31/18.

Page 5

Addressing Rising Rate Concerns – Economic Growth ​ Party Without the Punch?

• Concern: will rising interest rates slow economic growth?

• Our take: the Fed is tightening slowly (approximately 75bps per year) and given the impact shown below, the economy can likely absorb modest increases in interest rates like those we have experienced

Estimated Impact of 100bps Increase in the Federal Funds Rate

Modest increases in interest rates are manageable and unlikely to result in recession

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

U.S. Real GDP Growth

0.0%

1

2

3

4

5

6

7

8

9

Months After Increase

Source: Current real GDP growth is based on 2018 FactSet consensus. Effect of 100bps increase in Fed Funds rate is based on output gap impact shown in FRB/US Model (November 2014 VAR version).

Page 6

Fed Tightening Not That Scary ​ Party Without the Punch?

• The stock market has historically risen with the Federal Funds rate

S&P 500

Fed Funds Increase

130

3.5

Cumulative Percentage Point Increase

3.0

In the past several tightening periods, stocks have actually increased alongside the Fed Funds rate

120

2.5

2.0

110

1.5

1.0

100

0.5

Total Return Indexed to 100

90

-

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

Months of Tightening Cycle

Source: FactSet. Monthly average of past two-year tightening cycles beginning in January 1994, May 1999 and May 2004. S&P 500 is based on total return.

Page 7

Different Performance Regime Party Without the Punch?

• What worked in a falling rate environment may not work going forward

Rising vs. Falling Rate Environments Annual Real Returns 1955-2017

Stocks Bonds

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

6.2%

5.8%

5.2%

Asset allocation is more important when rates are rising

-4% -3% -2% -1%

Average Annual Return

-2.7%

Falling Fed Funds Rates

Rising Fed Funds Rates

Source: FactSet and Aswath Damodaran. “Stocks” is the S&P 500. “Bonds” is the constant maturity U.S. 10-year Treasury bond return. Real return is calculated as nominal less 3 month U.S. T-bill return annually. Return over the period is calculated using a simple average of annual returns.

Page 8

​ Party Without the Punch?

Innovation Grows Through Downturns

• If the global economy does ultimately weaken as a result of prolonged interest rate increases… • …Invest with a focus on innovation because it has outpaced difficult economic environments

Innovative Areas of the Economy Outperformed Even in the Global Financial Crisis

U.S. Internet Ad Revenue U.S. E-Commerce U.S. Total Retail Sales

140

+33%

130

Innovation Outperforms

120

110

100

+1%

90

80

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Source: FactSet.

Page 9

​ Party Without the Punch?

Innovative Companies Often Outperform

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

Innovation Drives Outperformance

600

Most Innovative +17.4% / year

500

400

300

Least Innovative +8.7% / year

200

100

-

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Source: FactSet. Most/least innovative stock 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 January 31, 2018. * Baruch Lev and Suresh Radhakrishnan, “The Stock Market Valuation of R&D Leaders.”

Page 10

Tech Leads Again ​ Performance

• Technology’s outperformance in 1Q18 was due to solid fundamentals as the sector had a very strong earnings season with the best revenue results relative to expectations*

1Q18 Returns (%)

2017 Returns (%)

U.S.

World

U.S.

World

50

4

40

2

30

0

-2

20

-4

10

-6

0

-8

-10

Energy

Utilities

Energy

Utilities

Telecom

Materials

Telecom

Materials

Financials

Industrials

Financials

Industrials

Technology

Real Estate

Health Care

Technology

Real Estate

Health Care

Consumer Staples

Consumer Staples

Consumer Discretionary

Consumer Discretionary

Source: FactSet as of 3/31/18. U.S. represented by S&P 500 and World represented by MSCI AC World Index in local currency.*For the 4Q17 earnings season reported in 1Q18 based on the percentage of companies exceeding estimates.

Page 11

Yield Punished ​ Performance

• In 1Q18, rising interest rates continued to put pressure on high dividend yielding stocks, driving underperformance of that factor

2017 Excess Return (%)

1Q18 Excess Return (%)

2.6

1.1 1.0

0.1 0.1 0.1 0.0

-0.1 -0.3 -0.5 -0.6 -0.7 -0.7

-0.3

-0.7

-1.2

-1.6 -1.8 -1.9

-1.7

-3.5

-4.0

Market Cap

Book / Price

EPS Growth

Debt / Equity

Price Volatility

Dividend Yield

Market Cap

Trading Activity

Book / Price

Earnings / Price

Revenue / Price

EPS Growth

Debt / Equity

Relative Strength

Price Volatility

Dividend Yield

Trading Activity

Earnings Variability

Earnings / Price

Revenue / Price

Relative Strength

Earnings Variability

Source: FactSet as of 3/31/18 using Northfield defined quantitative factors for the Northfield broad U.S. market database.

Page 12

The Earnings Growth Explosion Is Driving Performance ​ Performance

Total Return = Dividend Yield + EPS Growth +/- P/E Change

MSCI All Country World Index ex-USA

S&P 500

Dividend

EPS Growth*

P/E Change

Dividend

EPS Growth*

P/E Change

25%

20%

20%

15%

15%

10%

10%

5%

5%

0%

EPS Growth Explosion

0%

-5%

EPS Growth Explosion

-5%

-10%

-10%

-15%

-15%

-20%

Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

12- Month Total Return:

12- Month Total Return:

9%

14%

22%

13%

2%

17%

14%

-4%

13%

13%

16%

-10%

18%

9%

Source: FactSet as of 3/31/18. *Based on consensus estimates of next 12-month EPS. Actual earnings per share might be materially different than shown. MSCI ACWI ex-US performance based on local currency.

Page 13

​ Performance

Bull Market Is Aging Well

• Bull markets have been getting longer over time

‒ Factors prolonging economic expansions include: increased fiscal and monetary intervention, structural changes in the economy, and technological advances, such as improved inventory management

‒ The current bull market is three-and-a-quarter years younger than the ‘90s bull market

14

2010-Current Average: ?? Years

12

1980-2010 Average: 7.2 Years

10

1950-1980 Average: 4.3 Years

Current Bull Market (ongoing)

8

1930-1950 Average: 1.7 Years

6

4

2

Duration of Bull Market (Years)

0

1932

1943

1954

1965

1976

1987

1998

2009

2020

Year that Bull Market Ended

Source: FactSet and Goldman Sachs as of 3/31/18. Bull markets over six months in duration since 1930. Line is based on linear regression of displayed data points.

Page 14

​ Performance

Has Active Relative Performance Troughed?

• As some of those factors reverse, active management has been doing better ‒ Interest rates no longer declining/bond- like equities not outperforming ‒ Non-U.S. stocks have fared better ‒ Small caps beginning to recover ‒ Market performance more subdued

• Powerful cyclical factors impact U.S. active relative performance: ‒ Interest rates/bond-like equities ‒ Non-U.S. stock performance ‒ Small cap performance ‒ Overall market performance

% of U.S. Large Cap Active Managers Outperforming

Active Relative Performance Is Cyclical

100%

80%

57.4%

53.8%

60%

40%

20% % of Fund Assets Outperforming

0%

Last 12 Months

YTD

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

2018

Source: Left chart: Nomura/Instinet, Joseph Mezrich and FactSet through 3/31/18. Fund performance is trailing five-year data of U.S. active equity mutual funds in existence for 5 years or more and part of the growth, growth & income, and income categories based on CRSP codes. Right chart: Bank of America Merrill Lynch U.S. Equity and U.S. Quant Strategy using Lipper data relative to Russell benchmarks through 3/31/18.

Page 15

​ Performance

Structural Issues Driving Growth vs. Value

• Growth stocks have dramatically outperformed (+38%) Value stocks over the past decade

• The culprit for value investors has been the very weak performance of buying low P/B stocks, while P/E strategies have fared much better • Book value, used heavily in index classification of Growth vs. Value, may no longer be as relevant given changing business models, e.g., R&D is not capitalized in book value

110

P/E

100

P/B, not P/E, has driven Value underperformance

90

80

P/B Russell 1000 Value / Growth

70

60

50 Total Return Index

40

2008

2010

2012

2014

2016

2018

Source: FactSet as of 3/31/18. Price-to-earnings and price-to-book returns are based on the E/P and B/P Northfield factors for the Northfield broad U.S. market database.

Page 16

​ Fundamentals

Leading Indicators Suggest Continued Expansion

• The LEI historically leads S&P 500 EPS by 6-18 months

• Typically the Leading Economic Index (LEI) expands by a double-digit percentage peak-to-peak • Using the average of the past three periods implies a peak in late 2019

• The record LEI reading in 1Q18 suggests EPS have room to run

Recession LEI

Peak

110

120

$170

Only 6%

12%

100

$150

100

36%

18 Month Lead

80

S&P 500 EPS

$130

18%

90

60

$110

40

$90

80

20

$70

Leading Economic Index

0

70

$50

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

2018

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Source: FactSet, Conference Board, Evercore ISI. EPS estimates based on next 12-months consensus.

Page 17

Business Spending to Accelerate Further ​ Fundamentals

• Drivers of faster corporate expenditures include:

‒ Strong profit growth

‒ Tax reform—lower statutory rates, foreign profit repatriation, accelerated depreciation

‒ Higher business confidence—driven in part by lower regulation and certainty on taxes

‒ Accommodative financial conditions—banks’ willingness to lend and low credit spreads

S&P 500 EPS

Business Spending

20%

An acceleration in earnings growth should help drive a double-digit increase in business spending

15%

Forecasted

10%

5%

0%

Year-Over-Year Change

-5%

2011

2012

2013

2014

2015

2016

2017

2018E

Source: FactSet. Business spending is U.S. private fixed nonresidential investment with an estimate for 2018 based on a regression with S&P 500 EPS. S&P 500 EPS 2018 estimate based on consensus.

Page 18

​ Fundamentals

Economic Outlook

Tailwinds

• Robust corporate profits

• Strong business and consumer confidence

• Strengthening corporate spending

• Solid U.S. consumer balance sheet

Headwinds

• Tightening monetary policy

• Rising U.S. labor costs

• Potential trade war

• China growth slowdown

• Geopolitical risk

Page 19

Monetary Policy Is Not Restrictive ​ Fundamentals

• Over the past half century, every U.S. recession has been preceded by a significantly positive real Federal Funds rate of 2% or higher

• In contrast, today we have a real Fed Funds rate of about 0%

Real Federal Funds Rate Prior to U.S. Recessions

10%

5%

Today real short-term interest rates are far

4%

4%

4%

3%

3%

2%

lower than what induced previous recessions

2%

0%

Source: FactSet as of March 2018. Inflation represented by PCE Price Index ex-food and energy (year over year). Nominal Federal Funds rate is average of 3 months prior to recession. Horizontal axis labels denote recession periods.

Page 20

Tariffs Likely to Create Opportunity ​ Fundamentals

• Proposed tariffs are manageable

‒ While market sentiment is likely to be impacted, history suggests the long-term outcome will be better than the current bluster implies, due to negotiation and flexible supply chains that can often adjust with minimal impact

• Tariffs will create winners and losers that necessitates active management

‒ U.S. Chicken Tax of 1963, which taxed imported light trucks, hurt international auto manufactures and drove American companies’ dominant share in pickup trucks

China Trade Comparison to Global GDP

$79 Trillion

China - U.S. bilateral trade is only 0.8% of global economy

$506 Billion

$130 Billion

Global GDP U.S. Imports from China U.S. Exports to China

Source: IMF World Economic Outlook, U.S. Census Bureau, FactSet. Data is for 2017.

Page 21

Smaller Capitalization Stocks Poised to Outperform ​ Fundamentals

• Stronger fundamentals : Estimated small cap EPS growth for ‘18 & ‘19 is double that of large cap

• More levered domestic economy : Small caps are more U.S.-oriented, have less exposure to international trade, and have higher operating leverage • Rising interest rates : Small caps have historically outperformed large caps in rising rate environments

• Attractive valuation : Small cap sales multiple discount implies opportunity

Earnings Per Share

Enterprise Value/Sales Russell 2000 / Russell 1000

0%

R2000 R1000

180

Historically Large Discount

-10%

Small Caps Growing Faster

160

-20%

140

-30%

Average

120

EPS Indexed to 100

-40%

100

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2017

2018

2019

Source: FactSet as of March 2018. EPS for 2018-2019 are consensus estimates and actual earnings per share might be materially different than shown.

Page 22

​ Fundamentals

The Growth Advantage

• Three variables drive P/E multiples: growth, returns, and risk

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

Stronger Growth

Higher Returns

Lower Risk

R1000G R1000V

R1000G R1000V

R1000G R1000V

2.5x

24.9%

15.4%

9.6%

1.3x

10.6%

Long-Term EPS Growth

Return on Equity

Net Debt / EBITDA

Source: FactSet as of 3/31/18. Growth represents consensus long-term analyst estimates, and actual future EPS growth rates might be materially different than the forecasts shown.

Page 23

Not All Sectors Are Expensive ​ Valuation

• Growth-oriented sectors are attractively valued compared to history, particularly given low levels of interest rates, in contrast to many other sectors

P/E Relative to 20-Year Median

18%

12%

Attractively valued

12%

6%

4%

3%

2%

-3%

-7%

Utilities

Materials

Financials

Industrials

Technology

Health Care

Real Estate

Cons. Staples

Cons. Discretionary

Source: FactSet, based on S&P 500 Index, 3/31/18. Note: energy and telecom are excluded; the former because of an extremely high P/E due to depressed earnings and the latter owing to a small number of constituents. Real estate is a new sector classification, so for the historical data shown above, the industry group category that has nearly17 years of data was utilized.

Page 24

Growth Valuations Are Reasonable Valuation

• Despite their recent outperformance, Growth stocks remain reasonably valued compared to Value stocks, relative to history and their respective growth rates

Russell 1000 Growth vs. Russell 1000 Value PEG Ratio (P/E Divided by Long-Term Growth Rate)

Russell 1000 Growth Relative to Russell 1000 Value P/E

1.5x

37% premium is reasonable relative to history

1.3x

Median

Russell 1000 Value

Russell 1000 Growth

Source: FactSet, Bank of America as of 3/31/18.

Page 25

Global Multiples High but Not Relative to Interest Rates ​ Valuation

• Price-to-earnings multiples around the world are moderately high relative to history at nearly one standard deviation above their average ‒ Drivers of higher multiples relative to history include lower than average bond yields and a measurement period depressed by the aftermath of the Global Financial Crisis

= current

Price-to-Earnings Multiple +/- 2 Standard Deviations from 15-Year Average

= +2 std dev

20x

= average

= -2 std dev

15x

EM is least expensive in

10x

absolute terms while EAFE is cheapest relative to history

5x

S&P 500 MSCI AC World MSCI EAFE MSCI EM

Z-Score (Standard Deviations Above/Below Mean)

1.0

0.7

0.3

0.7

Source: FactSet. Monthly estimates over past 15 years, ending 3/31/18.

Page 26

​ Valuation The Single Greatest Predictor of Future Stock Market Returns

• There is a strong relationship between starting valuations and ensuing 10-year returns

• Current valuations suggest equities, particularly growth stocks, should materially outperform bonds over the coming decade

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

Russell 1000 Growth P/E vs. 10-Year Returns

= month

= current

peak of tech bubble

25%

25%

R² = 0.79 (0.85 ex-tech bubble)

R² = 0.85

20%

20%

15%

15%

10%

10%

5%

5%

0%

0%

-5%

-5%

-10%

-10%

5

10

15

20

25

30

5

10

15

20

25

S&P 500 10-Year Annualized Return

Russell 1000G 10-Year Annualized Return

Russell 1000 Growth Price/Earnings

S&P 500 Price/Earnings

Source: FactSet. Monthly data through March 2018 and beginning in January 1986 (S&P 500) and December 1978 (Russell 1000 Growth). The tech bubble, represented by the 10- year returns beginning in April 1987-March 1990 and ending in April 1997- March 2000, skewed the regression by resulting in higher returns for given valuations than the historical relationship would imply.

Page 27

Disclosure ​The views expressed are the views of Fred Alger Management, Inc. as of March 2018. 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 Fred Alger Management, Inc. These views should not be considered a recommendation to purchase or sell securities. Individual securities or industries/sectors mentioned, if any, should be considered in the context of an overall portfolio and therefore reference to them should not be construed as a recommendation or offer to purchase or sell securities. References to or implications regarding the performance of an individual security or group of securities are not intended as an indication of the characteristics or performance of any specific sector, industry, security, group of securities, or a portfolio and are for illustrative purposes only.

​ Risk Disclosures : Investing in the stock market involves gains and losses and may not be suitable for all investors. Growth stocks tend to be more volatile than other stocks as the prices of growth stocks tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political and economic developments.

​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 2000 Growth Index is an unmanaged index generally representative of common stocks designed to track performance of small- capitalization companies with greater than average growth orientation. The Russell 2000 Value Index is an unmanaged index generally representative of the small-cap value segment of the U.S. equity universe and measures the performance of Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 3000® Growth Index is an unmanaged index designed to measure the performance of those Russell 3000® Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 3000 Value Index is an unmanaged index generally representative of stocks from the Russell 3000 Index with lower price-to-book ratios and lower expected growth rates. The MSCI ACWI Index (gross) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 45 country indices comprising 24 developed and 21 emerging market country indices. The MSCI ACWI ex USA Index (gross) captures large and mid cap representation across 23 of 24 Developed Markets (DM) countries excluding the US) and 23 Emerging Markets (EM) countries. The index covers approximately 85% of the global equity opportunity set outside the US. 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, Inc. 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. ​ ALCAPPRESSPR-0418 Fred Alger Management, Inc. • 360 Park Avenue South, New York, NY 10010 • 800.992.3863 • www.alger.com Page 28

Definitions

​ Earnings per share (EPS) is the monetary value of earnings per outstanding share of common stock for a company.

​ Price-Earnings ratio (P/E) is the ratio for valuing a company that measures its current share price relative to its per-share earnings.

​ Price-Book ratio (P/B) is a ratio used to compare a stock's market value to its book value. It is calculated by dividing the price of the stock by the book value per share.

​ Book value of an asset is the value at which the asset is carried on a balance sheet and calculated by taking the cost of an asset minus the accumulated depreciation.

​ Real Federal Funds rate refers to the current U.S. Federal Funds rate less inflation.

​ Enterprise Value/Sales is a financial ratio that compares the total value (as measured by enterprise value) of the company to its sales.

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

Page 29

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Page 30