Podcast: Managing Alger's Legacy Strategies
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Patrick and Ankur talk about a simultaneous wave of innovation that is recasting whole industries across our economic spectrum. In our latest podcast, Client Portfolio Manager Kevin Collins discusses the investment process of Portfolio Managers Patrick Kelly and Dr. Ankur Crawford, and how they maintain Alger's legacy strategies.

ALEX BERNSTEIN: Hello, I’m Alex Bernstein and you’re listening to The Alger Podcast: Investing in Growth and Change.  Alger’s Capital Appreciation and Spectra strategies are firm legacy strategies that have been in existence for decades.  And impressively, the driving investment philosophy of the original portfolio manager, David Alger, is very much carried forward by the strategies’ current managers, Patrick Kelly and Dr. Ankur Crawford.  
Today, I’m speaking with Kevin Collins, Client Portfolio Manager at Alger – who’s going to share some of his insights into the management style of Patrick and Ankur.  We’re going to discuss some of the themes they focus on – and why they believe that investors are now experiencing an “inflection point” regarding technology and innovation.

Kevin, thanks so much for joining me today.

KEVIN COLLINS: Thanks, Alex.

ALEX: Kevin, you have a unique position at Alger in that you actually spent years as an Alger analyst working side-by-side with Patrick and Ankur?  Isn’t that correct?

KEVIN: Yes.  I worked with both Patrick and Ankur.  I was an analyst for 15 years at Alger, and in that capacity, worked directly with Patrick on the large cap growth strategies recommending stocks to him for consideration.

ALEX: So, you actually had the full analyst experience?

KEVIN: I did.  Yes, absolutely.  Came into Alger, started at the lowest level of the research function, similar to both Patrick and Ankur, and went through the analyst training program.

ALEX: What was your experience of working with Patrick back then?

KEVIN: Patrick’s very big on process.  That doesn’t surprise me, frankly, because Alger has a very structured investment process.  We rely heavily on bottom-up fundamental research, on the expertise of analysts who are specialists.  You know, this business is hyper competitive.  It’s very complex.  

ALEX: You knew him when he first became a portfolio manager.  As an analyst, what was it like pitching a stock to him?

KEVIN: Rigorous.  You know, it’s not just enough to say, “Don’t you believe that?” or, “Isn’t it intuitive that …”  At Alger, we’ve got a very structured way to go about developing an investment idea.  First of all, analysts are responsible for all the qualitative and quantitative assessment of a stock in their industry.  And so, in order to do that, one of the things that both Patrick and Ankur say is, “We want investigative journalism.”  

And so, you look and contact people external to the company’s management team.  Interview the CEO, the CFO.  We visit company facilities.  We listen to conference calls, but we really prize external insights into a company’s growth trajectory.  So, we like to talk to customers, vendors, regulators, competitors to find out what they think about the industry dynamics and that company’s potential.

Ankur and Patrick are looking across industries, across the economic spectrum to make sure that they are eliciting the best growth opportunities for our clients.

ALEX: So he didn’t play favorites with the analysts?

KEVIN: No.  No.  It’s all about the risk-adjusted returns.

ALEX: And what was your experience working with Ankur back when you were an analyst?

KEVIN: Yes, I remember when we recruited Ankur out of Silicon Valley.  It was in the early 2000s, and she was developing semiconductors and had patent credits to her name in that discipline.  And, you know, we were looking for a semiconductor analyst, and so we went to the source.  

And one of the hallmarks of the Alger Analyst Training Program is finding enthusiastic, motivated people with great creativity and a great passion for the market or desire to learn.  And, gosh, Ankur exhibited all of that, and, you know, we are a meritocracy, and she rose up through the ranks on the tech team, eventually heading the tech team, which is very much the same profile as Patrick did before her.  So, for somebody to direct that team’s effort is a great responsibility.

ALEX: So you were both analysts at the same time?

KEVIN: Yes.  Yes.  We were fellow analysts.  You know, great esprit de corps on the analyst team.  

ALEX: In our last few Capital Appreciation podcasts, Patrick and Ankur have given the impression regarding tech innovation that we’re at something of an inflection point.  What do you think is driving this?

KEVIN: When I listen to our research team, and Patrick and Ankur specifically, they talk about a simultaneous wave of innovation, meaning there are a number of different technologies right now that have kind of emerged out of their infancy, are scaling now and are commercializing, and they’re recasting whole industries across our economic spectrum.  And they’re very helpful in driving global growth.  

They’re things like cloud computing, software, internet mobile, internet of things, 5G.  All these are happening simultaneously where the innovations that are unleashed today into the marketplace are adopted by consumers and businesses much more quickly than they had historically.  

So not only are you, one, having a simultaneous wave of innovation across many different technology competencies, but it’s occurring at a rate that’s much faster than before.  So the effect is much more pronounced on the economy, in the stock market and in the specific companies we research.

ALEX: Every meaningful company in the country is having this conversation right now?

KEVIN: Absolutely.  It’s become essentially table stakes to stay in the game in your industry.  

ALEX: Let’s talk about some of the prominent themes in Ankur and Patrick’s large cap portfolios.  I’d like to start with digital transformation.  As we’ve discussed, one example is the larger, more traditional companies realizing they need to digitally transform themselves to stay competitive?

KEVIN: Yes.  These companies are all under assault from new competitive entry.  And the best way for them to respond is to digitize their business, to invest in the cloud, to invest in software, to make sure they’re able to harness the data, their experience of their business, the scale of their business and become more productive, more efficient, lower their cost structure, drive their sales, enhance customer experiences; so that they maintain their market share and maintain their margins.  

If you look at, perhaps, the U.S.’s largest consumer banking franchise, so much of their effort to get tighter with the customer is around digital mobile interaction.  And so, a great amount of their deposit activity is directly over their app.  So we expect banking competition to get much more intense, and we expect customer experience to be very much enhanced.

ALEX: Because, once upon a time, most Americans used to choose a bank based on it being located conveniently?  

KEVIN: Yes.  I mean, many Americans, as they were growing up and establishing a relationship with a financial institution, used to choose their preferred provider by how convenient the real estate location was.  And they wanted to be tied to the bank that had the property at the corner of Main and Main.  And today, consumers are engaging with their financial provider with an app.  

And it goes even beyond the financial space.  Think about the country’s largest hotel company does not own any physical hotels.  The country’s largest taxi or livery service does not own any cars.

ALEX: Another prominent theme in their portfolios is cloud computing.  Why is cloud computing suddenly so important?

KEVIN: We believe cloud computing is very important because it dramatically lowers the cost of computing, increases the security, the effectiveness, the productivity of corporate America’s technology outlays.  It’s disrupting the so-called, “on premises,” kind of hardware vendor, technology equipment companies, some legacy software companies.  And it’s important because it is a giant market.  We’ve talked about how large the U.S. retail consumer spending is but think about the worldwide IT market.  We believe, based on our research, that that digitization in cloud is going to happen at a much greater rate than the consensus.

ALEX: Kevin, another important theme in their portfolios is artificial intelligence, often coupled with machine learning.  Ankur and Patrick believe AI is going to become incredibly transformative over the next five to ten years.  

KEVIN: Yes.  The rate of change in artificial intelligence, as you referenced, Alex, is staggering.  Artificial intelligence is invading all industries, harnessing the data that’s existent in those industries, using this radically increased computer power.  Artificial intelligence occurs at that nexus between this cheaper, more plentiful and powerful computing cost that’s really driving the costs associated with data analytics down, and that intersection occurs as these enterprises are generating more data than ever.  

ALEX: You mentioned an example regarding one of the biggest packaging companies that’s now using AI and machine learning to have robots teaching themselves to better package materials.  Can you tell us about that?

KEVIN: Yes.  Recently, in a logistics management warehouse setting, a robotic arm, now, rather than being programmed to pick and then package for shipment items, the robot taught itself to pick from a much more complex product set in a much more complicated manner than robots are currently configured or capable of doing.  And this will enhance the productivity, after capital outlay, for more robots that would be able to teach themselves in that setting and make that warehouse far more efficient.

ALEX: I’d like to switch to health care, another one of Patrick and Ankur’s major themes.  We’ve seen a tremendous amount of innovation in the health care space.  Some technology driven.  Some not.  What are some of the highlights that they’re focusing on in health care?

KEVIN: One of the big things that’s happening in health care is the mapping of the human genome and gene sequencing.  This allows for more bespoke medicines, more personalized medicine that can deploy most optimally at the molecular level pharmaceutical solutions to disease states that are specifically traited to that individual patient’s DNA.  

And minimally invasive surgeries are something we’re very excited about.  Our holdings have good positions in things like laparoscopy.  These provide a much more optimal solution to patient surgeries and better outcomes.  

ALEX: Kevin, one last thing I’d like to touch on – Patrick and Ankur have been tasked, not just with managing two well-known Alger strategies – but of maintaining the consistent investment philosophy and process of those strategies, and carrying forward a history of strong performance.  Can you tell me what you think it’s like for them to maintain Alger’s legacy with these strategies?

KEVIN: Both Patrick and Ankur have grown up at Alger, like I did, and have learned the craft of investing, bottom up fundamental analysis, doing your own work, the value of doing your own work in implementing differentiated convicted positions.  We learned that the Alger way.  And that Alger Way is about looking for external insights into a company, by doing our own work, not hugging the consensus.  It’s in this fashion that we can have confidence that our ideas have been tested and vetted.  Our large cap growth strategies are foundational to the firm’s AUM.  Our large cap growth strategies are very long dated.  They date back to the ‘70s.  And so much opportunity is there for investing in change, associating with innovation.  

ALEX: Kevin, thank you so much for joining me today.

KEVIN: Alex, it’s been my pleasure.  

ALEX: And thank you for listening.  For more information on Alger Capital Appreciation and Spectra strategies, please visit www.alger.com. 

Click here for more information on Alger Capital Appreciation Strategy.
Click here for more information on Alger Focus Equity Strategy.
Click here for more information on Alger Spectra Strategy.
Click here for more information on The Alger American Asset Growth Fund.


The views expressed are the views of Fred Alger Management, LLC (FAM) and Alger Management Ltd. (together with their affiliated entities “Alger”) as of February 2020.   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 Alger. 

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