Investor's Business Daily
APRIL 10, 2017
Blue Chip Tech Stocks Help Fuel This Red-Hot Fund
BY PAUL KATZEFF
To beat the stock market and mutual fund peers, having the right stocks isn’t enough. It’s having them at the right time that counts. And Alger Spectra Fund (SPECX) has done that in spades in the past 10 years and is doing so again this year. The fund, managed by Patrick Kelly since 2004 and Ankur Crawford since 2015, has cranked out an average annual gain of 10.55% in the 10 years since April 1, 2007, vs. 7.71% for its large-cap growth peers tracked by Morningstar Inc. and 7.51% for the S&P 500. This year the $5.3 billion fund has raced ahead 11.04% vs. peers’ 8.62% and the broad stock market’s 6.07% gains. It’s doing that thanks in large part to the double-digit gains notched by nearly 40% of its publicly traded stocks so far in 2017. Blue chip stocks, including a bevy of tech beauties, are a big part of Spectra’s story right now. Top-10 holdings Amazon.com (AMZN), Apple (AAPL), Facebook (FB), Visa (V) and Broadcom (AVGO) were all double-digit climb- ers, with returns ranging from Visa’s 14% to Apple’s nearly 25%. Other big gainers for the fund included Adobe Systems (ADBE), up 26%; Alibaba Group (BABA), whose ADRs were up 24%; and S&P Global (SPGI), up 21%. Through Monday afternoon, Amazon, Facebook, Broadcom and Alibaba were ad- vancing yet again. The $4.78-billion market cap Cavium (CAVM), punching way above its weight class, was also rising — again. So was United Rentals (URI). Each was pushing back up near all-time high levels. Most of those stock market winners can also be found in Spectra’s peers and the major stock indexes like the Nasdaq Composite and the S&P 500. But it’s the managers’ handling of the fund’s investment process that has made the performance difference. Lead managers Kelly and Crawford, who ad- vanced to her manager role after joining Alger as a research assistant in 2004, have notched their gains mainly by sticking to their invest- ment approach, even when that means side- stepping sectors that have benefited from the “Trump bump” stock market rally. The crux of their approach is to seek growth stocks that are undergoing what they call “posi- tive dynamic change” — high-unit-volume growth and positive life-cycle change.
Alger Spectra’s Ankur Crawford and Patrick Kelly favor growth stocks undergoing a “positive dynamic change.” Recent holdings include, Apple, Amazon and Facebook. (Tina Fineberg/IBD)
U.S. business and GDP growth. With a lot of companies we’ve invested in, we’re staying the course. IBD: Across the board? Crawford: The procyclical bias favoring mate- rials is outside how we invest. With materials, we don’t see a positive life-cycle change per se vs. a cycle to be played. In banks, however, there is much change. We expect they will benefit from lower regulation. We didn’t take our industrials positions up dramatically because we worried about the very thing you’re talking about, and industrials have given up some gains on those fears. How- ever, in technology there are secular growth drivers that, regardless of policy, we expect will play out. IBD: The tech sector is your largest weighting. Why? Kelly: We continue to be big on trends in the internet, software and semiconductors. We believe tech will be a big beneficiary of trends in the mobile internet, artificial intelligence, cloud computing and Big Data. IBD: What are some examples?
Kelly, 42 years old, and 41-year-old Craw- ford talked about their strategy and holdings with IBD from their offices in New York City. IBD: What does the positive-life-cycle-change part of your strategy mean? Kelly: In a positive life-cycle change, we’re looking for earnings acceleration and multiple expansion driven by the positive change. IBD: How much of your portfolio consists of life-cycle change, how much consists of high- unit-volume growth? Crawford: About 10% of the portfolio is both, and the remainder is split half and half. IBD: Since the election, a lot of money manag- ers have focused on playing sectors that they believe will benefit from Trump initiatives and a Republican Congress. However, with the failure to repeal or reform ObamaCare, many investors are concerned about the outlook for those policy moves. How are you playing this? Kelly: You highlighted one of the big market risks. Can the administration deliver on its promises? We’re still optimistic that admin- istration policies will be more supportive of
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