Portfolio Insights: Large Cap Strategies


Patrick Kelly (continued): This digital transformation theme remains in the early innings. COVID has further accelerated the theme and will serve as a catalyst for accelerated investment going forward, in our opinion. Many of the technology companies and software companies that we own play into this theme.

one that significantly beat expectations and really showed its resilience of its business model as well. So those were two examples of companies that stood out.

Overall I was impressed how companies were able to perform on both the top and bottom line in such a difficult environment.

I would highlight companies such as Microsoft, Salesforce.com and Twilio is companies that are helping companies to digitally transform themselves.

Jessie Quick: Speaking of resiliency, I'm curious after 20 years of investing in growth stocks and over 15 years managing large cap growth portfolios here at Alger, what's the most valuable lesson you've learned? Or mantra that you like to live by or invest by especially through hard times like this year? Patrick Kelly: I feel like I've seen virtually every kind of market since starting in this business over 20 years ago. I would say that the longer I'm in this business the more I believe in our investment philosophy of investing in Positive Dynamic Change. Focusing on change and companies and sectors that we believe are benefitting from change. We are seeing more change today than ever before, so I think our investment philosophy is very applicable to the current environment. I would also say having a relentless focus on process, a relentless focus on constantly improving your process. As many of you may know my favorite book is one written by Bill Walsh and the title of the book is "The Score Will Take Care Itself," which is a very fitting title, and it's all about focusing on having a disciplined process and detailed process to set yourself up for success. I'm a firm believer that you need to have a strong process to be success in any competitive business or sport. Jessie Quick: In your opening remarks, you mentioned the vaccine. I thought you said some interesting things about the timeline coming sooner rather than later. Have you currently positioned the portfolio in anticipation of a vaccine, or have you done any repositioning in thinking about that and the timeline?

You have companies such as Visa and PayPal that are benefitting from payments going digital. Amazon is obviously a big beneficiary of retail digitizing. And Netflix is the digital disruptor in the media sector. The innovation into digitization is creating winners and losers across sectors. We aim to own positions in the companies that are innovating and those that are benefitting from this change. Jessie Quick: With the second quarter earnings season ending, obviously COVID-19 and the pandemic have had an unprecedented impact on many companies and their results. What did you learn from this earning season? And were there any big surprises? Patrick Kelly: Yes, I would say one of the biggest takeaways was the resiliency and adaptability of U.S. companies. And that resiliency was made possible by technology. It would have been a much different story years ago if we were in this situation. But technology has enabled companies to thrive and adapt. Remarkably the percentage of S&P companies beating earnings estimates was 84% in Q2 marking the highest percentage of quarterly beats in at least the last 10 years. The COVID situation has also accelerated a number of secular growth trends, as we just spoke about, and a number of growth companies have benefitted from that. I would say two examples that stand out. One would be Facebook, where it grew their topline over 10% in Q2 despite all the headwinds that it was facing and the advertiser backlash. So I think it really showed the resiliency of its business model. Danaher was another

Conference Call 3/9

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