How to Manage Coronavirus Fears

COMMENTARY 3/4

Embracing a Long-Term Perspective During uncertain times, investors’ emotional selling of equities can extend to the shares of even the strongest corporations. When viewed over short periods, such market selloffs can appear disconcerting, but we believe investors should assess volatility by looking at long-term periods. Standard deviation explains this point. For investors, the statistic measures the historical variation, or range of outcomes, that have occurred in performance. It includes both negative and positive returns. For one-year intervals, the standard deviation of the S&P 500 Index during the past 70 years is nearly three times the standard deviation of bonds as measured by the Ibbotson U.S. Intermediate Government Bond Index. Equity volatility is much lower, however, when viewed over longer timeframes. For 20-year rolling periods, the standard deviation of the S&P 500 is nearly comparable to that of the bond index. Additionally, stocks have outperformed bonds in every 20-year rolling period during the past 70 years (See Figure 3).

... stocks have outperformed bonds in every 20-year rolling period during the past 70 years.

The Road Ahead During our more than 55 years of investing in growth equities, our firm has navigated seven recessions and countless crises, including the U.S.-China trade conflict, the Global Financial Crisis, the dot.com bubble burst and the Asian Financial Crisis. Throughout these events, equities, and in particular, equities of innovative companies that aggressively capture market share and maintain strong balance sheets, have been highly resilient. While the past is no guarantee of future performance, we believe that high- quality companies with characteristics that can support durable earnings growth can potentially reward investors. At Alger, we will continue to use our time-tested approach to seek companies that we believe are best positioned for uncertain times.

Figure 3 Holding Period Length is Important

Proportion of Time that Stocks Outperformed Bonds

100%

82%

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

Brad Neuman, CFA Senior Vice President Director of Market Strategy

74%

67%

1 Year

5 Years

10 Years

20 Years

Source: Morningstar and Alger. Stocks are represented by the S&P 500 and bonds are the Ibbotson Intermediate-Term Government Bond Index. Performance is based on rolling returns from annual data.

Performance of Low P/E Stocks Relative to Broad Market

Performance of Low P/B Stocks Relative to Broad Market