Capital Markets: Observations and Insights This Is Not Exuberance Summer 2017

0

Neuman’s Notables

Page 1

The voyage of a bull market begins in despair, sails forward in anxiety, catches

the winds of enthusiasm, and finally hits the rocks of exuberance.

It is often said that markets do not die of old age. Then what does kill them? Excess. Too much

exuberance breeds too much spending and too much debt. Inflation picks up, interest rates must be

raised, and the party ultimately ends as the economy goes back to living within its means.

In the pages that follow, we show data that demonstrates the economy is not operating above its

potential or beyond its means. It therefore is not generating too much inflation and monetary policy

need not be onerous. In our view, equity valuations, while higher than historical averages, do not

preclude reasonable annual returns over the next decade that will likely handily beat fixed income.

From our perch, the economy can continue to sail onward and avoid the rocks of exuberance.

Sincerely,

Brad Neuman, CFA Senior Vice President

Client Investment Strategist

Key Observations

Page 2

Table of Contents

Neuman’s Notables

Performance

Fundamentals

Valuation

Pages 3-7

Pages 8-14

Pages 15-23

Pages 24-29

• Fundamentals have driven performance in 2017, after disconnecting from stock prices

last year

• There is a resurgence in earnings growth after a couple of years of weakness

• Leading indicators suggest that economic growth and corporate profits will continue

to expand

• Powerful long-term forces are driving divergence between Growth and Value

performance

Page 3

Source: FactSet as of June 2017.

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

19

85

19

88

19

91

19

94

19

97

20

00

20

03

20

06

20

09

20

12

20

15

GD

P / P

ote

ntia

l G

DP

-1

Recession U.S. Output Gap

• Over the past 30 years, the U.S. economy has entered a recession only after several

quarters following the output gap turning positive

• Currently, however, the U.S. output gap is modestly negative, indicating that the

economy is operating below its potential and still has room to expand

U.S. GDP is

running

below

potential

Mind the Output Gap!

Notables

Page 4

Source: FactSet as of June 2017. Inflation represented by PCE Price Index ex-food and energy (year over year).

-2

0

2

4

6

8

10

12

14

16

18

20

19

66

19

69

19

72

19

75

19

78

19

81

19

84

19

87

19

90

19

93

19

96

19

99

20

02

20

05

20

08

20

11

20

14

20

17

Recession Fed Funds Effective Rate Inflation

• Every major recession in the past 75 years has been preceded by substantial Fed

Funds rate tightening or inflation acceleration, or both

• On average, the U.S. has not entered a recession until about three years after material

Fed tightening, which we believe is beginning this year

Today,

short-term

interest

rates and

inflation are

both less

than 2%

Leading Cycle Indicators Are Not Flashing Red

Notables

0

2

4

6

8

10

12

14

1932 1943 1954 1965 1976 1987 1998 2009 2020

Dura

tion o

f B

ull

Mark

et (Y

ears

)

Year that Bull Market Ended

1950-1980

Average: 4.3 Years

1930-1950

Average: 1.7 Years

Waiting on the Sidelines Can Be Costly

Source: FactSet and Goldman Sachs. Bull markets over 6-months in duration since 1930.

• Bull markets have been getting longer over time

• The current bull market is four years younger than the 1990s bull market

‒ Those last four years produced >150% total return; even through the trough of the

following correction, equities generated a high-single digit annual return

Page 5

Notables

Current Bull

Market (ongoing)

1980-2010

Average: 7.2 Years

2010-Current

Average: ?? Years

74%

32% 30%

44% 39%

65%

93%

45% 42% 36%

43%

23%

Aug-5

6

De

c-6

1

Feb

-66

No

v-6

8

Jan-7

3

No

v-8

0

Aug-8

7

Jul-9

0

Ma

r-0

0

Oct-

07

Me

dia

n

Cu

rren

t

Missing: Exuberance that Typically Accompanies End of Bull Run

Source: BofA ML U.S. Equity & Quant Strategy and FactSet. Data through 6/30/17.

• Over the past 60 years, equity markets typically have had very large increases preceding

their peaks

• The current cycle has not displayed the same kind of very strong gains in the past couple

of years that marked the end of prior bull markets

Page 6

Notables

Typical exuberance

of a market peak is

not currently

present

2-Yr Returns Preceding S&P 500 Peaks

-5%

0%

5%

10%

15%

20%

5 10 15 20 25

Source: FactSet. Monthly data from January 1986 through June 2017

• There is a strong relationship between starting valuation and ensuing 10-year returns for

both stocks and bonds

• Current valuations suggest equities should materially outperform bonds over the coming

decade (mid-single digit vs. low-single digit annualized returns)

Page 7

S&P 500 P/E vs.

10-Year Returns

S&P 500 Price/Earnings

S&

P 5

00 1

0-Y

ear

An

nu

alized

Retu

rn

R² = 0.86

= month

0%

2%

4%

6%

8%

10%

12%

4% 5% 6% 7% 8% 9% 10% 11% 12%

BAA Bond Yield vs.

U.S. Aggregate Bond Returns

R² = 0.93

Barc

lays U

.S. A

gg

reg

ate

Bo

nd

In

dex

An

nu

alized

Retu

rn

Moody’s BAA Corporate Bond Yield

Notables

The Single Greatest Predictor of Future Stock Market Returns

= current

-10

-5

0

5

10

He

alth C

are

Industr

ials

Fin

ancia

ls

Techn

olo

gy

Ma

teri

als

Re

al E

sta

te

Co

nsum

er

Dis

cre

tio

nary

Utilit

ies

Co

nsum

er

Sta

ple

s

Energ

y

Tele

com

U.S. World

Growth Sectors Are Leading YTD

Performance

Page 8

Source: FactSet as of 6/30/17. U.S. represented by S&P 500 and World is represented by MSCI All Country World Index.

-15

-10

-5

0

5

10

15

20

25

Techn

olo

gy

He

alth C

are

Co

nsum

er

Dis

cre

tio

nary

Industr

ials

Ma

teri

als

Utilit

ies

Co

nsum

er

Sta

ple

s

Fin

ancia

ls

Re

al E

sta

te

Tele

com

Energ

y

U.S. World

• As investors refocused on growth and current fundamentals, growth sectors such as

Technology, Health Care, and Consumer Discretionary outperformed year-to-date

2017 YTD

Returns (%)

2Q17

Returns (%)

Growth Sectors

Page 9

Scale and Growth Rewarded

Performance

• Characteristics of large secular growth stocks have done best this year, while last

year’s leader, dividend yield, has underperformed recently

0.8 0.8

0.1

-0.2

-0.7 -0.8

-1.4 -1.5 -1.7

-2.6 -2.9

Ma

rke

t C

ap

EP

S G

row

th

Earn

ings / P

rice

Earn

ings V

aria

bili

ty

De

bt /

Equ

ity

Re

lative S

treng

th

Tra

din

g A

ctivity

Div

ide

nd Y

ield

Re

ve

nue

/ P

rice

Book / P

rice

Price V

ola

tilit

y

2017 YTD

Excess Return (%)

1.0 0.8

0.0

0.0 -0.3 -0.4 -0.4

-0.8 -0.9 -0.9

-2.6

Re

lative S

treng

th

EP

S G

row

th

Earn

ings / P

rice

Ma

rke

t C

ap

De

bt /

Equ

ity

Re

ve

nue

/ P

rice

Earn

ings V

aria

bili

ty

Book / P

rice

Div

ide

nd Y

ield

Tra

din

g A

ctivity

Price V

ola

tilit

y

2Q17

Excess Return (%)

Source: FactSet as of 06/30/17 using Northfield defined quantitative factors for the Northfield broad U.S. market database.

Price and Fundamentals Converge

Source: FactSet. S&P 500 Growth and Value Indices used to represent Growth and Value stocks. Fundamentals are LTM EPS.

Page 10

• Last year, stock prices and fundamentals diverged as investors positioned for perceived

changes following the U.S. presidential election

• This year, as expectations for policy changes have waned, fundamentals have taken

center stage again, which has been reflected in stock prices

Performance

90

95

100

105

110

Jun-1

6

Jul-1

6

Aug-1

6

Sep-1

6

Oct-

16

No

v-1

6

De

c-1

6

Jan-1

7

Feb

-17

Ma

r-1

7

Apr-

17

Ma

y-1

7

Jun-1

7

Disconnect

Stock Prices

Convergence

Fundamentals

Growth Relative to Value

0

20

40

60

80

100

-15

-10

-5

0

5

10

15

20

Techn

olo

gy

He

alth C

are

Co

nsum

er

Dis

c

Industr

ials

S&

P 5

00

Ma

teri

als

Utilit

ies

Co

nsum

er

Sta

ple

s

Fin

ancia

ls

Re

al E

sta

te

Tele

com

Energ

y

Earnings Drove Sector Performance YTD

Performance

Page 11

Source: FactSet as of 6/30/2017. Companies beating estimates based on average of Q416 and 1Q17 earnings seasons which were reported in 1H17.

S&

P 5

00 S

ecto

r

Retu

rns Y

TD

(%

) %

Co

mp

an

ies

Beatin

g E

stim

ate

s

• In contrast to much of last year, sectors with the strongest earnings performance YTD had

the best stock performance, such as Technology and Health Care

Leading Price & EPS Performance

The Earnings Growth Resurgence Is Boosting Performance

Performance

Page 12

Source: FactSet as of 6/30/17. Based on consensus estimates of next 12-month EPS. Actual earnings per share might be materially different than shown. MSCI ACWI ex-US

performance based on local currency.

Total Return = Dividend Yield + EPS Growth +/- P/E Change

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17

Dividend EPS Growth P/E Change

12-

Month

Total

Return:

31% 5% 21% 25% 7% 4% 18%

12-

Month

Total

Return:

15% -8% 19% 18% 10% -9% 22%

S&P 500 MSCI All Country World Index ex-USA

-20%

-10%

0%

10%

20%

30%

40%

Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17

Dividend EPS Growth P/E Change

EPS

Growth

Reversal

EPS

Growth

Reversal

Has Active Relative Performance Troughed?

Page 13

Performance

Source: Nomura/Instinet, Joseph Mezrich and FactSet through 06/30/17. Fund performance is trailing 5-year data and Small Cap Outperformance is Ibbotson US Small Stock Premium

5-year rolling return.

• While there are secular pressures affecting active management, cyclical factors tend

to be much more powerful in the short- and medium-term

• We believe the trough in cyclical active performance may be behind us as small caps,

the largest of several factors that drive active relative performance, are likely to perform

better in the future (see pg. 20)

-20%

-10%

0%

10%

20%

30%

40%

0%

20%

40%

60%

80%

100%

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Sm

all C

ap

Re

lativ

e

Ou

tpe

rform

an

ce

% o

f F

un

d A

sse

ts

Ou

tpe

rfo

rmin

g

Active Relative Performance Is Cyclical

Source: FactSet. Data through 06/30/17.

Style Divergence

• Growth has had persistent, strong outperformance over the past decade due to:

‒ Deleveraging / slower growth environment

‒ Changing returns on capital

‒ Speed of innovation

Page 14

Performance

Growth has

outperformed

Value by 45% over

the past decade

40

60

80

100

120

140

160

180

200

220

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Total Return

Russell 3000 Growth

Russell 3000 Value

40%

50%

60%

70%

80%

90%

100%

110%

0.9

1.4

1.9

2.4

2.9

3.4

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

MS

CI W

orl

d V

alu

e /

Gro

wth

Source: FactSet as of June, 2017.

Style Divergence - Deleveraging

• After the Global Financial Crisis, the U.S. consumer sector, the most powerful driver of

global economic activity, decreased its debt, or leverage, ratios

• This deleveraging process has caused slower growth and lower interest rates; both of

which have driven growth stock outperformance relative to value stocks

Page 15

Fundamentals

Lower leverage has

coincided with Value

underperforming Growth

U.S

. Ho

useh

old

Deb

t to G

DP

Style Divergence - Changing Returns on Capital

Page 16

Fundamentals

40

50

60

70

80

90

100

110

2007 2009 2011 2013 2015 2017

To

tal R

etu

rn I

nd

ex

Source: FactSet as of 6/30/17. Price-to-earnings and price-to-book returns are based on the E/P and B/P Northfield factors for the Northfield broad U.S. market database.

• The culprit for value investors has been very weak performance in buying low P/B stocks,

while P/E strategies have fared much better

• Book value may no longer be as relevant given changing business models, e.g., R&D is

not capitalized in book value

• The overall level and dispersion of margins and returns are increasing so reversion to the

mean (low P/B strategy) may not work as well

P/B, not P/E, has driven

Value underperformance

P/E

P/B

Russell 1000 Value /

Growth

Style Divergence - Speed of Innovation

Fundamentals

Page 17

Source: Asymco.

• Innovations are penetrating U.S. markets at an even faster pace

‒ “Growth” stocks should benefit from innovation while “value” stocks that appear cheap

may simply be victims of change

0

40

80

120

160

200

Ne

wsp

ape

r -

170

4

Sto

ve -

1750

Ho

sp

ita

ls -

177

6

Second

. S

ch

. -

181

0

Ste

am

ship

- 1

810

Ra

ilro

ad -

1830

Tele

ph

one

- 1

880

Ro

ads -

18

80

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ow

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- 1

882

Ra

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- 1

89

7

Wash. M

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19

33

TV

- 1

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ble

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- 1

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19

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19

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PC

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- 198

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8

Socia

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edia

- 2

004

The faster speed of

innovation may be

exacerbating the disparity

between growth and value

fundamentals

Years from Market Entry to 50% Penetration in the U.S.

$50

$70

$90

$110

$130

$150

80

90

100

110

120

130

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

S&

P 5

00 E

PS

Lead

ing

Eco

no

mic

In

dex

18

Month

Lead

Source: FactSet, Conference Board as of June 2017. Based on NTM EPS estimates.

Leading Indicators Suggest Earnings Will Continue to Rise

• The Conference Board Leading Economic Index (LEI) typically leads earnings by 6-18

months and usually peaks one to two years prior to a recession

• Given that the LEI is increasing solidly year-over-year and hit a record high in 2Q17, we

believe the economy and earnings have room to run

Page 18

Fundamentals

Leading Economic

Index indicates further

EPS growth

Economic Outlook

• Strong business and consumer confidence

• Solid U.S. consumer balance sheet

• Rising real U.S. disposable income

• Potential fiscal stimulus

• Tightening monetary policy

• Rising U.S. labor costs

• China debt levels

• Political risk

Tailwinds

Headwinds

Page 19

Fundamentals

80

90

100

110

120

130

140

150

160

170

180

20

13

20

14

20

15

20

16

20

17

20

18

Earnings Per Share

R2000 R1000

Smaller Capitalization Stocks Poised to Outperform

Fundamentals

Page 20

Source: FactSet as of June 2017. EPS for 2017-2018 are consensus estimates and actual earnings per share might be materially different than shown.

• Smaller capitalization tailwinds

‒ Stronger fundamentals: Estimated EPS growth for 2017/18 approximately double that of large cap

‒ More levered to fiscal stimulus: Small caps are more U.S.-oriented and have higher

operating leverage

‒ Rising interest rates: Small caps have historically outperformed large caps in rising rate

environments and vice versa in falling rate environments

‒ Attractive valuation: Small cap sales multiple discount implies opportunity

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

Enterprise Value / Sales R2000 / R1000

Historically Large

Discount

Small

Caps

Growing

Faster

Innovative Companies Grow Earnings and Stock Prices Faster

Source: FactSet. Most/least innovative based on R&D % of sales. Est EPS growth Apr 2007- Apr 2017 measured after classification of S&P 1500 companies into innovation quintiles in

Dec. 06. Most/least innovative stock performance based on S&P 1500 quintiles one month returns for same time period. *Baruch Lev and Suresh Radhakrishnan, “The Stock Market Valuation of R&D Leaders.”

• Innovation propels economic growth over time

• Studies have shown, and our research demonstrates, that the most innovative companies

grow their sales and stock prices faster*

Page 21

Fundamentals

10%

5%

Most Innovative Least Innovative

Est. E

PS

Gro

wth

2007

-2017

EPS Growth…

-

100

200

300

400

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

…Stock Prices

Innovation Drives:

and

Least Innovative

Most Innovative

The Growth Advantage

Source: FactSet as of June 2017. Growth represents consensus long-term analyst estimates, and actual future EPS growth rates might be materially different than the forecasts shown.

• Three variables drive P/E multiples: growth, returns, and risk

• As compared to the Russell 1000 Value, the Russell 1000 Growth has higher expected

EPS growth, higher returns on equity, and lower risk in the form of better balance sheets

Page 22

Fundamentals

Stronger Growth

14.4%

9.3%

Long-Term EPS Growth

R1000G R1000V

Higher Returns

24.8%

10.1%

Return on Equity

R1000G R1000V

Lower Risk

1.2x

2.2x

Net Debt / EBITDA

R1000G R1000V

The Great Rotation—Economic Policy

Source: IMF, Evercore ISI, FactSet, and Alger estimates. Note: central banks include Federal Reserve, Bank of Japan, and European Central Bank.

• Central bank asset expansion, or quantitative easing (QE), is slowing globally

• Fiscal policy is exiting the era of austerity that began after the Global Financial Crisis and

in some countries is actually turning stimulative

• This implies bond yields will move higher as QE buying of bonds gives way to fiscal

stimulus and issuance of bonds

Page 23

Fundamentals

Monetary policy

gives way to

fiscal policy

-25

-20

-15

-10

-5

0

5

10

15

0%

5%

10%

15%

20%

25%

30%

20

11

20

12

20

13

20

14

20

15

20

16

20

17E

20

18E

Ce

ntr

al B

an

k A

sse

ts Y

oY

Ch

an

ge N

um

ber o

f Co

un

tries L

oo

se

nin

g

Les

s T

igh

ten

ing

Fis

ca

l Po

licy

Fiscal

Monetary

The Great Rotation—Asset Allocation

Valuation

Page 24

Source: FactSet, Federal Reserve, and S&P, as of 06/30/17.

• Moving from monetary stimulus and quantitative easing to fiscal stimulus and increased

deficits should drive a Great Rotation from bonds to stocks

• The magnitude of the rotation will be fueled by the valuation disparity between equities

and bonds, which are expensive by comparison

‒ The earnings yield for equities is more than 300 bps greater than 10-year Treasury

notes vs. a 60 bps median over the past half century

0

2

4

6

8

10

12

14

16

19

58

19

60

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

S&P 500 EPS Yield Treasury Bond Yield

>300 bps

Equity vs. Bond “Yields”

Stocks are attractively

valued relative to bonds

Not All Sectors Are Expensive

Valuation

Page 25

Source: FactSet, based on S&P 500 Index, 6/30/17. Note: energy and telecom are excluded; the former because of an extremely high P/E due to depressed earnings and the latter

owing to a small number of constituents. Real estate is a new sector classification, so for the historical data shown above, an industry group category that has approximately 16 years

of data was utilized.

• Bond-like equities such as Utilities remain expensive due to the search for yield while

some cyclicals have become more expensive recently as well

• Growth sectors are reasonably valued relative to other sectors and compared to history,

particularly given low levels of interest rates

21% 21%

16%

9% 7% 7% 5%

-3% -5%

Utilit

ies

Ma

teri

als

Co

ns. S

taple

s

Industr

ials

Fin

ancia

ls

Re

al E

sta

te

Co

ns. D

iscre

tiona

ry

He

alth C

are

Techn

olo

gy

Reasonably Valued

Growth Sectors

P/E

Rela

tive t

o 2

0-Y

ear

Media

n

Growth Valuations Are Compelling

Valuation

Page 26

Source: FactSet, Bank of America as of 06/30/2017.

• The search for yield, and more recently optimism for economically sensitive Value stocks,

have driven Growth stocks to attractive relative valuations

Russell 1000 Growth vs. Russell 1000 Value

PEG Ratio (P/E Divided by Long-Term Growth Rate)

Russell 1000Value

Russell 1000Growth

1.7x

1.4x

Russell 1000 Growth vs.

Russell 1000 Value P/E

30% premium

is low relative

to history

5

10

15

20

25

- 5 10 15

P/E

10-Year Yield

S&P 500 NTM P/E vs. 10-Yr Treasury Note Yield 1964-2017

= Month

Addressing Interest Rate Risks—It’s Too Soon to Worry

Valuation

Page 27

Source: RBC Capital Markets and FactSet. Data is through June, 2017.

Higher Rates

Rising P/E Higher Rates

Falling P/E

• Potential Risk: higher bond yields lower equity valuations?

• Potential Solution: favor equities over bonds given that increasing interest rates

have supported higher P/E multiples at low absolute levels

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

19

96

19

97

19

98

19

99

20

00

20

01

20

03

20

04

20

05

20

06

20

07

20

08

20

10

20

11

20

12

20

13

20

14

20

15

20

17

Average

0%

1%

2%

3%

4%

5%

6%

7%

8%

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

S&P 500 Dividend Yield S&P 500 Buyback Yield

Total Yield

Total Yield Compelling

Valuation

Page 28

Source: FactSet and Alger estimates as of 06/30/17. Corporate Bond Yield is Moody's Baa Corporate Bond Yield.

• Dividends + Share Repurchases =

Total Yield

• Equity Total Yield is attractive relative to

corporate bonds

Share Repo. 2.7%

Total Yield

4.6%

Dividend 1.9%

Wide

Spread

Relative

to

History

S&P 500 Total Yield vs. Corporate Bond Yield

Prospective Returns Appear to Favor Growth

Valuation

Page 29

Source: FactSet as of 6/30/17. Table contains annualized S&P 500 GICS sector data. Figures for the EPS Growth represent consensus long-term analyst estimates, and actual future

EPS Growth rates might be materially different than the forecasts shown. P/E assumes reversion to 20-year historic norm, and actual future P/E change may be materially different than

the forecasts shown.

• Growth sectors have significant return potential relative to value and bond-like sectors

EPS Growth

(3-5 year consensus,

reduced by 20%)

Dividend Yield

(last 12 months)

P/E Change

(reversion to 20-year

median P/E)

Five-Year Return

(hypothetical) + + =

Framework for Estimating S&P 500 Sector Returns

Value or Bond-Like Sectors

Utilities 4% 3% -4% Underperformance?

Materials 8% 2% -4% Underperformance?

Consumer Staples 7% 3% -3% Underperformance?

Growth Sectors

Health Care 8% 2% 1% Outperformance?

Consumer Discretionary 12% 1% -1% Outperformance?

Technology 11% 1% 1% Outperformance?

Disclosure

The views expressed are the views of Fred Alger Management, Inc. as of June 2017. 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 Fred Alger Management, Inc. These views should not be

considered a recommendation to purchase or sell securities. Individual securities or industries/sectors mentioned, if any, should be considered in the context

of an overall portfolio and therefore reference to them should not be construed as a recommendation or offer to purchase or sell securities. References to or

implications regarding the performance of an individual security or group of securities are not intended as an indication of the characteristics or performance

of any specific sector, industry, security, group of securities, or a portfolio and are for illustrative purposes only.

Risk Disclosures: Investing in the stock market involves gains and losses and may not be suitable for all investors. Growth stocks tend to be more volatile

than other stocks as the prices of growth stocks tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political and

economic developments.

The S&P 500 Index is an unmanaged index generally representative of the U.S. stock market without regard to company size. The 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. The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book

ratios and lower forecasted growth values. The Russell 2000 Growth Index is an unmanaged index generally representative of common stocks designed to

track performance of small-capitalization companies with greater than average growth orientation. The Russell 2000 Value Index is an unmanaged index

generally representative of the small-cap value segment of the U.S. equity universe and measures the performance of Russell 2000 companies with lower

price-to-book ratios and lower forecasted growth values. The Russell 3000® Growth Index is an unmanaged index designed to measure the performance of

those Russell 3000® Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 3000 Value Index is an unmanaged

index generally representative of stocks from the Russell 3000 Index with lower price-to-book ratios and lower expected growth rates. The MSCI ACWI Index

(gross) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging

markets. The MSCI ACWI consists of 45 country indices comprising 24 developed and 21 emerging market country indices. The indices presented are

provided for illustrative purposes, reflect the reinvestment of dividends and do not assess fees and expenses that would have the effect of reducing returns.

Investors cannot invest directly in any index. The index performance does not represent the returns of any portfolio advised by Fred Alger Management, Inc.

and actual client results might differ materially than the indices shown. 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.

ALCAPPRESSPR-0617 Fred Alger Management, Inc. • 360 Park Avenue South, New York, NY 10010 • 800.992.3863 • www.alger.com

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