How Top Fund Seeks Growth Stocks Whose Upside Is Underappreciated

VOL. 36, NO. 24

W W W . I N V E S T O R S . C O M

WEEK OF SEPTEMBER 23, 2019

FUNDS & PERSONAL FINANCE

MUTUAL FUND PROFILE How Top Fund Seeks Growth Stocks Whose Upside Is Underappreciated

year going into Thursday vs. 21.71% for the big-cap bogey and 22.68% for its large-cap growth fund rivals tracked by Morningstar Direct. With such a widely followed growth stock, for example, what have other investors overlooked or underestimated? “Apple has struggled a little bit in terms of their net market share in the market, in part because they are addressing a more affluent buyer,” Crawford said. “But what is underappreciated by the market, we believe, is the way that they monetize each user that is in the Apple ecosystem, through services.” Crawford added, “We’ve always thought that Apple is actually more of a software company than a hardware company. And that’s how people should think of it.” Services now bring in about 20% of Apple’s revenue, she says. And services account for 30% to 40% of earnings. Crawford said, “As they continue to monetize each of their users in the installed base, the earnings stream becomes less dependent on new-hardware cycles and more dependent on penetration of services.” Steadier Than Hardware Crawford and Kelly expect services to prove to be steadier sources of revenues and earnings than hardware. As the broad market comes around to that view, Apple stock should rise, Crawford says. Still, introductions of new

Historically Innovative Era What these fund managers

say they know about Apple that’s special

BY PAUL KATZEFF INVESTOR’S BUSINESS DAILY

We live in a promising era for growth stocks. “We are in the early days of one of the most innovative times in history,” said Patrick Kelly, who runs the $559 million Alger Focus Equity Fund ALGRX . The fund’s bets on innovation are reflected in holdings of leading growth stocks like Apple AAPL , Carvana CVNA , Visa V and PayPal Holdings PYPL . Kelly and colleague Ankur Crawford hunt for innovative growth companies undergoing what they call positive dynamic change. “Those companies offer the best investment opportunities,” Kelly said. “One of the reasons why is that (many other investors) often underestimate the change that is occurring.” Kelly and Crawford aim to catch innovations they say are leading us into a futuristic world. Their approach has paid off. The fund is a 2019 IBD Best Mutual Funds Award winner by virtue of outperforming the S&P 500 in 2018 and in the three, five and 10 years ended last Dec. 31. And the fund is aiming for a repeat performance this year. It has gained 23.33% this

business sell used cars online? Carvana does that by offering more data about each car than a buyer could learn by kicking its tires, Kelly says. Also, Carvana aims to provide the ease of mind that buyers seek by offering a seven-day money- back guarantee. And Carvana offers a 100-day or 4,189-mile limited warranty. At the same time, you can sell your old car to Carvana. Still, for many investors, Carvana’s story is more about future promise. As a publicly traded stock, it has yet to post

hardware should also provide a boost. She expects to see that from the introduction of a new 5G iPhone in 2020 or 2021. “So we think they’re kind of underearning right now,” Crawford said. Kelly says services can make Apple hardware less likely to lose users. “The Apple phone has all of (a user’s) apps and so forth,” he said. “So it’s not easy to switch from an Apple phone to another one.” And what about the used- car business of Carvana is innovative? And how does a

WEEK OF SEPTEMBER 23, 2019

INVESTORS.COM

merchants. Overall, Crawford and Kelly like the multiplicity of ways that PayPal can grow. She said, “We think they can maintain a high- teens revenue growth rate.”

everything it can from Venmo, its people-to-people payments network, Crawford says. She adds that PayPal is still exploring ways to monetize Venmo’s network of users with

merchants that use PayPal, those are two times greater than other payment platforms’. And PayPal hasn’t fully monetized that capability yet.” Nor has PayPal milked

an annual profit. And what makes PayPal attractive? “We think that PayPal has underappreciated pricing power,” Crawford said. “It comes from conversion rates. For

Posted with permission from Investor’s Business Daily, Inc. Copyright © 2019 All rights reserved. C101611 Managed by The YGS Group, 800.290.5460. For more information visit www.theYGSgroup.com.

This article reprint, originally published by Investor’s Business Daily on September 20, 2019, is considered sales literature for the Alger funds mentioned only and not for any other products shown. Please note that Investor’s Business Daily is an independent publication and the performance and ratings cited in the article do not represent the experience of any individual investor. For the period ending June 30, 2019, the Alger Focus Equity Fund (the “Fund”) returned the following:

Average Annual Total Returns (%) (as of 6/30/19) YTD

1 Year

3 Years

5 Years

10 Years

Since Inception

Class I (Incepted 11/8/93)

21.80

9.58

20.14

14.06

15.31

9.40

Russell 1000 Growth Index

21.49

11.56

18.07

13.39

16.28

9.59

TotalAnnual Operating Expenses by Class (Prospectus Dated 3/1/19)

I: 1.02% 0.89%

Fred Alger Management, LLC has contractually agreed to waive fees or to reimburse Fund expenses (excluding acquired fund fees and expenses, dividend expense on short sales, borrowing costs, interest, taxes, brokerage and extraordinary expenses) through February 28, 2021 to the extent necessary to limit the annual operating expenses of Class I to 0.89% of the class’s average daily net assets.This expense reimbursement may only be amended or terminated prior to its expiration date by agreement between Fred Alger Man- agement, LLC and the Fund’s Board of Trustees, and will terminate automatically in the event of termination of the Investment Advisory Agreement. Fred Alger Management, LLC may, during the first year of the expense reimbursement contract, recoup any expenses waived or reimbursed pursuant to the expense reimbursement contract to the extent that such recoupment would not cause the expense ratio to exceed the lesser of the stated limitation in effect at the time of (i) the waiver or reimbursement and (ii) the recoupment after the repayment of the recoupment is taken into account. Only periods greater than 12 months are annualized. Prior to December 31, 2012, the Fund followed a different investment strategy under the name“Alger Large Cap Growth Institutional Fund”and was managed by different portfolio managers. Prior to October 15, 2018, the Fund followed its current investment strategy, with the same portfolio managers, under the name“Alger Capital Appreciation Focus Fund.” Class I shares are an investment vehicle for institutional investors, such as corporations, foundations, and trusts managing various types of employee benefit plans, as well as charitable, religious, and educational institutions. Investors may purchase or redeem Class I shares through a financial intermediary.There are no sales charges on purchases or redemptions. The performance data quoted represents past performance, which is not an indication or a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Performance figures assume all distributions are reinvested. For performance current to the most recent month end, visit www.alger.com or call 800.992.3863. Risk Disclosures: Investing in the stock market involves 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.A significant portion of assets will be invested in technology companies, which may be significantly affected by competition, innovation, regulation, and product obsolescence, and may be more volatile than the securities of other companies.Assets may be focused in a small number of holdings, making them susceptible to risks associated with a single economic, political or regulatory event than a more diversified portfolio.Active trading may increase transaction costs, brokerage commissions, and taxes, which can lower the return on investment. The Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher growth earning potential as defined by Russell’s leading style methodology.The Russell 1000 Growth Index is constructed to provide a comprehensive and unbiased barometer for the large-cap growth segment. Investors cannot invest directly in any index. Index performance does not reflect deductions for fees, expenses or taxes. Note that comparing the performance to a different index might have materially different results than those shown.The performance data quoted represents past performance, which is not an indication or a guarantee of future results. As of June 30, 2019, the securities mentioned in this reprint represent the following as a percent of Alger’s assets under management: Visa Inc. 3.67%; Apple Inc. 2.15%; Paypal Holdings Inc. 1.27%; and Carvana Co. 0.03%. Before investing, carefully consider the Fund’s investment objective, risks, charges, and expenses. For a prospectus and summary prospectus containing this and other information, or for the Fund’s most recent month-end performance data, visit www.alger.com, call (800) 992-3863, or consult your financial advisor. Read the prospectus and summary prospectus carefully before investing. Distributor: Fred Alger & Company, LLC, Member NYSE Euronext, SIPC. NOT FDIC INSURED. NOT BANK GUARANTEED. MAY LOSE VALUE.

Fred Alger & Company, LLC 360 Park Avenue South, New York, NY 10010 / 800.992.3863 / www.alger.com

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