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Video: Context isEverything
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​Video: Context is Everything

Brad Neuman's Photo

Brad Neuman, CFA;

Senior Vice President
Director of Market Strategy

In this video, Alger Director of Market Strategy Brad Neuman explains four primary scenarios that may help investors evaluate a portfolio’s performance in a fundamental context.

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​​In this video, Alger Director of Market Strategy Brad Neuman explains four primary scenarios that may help investors evaluate a portfolio’s performance in a fundamental context.

BRAD NEUMAN: We speak to a lot of clients about our strategies’ performance and we often receive questions about “attribution” or what contributed to performance, such as sector or industry weightings as well as individual stocks. Some investors may even ask about the role of factors and performance, such as contributions from growth, value, size or momentum factors. 

Now, these detailed discussions provide insight into the interactions between market sentiment and portfolio positioning and the resulting performance. 

But understanding how a portfolio performed within the context of market trends may not provide much insight into future returns. 

We believe that, as Ben Graham, Warren Buffet’s mentor, said, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” That means market sentiment drives short-term stock price movement, but long-term price appreciation is driven by sales, earnings and cash flow. Therefore, assessing performance in the context of market sentiment provides little support for a long-term investment decision. 

However, we believe putting performance in a fundamental context may help investors better understand the return potential for the strategy in the future.

Now, to understand whether the skill of a manager is being accurately reflected by the market (i.e., weighing) or whether the stock prices of a fund’s holdings are deviating from fundamentals (i.e., voting), we need to track stock prices relative to fundamentals such as sales, earnings and cash flows. 

There are four primary scenarios that may occur when we evaluate a portfolio’s performance in a fundamental context. In our view:

1) weak returns accurately reflecting declining fundamentals = that’s probably a SELL in our view
2) strong returns accurately reflecting growing fundamentals = that’s probably a HOLD in our view
3) weak returns belying improving fundamentals = that’s a candidate to ADD in our view; and lastly 
4) strong returns belying declining fundamentals = which would likely be a SELL

The bottom line is that we believe performance should be evaluated in this fundamental context. As an investor, you need to know the fundamental performance of your manager, not just the returns. Only then can you decide whether a fund is a buy, hold or sell.

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Source: Alger Research

The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of September 2021. 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 FAM. 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, including the potential loss of principal. Growth stocks may 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. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness such as COVID-19 or other public health issues, recessions, or other events could have a significant impact on investments. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments. 
 
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 and ETF 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 authorised 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 Alger Management, Ltd.), 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.
 
Fred Alger & Company, LLC 360 Park Avenue South, New York, NY 10010 www.alger.com 








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ETF Investors

This ETF is different from traditional ETFs.

Traditional ETFs tell the public what assets they hold each day. This ETF will not. This may create additional risks for your investment. Specifically:

You may have to pay more money to trade the ETF’s shares. This ETF will provide less information to traders, who tend to charge more for trades when they have less information.

The price you pay to buy ETF shares on an exchange may not match the value of the ETF’s portfolio. The same is true when you sell shares. These price differences may be greater for this ETF compared to other ETFs because it provides less information to traders.

These additional risks may be even greater in bad or uncertain market conditions.

The differences between this ETF and other ETFs may also have advantages. By keeping certain information about the ETF confidential, this ETF may face less risk that other traders can predict or copy its investment strategy. This may improve the ETF’s performance. If other traders are able to copy or predict the ETF’s investment strategy, however, this may hurt the ETF’s performance. For additional information regarding the unique attributes and risks of this ETF, please refer to the prospectus.

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