Why Growth Now
Recently growth stock​s have outperformed the S&P 500 Index and vastly outperformed value stocks. Those of you who recall past periods of market volatility may not be surprised.​​ 
Growth vs. Value Relative to S&P 500 chart​​​​​​

  • The chart demonstrates the degree to which the Russell 1000 Growth Index outperformed both the Russell 1000 Value Index and the S&P 500 from December 31, 2019 to March 26, 2020.

  • In our view, growth stocks are less cyclical and less economically sensitive than value stocks. In the past two U.S. recessions, value stock earnings declined 40% on average while growth stock earnings were relatively flat.

  • As interest rates decline during periods of panic or recession, we believe value stocks may suffer because they have a higher weighting in financials and thus they are more adversely impacted by lower interest rates.

  • In the current environment, many borders have been closed globally, impeding the free flow of goods. In our opinion, that has hurt value stocks, which tend to deal more in tangible items, such as autos and equipment. In contrast, growth stocks tend to operate in more of a digital economy. (See Alger On the Money The Resilience of Innovation​.)

  • Lastly, growth stocks largely boast much better balance sheets than value stocks; they generally have much lower debt levels relative to income and capital. They can continue to invest to grow their business rather than divert funds to debt service and become vulnerable to the capital markets. Our view is that a strong balance sheet is critical to surviving economic tumult and emerging a winner and growth stocks are likely to persist as strong performers.

The Russell 1000 Growth Index is a broadly diversified index predominantly made up of growth stocks of large U.S. companies.

The Russell 1000 Value Index is a broadly diversified index predominantly made up of value stocks of large U.S. companies.

The S&P 500 is a stock index that measures the performance of 500 large companies in the U.S.

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.

This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund shares.

Risk Disclosure: Investing in the stock market involves certain 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. Technology companies may be significantly affected by competition, innovation, regulation, and product obsolescence, and may be more volatile than the securities of other companies.

Fred Alger & Company, LLC 360 Park Avenue South, New York, NY 10010 

www.alger.com / 800.305.8547 (Retail) / 212.806.8869 (Institutional) ​