Large Cap Investing During Volatile Markets

Large Cap Investing During Volatile Markets


Large Cap Investing During Volatile Markets

PATRICK KELLY, CFA Executive Vice President Portfolio Manager Head of Alger Capital Appreciation and Spectra Strategies

Patrick Kelly and Ankur Crawford hosted a portfolio update for clients in the Alger Capital Appreciation, Spectra, and Focus Equity strategies. The call was hosted by Client Portfolio Manager Kevin Collins and to kick it off, Brad Neuman, CFA, the firm’s director of market strategy, shared his views on the markets and the economy.

Please note this transcript is from a call on April 1, 2020 and it has been edited for clarity and brevity.

Kevin Collins : Thank you for joining us today. I act as a liaison between our investment team and our clients. I've been with Alger for over 20 years and formerly ran our industrials research team, as well as managed two of Alger’s portfolios. Today I'm joined on the call by Patrick Kelly and Dr. Ankur Crawford. I've had the pleasure of working with Patrick for over 20 years and with Ankur for over 15 years. We've seen it all together: the tech bubble, 9/11, the Global Financial Crisis and now COVID-19. All of us started as young researchers at Alger in the internal analyst training program, learning to do proprietary research and detailed financial modeling in order to develop differentiated investment ideas. As Patrick and Ankur honed their craft of bottom up fundamental stock picking, they eventually became heads of our research department's tech team and at Alger that's a really big deal, because we love to invest in companies that are initiating or embracing change. We love Positive Dynamic Change and in the technology sector change is evergreen. Patrick and Ankur are now very experienced portfolio managers. Patrick assumed responsibilities for our large cap growth strategies in 2004; that was over 15 years ago. Ankur joined him at the helm as portfolio manager in 2015. On today's call, you'll hear how enthusiastic they are to associate you with dynamic change beneficiaries whose innovation advantage may help position the portfolios to triumph over economic volatility.

DR. ANKUR CRAWFORD Executive Vice President Portfolio Manager


Here's a maxim that Fred Alger and Dan Chung have taught Alger analysts. They say high quality companies benefit disproportionately in good times and in bad times. In today's volatile markets, we feel the quality of our portfolio holdings, particularly those innovators with unique intellectual properties or unique business models are ideally positioned to substantiate that Alger belief. In fact, if you listen carefully today, you might hear that the coronavirus could actually be accelerating the pace of innovative technological adoption in the economy today. Brad, would you like to make some comments on the macroeconomic environment? Brad Neuman : Thanks, Kevin, and good morning. I want to comment a little bit on what's happening in the economy and a perspective on the stock market, what we're seeing in terms of sentiment amongst investors and executives and what valuation looks like in the equity relative to interest rates in the bond market. So, first off, you know, it took us 16 days to enter a bear market in this period of a pandemic and that's faster than 1929. Peak to trough, the S&P 500 fell 34% and in our view, that prices in a recession. We say that because the average decline around recessions since World War II has been 22%. The peak lost wealth around the world is $30 trillion in market cap globally. Now, from those lows, we've bounced back about 10% or 12% and economic estimates have been pretty volatile. They've moved around and are now down about low to mid single digits in terms of GDP for the first quarter, expected to be down double digits in the second quarter, followed by a strong second half rebound beginning in Q3 or Q4. There's some good geographical and historical analogies for such a rebound. For instance, the last time that GDP was down double digits for a quarter, as it's projected to be in the second quarter of this year, was the first quarter of 1958, which happened to be during the Asian flu pandemic, which killed about 1.1 million people globally and 116,000 people in the United States. Interestingly, the next three quarters of GDP were up 3%, up 10%, and then up 10%. A geographical analog may come from China, which obviously is handling the virus somewhat differently but while those numbers showed a worse contraction in February than the Global Financial Crisis, numbers released this week for China show that

the economy is bouncing back and may indeed be growing in the near future.

In light of all this economic turmoil, the stimulus that the United States government and governments around the world is providing is very strong. Fiscal stimulus passed was over $2 trillion, which compares to the $800 billion in the Global Financial Crisis and in our view that $2 trillion could really be something more like $4 trillion once the Federal Reserve is done leveraging the funds that it receives from the Treasury. On the monetary side, the Fed is doing open ended quantitative easing, buying Treasuries, mortgage-backed securities, even corporate bonds and some ETFs. The pace of their buying is about–last week was $600 billion, which, to put it in context, is faster than the average they did per month during the Global Financial Crisis. So it's going to be a sharp downturn in the economy and some of the estimates for unemployment range into the double digits. That would be higher than what we saw in the Global Financial Crisis. In terms of duration, we're very focused on looking at the virus and the virus transmission rates to figure out how long this will last. Obviously, some eastern countries have already seen declines in transmission rates and now we're beginning to see the same thing in some western countries. In fact, Italy looks like its new cases peaked about March 21st and are now down. As of yesterday, new cases are down about 38% from that peak. When we look at the country curves, the U.S. appears to be about two weeks behind Italy. In terms of sentiment, obviously investors and market participants are extremely anxious. We measure that in a couple of different ways. One, we look at the VIX Index, which is the implied volatility on S&P 500 options, often called the “fear index.” That index recently hit a record high, even higher than during the Global Financial Crisis. We also look at money market funds, which are now over $4 trillion in the United States, up nearly 20% from last year, with the highest monthly inflow ever at $600 billion, which compares to the Global Financial Crisis' largest monthly inflows to money markets of less than $200 billion. So, extreme fear and liquidation of risky assets resulting in a massive buildup of cash.


We would contrast that with what we're seeing from executives. Insider buying, we're observing, has hit a record peaks across market caps, even higher than the Global Financial Crisis. And we'd also point out that historically the returns when the VIX has been over 40 have been quite strong; historically the one-year and the three-year returns when VIX has been over 40 has been 32% and 58% on average. In terms of valuation of the overall stock market, we like to look at the implied equity risk premium, or how much investors are requiring on those risky assets over and above the risk-free rate. One shorthand way to look at that is to look at how much equities are earning–or are yielding in terms of their earnings yield relative to Treasury bonds. And today, if we look at trailing earnings, the earnings yield on stocks is about six points higher than the ten-year Treasury bond. That's more than three times higher than its long-term average and pretty much in line with what it was in the Global Financial Crisis. So stocks appear attractive relative to interest rates and bonds in our opinion. Finally, I want to point out that, as investors have raised cash and sold risky assets in the past several weeks, correlations between asset classes and within the S&P 500 between stocks has increased significantly. In fact, when we look at the data that we have going back to 1995, S&P 500 correlations, the correlations between stocks within the index, are the highest on record. And in our view that's a positive for good stock pickers, as many stocks that are high quality are going down with stocks that are lower quality and worse positioned and I think you'll hear more about that from Patrick and Ankur as we move into Q&A.

on companies across sectors. You have the continued trends of the internet and mobile internet, which continue to be very disruptive but there are a number of other trends such as digital transformation, artificial intelligence, cloud computing, autonomous vehicles, electric vehicles, internet of things and 5G. We have discussed these themes in previous podcasts, so we'll not go through them again in detail but we do continue to see evidence of this innovation across sectors. We're seeing disruption across traditional retail, traditional media, traditional banks, traditional technology companies, auto and energy. The innovation is creating winners and losers across sectors. Macy's recently announced that they're closing 20% of their store base and I just saw that Macy's was removed from the S&P 500 last night. Pier 1 Imports recently filed for Chapter 11 and this was before the coronavirus even hit. This concept or idea of a local retailer selling to a local community with an inefficient supply chain is changing, as companies are now selling directly to end consumers over the internet to a global customer base. Many other traditional retailers are coming under pressure and will continue to come under pressure. Netflix is disrupting the business models of many the traditional media companies and broadcasters and many of those companies are trading at five-year lows. Ford is a single digit stock that has come under a lot of pressure recently as there is a concern as to how they're positioned in a future world of electric vehicles and autonomous vehicles. The energy sector will continue to be disrupted by technology and many of the traditional technology companies are being disrupted by the cloud. The logistics sector is also being disrupted, as that sector digitizes and companies such as Amazon now have the scale to compete with the duopoly structure of FedEx and UPS. Fedex and UPS were once viewed as having some of the most defensible business models in the stock market but have been significant underperformers as they are now facing new competitive threats.

Kevin Collins : Thank you, Brad. Patrick, I know that you want to speak about innovation and how it's recasting whole industries. What are you seeing?

Patrick Kelly : We've been saying for a while that we believe we are in the early days of one of the most innovative times in history; the pace of innovation is accelerating, it remains underappreciated. The reason this time is different from previous times is the number of big picture themes that are having a significant impact


Our investment philosophy is investing in Positive Dynamic Change. We are seeing a tremendous amount of change occurring in the market. We want to be positioned in companies that are benefiting from positive change and those that are innovating; companies that are benefiting from secular growth trends and have defensible competitive moats. And if you look at our top holdings, most of them are benefiting from these big picture secular growth themes that I mentioned and will emerge out of this downturn, we believe, in a much stronger competitive position.

Patrick Kelly : I feel like I've seen virtually every kind of market since starting in this business over 20 years ago. There are similarities and differences between now and previous downturns. The extreme volatility in the market is creating opportunities on the buy and the sell side. We continue to evaluate the risk rewards in all of our companies with a heightened level of intensity. There's obviously a lot of things to think about in environments such as this but again, we're analyzing the risks and opportunities in each of our holdings and actively managing the portfolios amidst this volatility to take advantage of opportunities. Kevin Collins : That sounds like a very solid approach. Ankur, although the portfolios are down year to date, they've outperformed both of their benchmarks and the broad market. Why is this? Ankur Crawford : This environment has actually emboldened us and our viewpoint on how disruptors and innovators are capable of not only surviving but thriving in good and bad GDP situations. We have long believed that innovative growth companies can take market share and benefit in good and bad times and that's being proven out right now. For years, we've been talking about cloud and innovation and all of these product cycles that are coming together all at once. And a question that we would get asked often is, ‘These companies have gone up so much, isn't this like the tech bubble?' And we've always argued that it wasn't and the reason being is these companies have business models that are quite robust. Some of them had 85% recurring revenue. Their cashflow generation supports their valuations; they have minimal amounts of debt. And as we go through this crisis, they're actually being looked upon as technology companies that will help the world through this time of crisis. And what our large team of analysts is doing right now is trying to figure out what is going on, on the ground and determining what companies are doing in order to get themselves through this crisis. And what we're finding is that these disruptors are in fact gaining share in this environment and you know, in terms of the adoption of the cloud, which we've talked about for years, that's been accelerated as the benefits are becoming even more obvious to companies.

So, I'll turn it over to Ankur to see if she wants to add any comments there and how the current environment is accelerating some of the trends that I discussed.

Ankur Crawford : We think that this hiccup has actually changed the way companies work and it has highlighted that when the tide goes out, you actually can see who has proceeded along things like digital transformation and who hasn't. And those who have are able to cross this chasm that we're seeing right now and those that haven't are going to see worse than expected results. You have in the market a situation right now of the haves and the have nots. The companies like Nike that were able to cross the chasm and have a true digital initiative to approach the consumer, where consumers can go online and order shoes while the stores are closed, where they saw 40% growth in that side of their business versus, as Patrick mentioned, Macy's, that their stores are closing and they'll have significant impact to free cash flow. We think that this is highlighting not only companies that have been the adopters of technology and how it will benefit their business models on a go forward basis, but it's also highlighting the fact that there are companies that are enabling those technologies. And when we talk about innovation and disruption, that's really where we're focused. Kevin Collins : Patrick, you're an experienced portfolio manager; you've seen a lot of different market environments. What do you think of the present market volatility?


This is allowing these companies' growth to be secular and not hampered by the cyclical headwinds. I think it's really important to highlight how important these innovations are to the new world and it's across sectors–whether it's retail or real estate or really any sector. There's a company that we own called CrowdStrike. This is a security vendor that specializes in endpoint security. As endpoints become proliferated everywhere and everyone is working from home on a laptop, companies are rushing to figure out how to make these networks secure. Crowdstrike is a big beneficiary of this: they just reported earnings a few weeks ago and they're seeing 70% growth in their bookings. And that's a clear beneficiary of a trend that is going to likely be around for awhile; we will be working from home for–maybe it actually changes the way we work. There's another company we own, CoStar Group, and they're seeing a net benefit to having an online digital apartment rental service. Recently we spoke with them and they're saying they're seeing a 50% increase in incoming calls of building owners that would like to put their apartments virtually online because you can't do in person rentals anymore and people can't come see the apartments. So digitizing that process is going to be accelerated as building owners need to rent their apartments during this time of crisis. Both Nike and Lululemon just reported their numbers. They had 30%–40% growth in their digital sales. It is changing the way consumers are going to interact with these brands. These are just a few examples that we pulled out to illustrate how there can still be winners in such a challenging environment and that innovation is still leading. Kevin Collins : Thanks for that discussion about transformational innovation and how it's actually accelerating in today's environment; it's giving us a lot to process. Finally, would either of you like to convey any final thoughts before inviting questions? Patrick?

Patrick Kelly : I would say that the coronavirus will have a significant impact on the economy and businesses, which is well known. The government is responding with massive monetary and fiscal stimulative measures. It's difficult to predict what the market will do over the next month or two but I do think this downturn sets up a very compelling long term buying opportunity and we're focused on innovative companies, as we talked about, that are benefiting from the secular growth trends and companies that will emerge out of this downturn in a much stronger competitive position. Ankur Crawford : I want to assure our clients that the investment team hasn't missed a beat. We are working just as if we were working in the office. We're researching innovation and, being so deep into innovation, it was effective in helping us configure our remote work contingency. We're safe and we're securely networked and interacting continuously, more intensely than ever. We're spending our days looking for opportunities in the market that are presenting themselves and talking to owned companies across the portfolio, talking to people on the ground, to better understand how things are unfolding. And we'll continue to do so, as things bounce back and to really delve into how to best position the portfolios coming out of this. There's no question that this is an unprecedented time but as we have said many times before, where there is change, therein lies the opportunity and our team is embracing that opportunity as we speak. Kevin Collins : Ankur, do you have any final thoughts?

Kevin Collins : Thank you, Ankur, and thank you, Patrick, for your thoughts. We'd like to open it up now, Operator, for questions from our investors.

Speaker Question : I know the Spectra strategy has the ability to short up to 10%. Have you done any shorting? When did you start doing that and kind of what triggers the shorting position?


Ankur Crawford : We did actually take the shorting position, to about 7.5%–8%. As the market has gone down, the shorting opportunities have become fewer and it currently rests about at about 4.8% because the risk reward, even on the shorts, as the market has collapsed has changed dramatically. We tried to do a bit more shorting on the cyclical side in the beginning of this sell off. We have since kind of moderated that position and are looking at this point for opportunistic shorts of companies that have not yet been hurt by this because we think on a bounce back they will underperform. Speaker Question : Good morning. For the Capital Appreciation strategy, I'm wondering what the current cash position is and also if inflows are helping to increase the cash and it does present you the opportunity then to take that and add to either existing positions and new positions? And just also curious if you're more evaluating right now or if you're starting to add to holdings because of the cash you have? Patrick Kelly : We have not been running a big cash position. Right now the cash position is around 1.5%, I believe. As I mentioned earlier, the volatility in the market is creating opportunities on the buy and the sell side and we're continuing to evaluate those opportunities and trying to stay sharp on the risk rewards in our names and the buy points. There was a large industrial stock that sold off dramatically last week and we added to that and it's up over 25% in a week. It was just one of those days where there was a lot of indiscriminate selling. There's another company, a technology company that sold off very sharply and we added to that stock and the stock's up about 15% in a week. I think this market and its volatility presents opportunities to trim names on strength and there's opportunities to buy some names on weakness and we're trying to take advantage of this volatility to actively manage the portfolio.

extra cash that you're taking advantage of the opportunities like the two of you just mentioned?

Patrick Kelly : The flows aren't really impacting our ability to take advantage of opportunities.

Speaker Question : Has turnover increased and, as part of that, have you repositioned the portfolio into any one industry or sector more so, given what you may see on the other side of this as we come past this virus? Patrick Kelly : I would say turnover has picked up again amidst this volatility and we are actively managing the portfolios, so that has resulted in increased turnover within the portfolio. I think we continue to add to many of our existing positions that are benefiting from these changes, these companies that are innovating. Ankur talked about cloud computing and how we think that this is one of the most disruptive trends that we've ever seen in technology and the movement to the cloud was happening at a very rapid rate but this current situation is only going to accelerate that move to the cloud. If you look at some of our largest positions, Microsoft, Amazon and Google, they're the three big players in the cloud and they're going to benefit from those trends. They all have very strong balance sheets. They all should emerge out of the downturn in a stronger position. We're avoiding many of the other areas that I discussed earlier, such as traditional retail. For consumer exposure, Ankur mentioned Nike, which is an extremely strong brand that has invested aggressively in digitizing their company and they don't need to sell through the traditional retail channel. They can sell directly to consumers over the internet, which is a much more profitable sale than selling through the traditional distribution channels. Favoring a company like Netflix over the traditional media companies; Netflix is obviously benefiting from this current situation and also should emerge stronger, as well, because many of the traditional competitors, their financial positions are being weakened further and will struggle to be able to invest the dollars that Netflix is investing to effectively compete longer term.

Speaker Question : And how about flows in or out? Is that a concern or at this point again, you've got enough


What else? We don't have any investments in the energy sector, obviously; that sector is being disrupted and avoiding that and I think with the rise of alternative forms of energy and electric vehicles, the long-term outlook there is poor. Avoiding those areas that are being disrupted and focusing on many of the areas that we've been focused on and many of the companies that we–that we already own and looking to add to those positions and areas on weakness. Ankur Crawford : I would add is that we already have businesses that we believe in, as Pat was mentioning and this market is creating dislocations in some of the stock prices where the good is getting lumped in with the bad in some cases. It doesn't necessarily mean that we have to either add any name, or it could just be changing the weight that is expressed in the portfolio to take advantage of the dislocation. Speaker Question : You follow a lot of technology and the trends and innovation, etcetera. What are you finding as we're coming through this and maybe emerging to the other side that's different, maybe something that surprises you, something that might be another theme as we go forward for the next ten years? Ankur Crawford : One of the things that we have–and I don't know if it's necessarily surprising and we've already mentioned it on a call but I think that the–the speed at which people were–are moving is what is surprising is this acceleration to the cloud and the acceleration of the need for digital transformation. We were talking to a company called CoStar Group and their clients are building owners who are trying to rent and sell apartment buildings or rent apartments. All of a sudden, their entire business is collapsing because how do you rent an apartment unless you have a virtual tour online? How do you even sell a building without a virtual tour? Or how do you even express–have any interest in the building without having a virtual tour and all the information? I think what's been surprising has been the pace at which people are running to adopt digital transformation even in this brief period of time because, again, as the tide goes out, you see where your flaws were and how you need to compensate for it. I think that has been kind

of a surprising outcome. I didn't expect it to happen and for people to be talking about it quite so fast.

Another interesting thing that I think has come out of our kind of on the ground research has been a lot of companies already have a virtual sales force, which I think it's something I hadn't appreciated going into this, where they have sales forces that work remotely and staff that work remotely all the time. In some of these businesses, they're not missing a beat in terms of bringing people online–this is the way they work. And I think that is going to become more of a trend as we go forward. I do think that how the workforce in general is going to work and interact with customers, whether it's using video conferencing or–I think that is a more ongoing trend and change that we will see. You know, do people want to sit in traffic for an hour in the Bay Area, if they can just simply do it from home and be more effective, or equivalently effective? Why not? That's kind of a new trend that I think will emerge out of this, in terms of a big change to society. But Pat, do you have anything to add? Patrick Kelly : I would echo that work from home trend and how that changes how businesses operate and how that will result in an acceleration in some of the trends that we've talked about, like the cloud. We have the continued secular growth trends of the internet and the mobile internet and that continues to be incredibly disruptive when you think about just ecommerce trends and now those are only accelerating with the current situation, or online advertising, which will continue to accelerate share gains over other traditional forms of media. But these other themes are still very early stages. I mean, artificial intelligence: the CEO of Google has said that that could be more disruptive, or have a more profound impact on the economy, than fire or electricity, which is a pretty bold statement. And many of the companies that we own, our top holdings, are employing a significant amount of artificial intelligence into their businesses to more efficiently run those. But we are in the first inning of this trend within artificial intelligence and this is a 50-year plus type trend, which will be very disruptive.


Ankur spoke about digital transformation, the need to digitize your business in order to effectively compete and be relevant within your respective industries. It is table stakes. We're seeing that, for example, in the retail sector, where you need to digitize your business in order to effectively compete longer term and to remain in business. JP Morgan are spending over $11 billion on technology and Jamie Dimon called it table stakes for their business. I think we're still in early days in this digital transformation trend. I think CEOs across sectors recognize they need to digitally transform themselves. This entails investing more into technology in order to do that. And as Ankur mentioned, I think the current situation is only accelerating those trends. That is what is so interesting about what is currently happening and all the innovation that we're seeing. The pace of innovation has been accelerating. And now you add on the current situation and that just further accelerates things. So, again, we try and highlight this innovation theme because we think there's just so much innovation occurring within the markets and it's going to continue to create winners and losers across sectors. Patrick Kelly : We think there's a tremendous amount of innovation occurring within the health care sector as well, with all the advances in drug development and genome sequencing and all the advances in the med tech sector with how surgeries are performed now. Now you get a knee or a hip done and it's quite different than it was ten years ago or 15 years ago. A lot of these surgeries and are now being done robotically or minimally invasive surgeries. In terms of holdings, one of our largest holdings within health care is Danaher, which has gone through a bit of a life cycle change. They've divested two of their more cyclical, lower growth businesses and they recently just closed the acquisition of the GE biopharma business, which was the crown jewel asset at GE. And GE was forced to sell that asset, given their financial situation. Speaker Question : I wanted to ask your thoughts on the health care sector, obviously, a sector that's been impacted by this significantly.

We think Danaher was able to acquire that asset at a very attractive multiple and we think this is a very attractive business, where they just have a dominant position that can grow high single digits for the next 5– 10 years in kind of a normalized environment. And the business mix has shifted to a much more recurring mix, with more consumables. We think that's just a really well positioned company over the next 5–10 years and we think that's a company with very good, durable growth prospects. Ankur? Ankur Crawford : I would say that health care has been deemed to be a relatively defensive sector, given the characteristics of these business models. In a downturn, historically, health care has outperformed. Now what we're seeing in this go around, because of the nature of what is going on, there are some businesses that have not exhibited that characteristic but in health care are offering incredibly compelling risk reward. If we look at, again, the concept of the good getting lumped in with the bad, just a couple of weeks ago there was a large company that we own in our health care portfolio. It got down to 15 or 16 multiple for a business that is going to have durable growth for a long time. And yes, there are headwinds right now because, you know, they're not able to do elective surgeries and all of those are getting pushed but as we come out of this, that growth is still there because they have 40%, 50%, 60% share in each of the markets that they have. Patrick Kelly : I think some of these companies will benefit from this longer term, as there's just going to be a much bigger focus on a health care spend and finding solutions for situations such as this. I think it's very likely the government will be investing much more in health care and so looking at some companies that that will benefit from that longer term. Speaker Question : I wanted to have your insight and your view on the semiconductor markets. A lot of companies had a lot of inventory before the crisis and how the coronavirus impacts them and do either of you have a view for the next quarter?


Ankur Crawford : I think, going into this crisis, the semiconductor companies and the semiconductor supply chain was in much better shape than it had been. The inventory depletion of the supply chain had been complete and companies were starting to ship back to normal. One could argue that we were at the beginning of the semiconductor cycle again, such that the companies will start to ship to end demand. And when you look at end demand, what made us very bullish about semis–and still we hold this view–is a lot of the innovation trends, whether it's AI, cloud computing, you know, machine learning, all of these things, needs compute and they need more and more compute, different kinds of compute and it's going to become pervasive. And that is something that hasn't changed. What has changed, however, because of coronavirus, is there's a question about end demand. Historically, semis go up and down with GDP and the cycles are a function of GDP, in part because the product cycles have not been quite as robust as they are this time around. And what coronavirus has done is it's given a pause to all consumer spending, all enterprise on premise spending. And so we are seeing a little bit of a pause in the auto end market for example or in servers that are being sold to an enterprise that you would put inside of your offices because there's no one there to install it right now. That has been counteracted, actually, by a rise in cloud spending and in the amount that is being spent by the Microsofts and the Amazons and as people move to the cloud, which is what we discussed earlier in the call. There's going to be, in the semi market, kind of the haves and the have nots again where I think a lot of companies will benefit from these long term trends that we discussed and really that the semis are the–the core and the intelligence behind every kind of technological innovation and they play into that. In the near term, there will be some hiccups, whether it's in the consumer end markets or it is in kind of, as I mentioned, these on trend type markets. That said if we look at the valuations on semis they are cashflow machines and if you look at them on an enterprise value (EV) to free cash flow, even on numbers that need to get cut, the valuations still are seeming very reasonable.

And the reason that we have, I suppose, confidence in the EV to free cash flow numbers that we have modeled out is because some of these trends are not stoppable. Coronavirus or not, some of the trends that we're seeing in cloud computing and in IoT, are not going to end because coronavirus is here; they're going to get accelerated. The need for either the manufacturers to manufacture the equipment or the semiconductor companies to provide the intelligence–or the chips that provide the intelligence–that is still going to be there. It's just in the near term, the slope might be a bit more muted. Kevin Collins : Thank you, Ankur and Patrick, for your very insightful comments. We really appreciate this in volatile times, this access to your thoughts. I think it's very good that you're positioning yourself to be a great partner to your clients. And to that end, I'd also like to thank our clients for their interest in the call. And finally, on behalf of all of Alger, I'd like to wish our adviser partners, our consultants, our investors, a very safe coming weeks and months and thank you for your business. Have a good day.


The views expressed are the views of Fred Alger Management, LLC as of April 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 Fred Alger Management, LLC. 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, 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 and healthcare companies, which may be significantly affected by competition, innovation, regulation, and product obsolescence, and may be more volatile than the securities of other companies. Short sales could increase market exposure, magnifying losses and increasing volatility. Leverage increases volatility in both up and down markets and its costs may exceed the returns of borrowed securities. 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. Investors whose reference currency differs from that in which underlying assets are invested may be subject to exchange rate movements that alter the value of their investments. Past performance is no guarantee of future results. 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 authorized 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. The S&P 500 Index is an unmanaged index generally representative of the U.S. stock market without regard to company size. 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. 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. The following positions represented the noted percentages of assets as of 12/31/19: Alger Capital Appreciation strategy: Microsoft Corporation 9.88%;, Inc., 7.10%; Alphabet Inc., 4.32%; Danaher Corporation 2.55%; Lululemon Athletica Inc., 0.39%; Netflix, Inc., 0.25%; Nike, Inc., 0%; Crowdstrike Holdings, Inc., 0%; Costar Group, Inc., 0%; Pier 1 Imports, Inc.; 0%; Macy’s Inc., 0%; FedEx Corporation 0%; United Parcel Service, Inc., 0%; General Electric Company 0%; JPMorgan Chase & Co., 0%; and Ford Motor Company 0%. Alger Spectra strategy: Microsoft Corporation 8.12%;, Inc., 5.37%; Alphabet Inc., 4.49%; Danaher Corporation 2.67%; Nike, Inc., 1.38%; Costar Group, Inc., 0.66%; Crowdstrike Holdings, Inc., 0.51%; Netflix, Inc., 0.34%; Lululemon Athletica Inc., 0.28%; Pier 1 Imports, Inc.; 0%; Macy’s Inc., 0%; FedEx Corporation 0%; United Parcel Service, Inc., 0%; General Electric Company 0%; JPMorgan Chase & Co., 0%; and Ford Motor Company 0%. Alger Focus Equity strategy: Microsoft Corporation 9.83%;, Inc., 7.08%; Alphabet Inc., 4.00%; Danaher Corporation 2.80%; Netflix, Inc., 0.34%; Crowdstrike Holdings, Inc., 0.34%; Nike, Inc., 0%; Lululemon Athletica Inc., 0%; Costar Group, Inc., 0%; Pier 1 Imports, Inc.; 0%; Macy’s Inc., 0%; FedEx Corporation 0%; United Parcel Service, Inc., 0%; General Electric Company 0%; JPMorgan Chase & Co., 0%; and Ford Motor Company 0%. Alger 25 strategy: Microsoft Corporation 9.85%;, Inc., 7.09%; Alphabet Inc., 4.64%; Nike, Inc., 0%; Netflix, Inc., 0%; Crowdstrike Holdings, Inc., 0%; Lululemon Athletica Inc., 0%; Costar Group, Inc., 0%; Pier 1 Imports, Inc.; 0%; Macy’s Inc., 0%; FedEx Corporation 0%; United Parcel Service, Inc., 0%; General Electric Company 0%; JPMorgan Chase & Co., 0%; and Ford Motor Company 0%.


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