Hi, this is Greg Adams.  I’m Portfolio Manager at Fred Alger on the Dynamic Opportunities Fund and I’d like to give you an update on the start of the year. 

Obviously, the start of the year has been challenging in the equity markets.  Let me review some performance to show how Dynamic Opportunities has performed since the market peaked back in May.  Then I will discuss year-to-date positioning.

Looking at the time period since the market peaked, relative to the S&P 500, we’ve participated in more of the downside than we like to see, with the Fund down approximately 11.6% versus down 12.8% for the S&P 500, but that’s in the context of our longs being down about 19.6%.  Importantly, and I think this is something we always emphasize when we talk about how we do in down markets and how we hedge, the stocks we are short are down over 20% over that same period; so we’ve been pretty well hedged.  We’ve had good stock selection on the short side.

I think where we’ve gotten hurt is our long stock selection and that is partly explained by having reasonable exposure in mid and small cap names over that period.  Since the May peak, the Russell 2000 Growth Index is down over 25% and the Russell Midcap Growth Index is down almost 20%.  As you can see, small cap and mid cap performance of the benchmarks has been significantly worse than the large cap benchmarks.

Coming into the year, our thinking had been that we might see a little bit of a traditional, start-of-the-year rally after the volatility in the back-half of 2015; and post the first interest rate move by the Fed in December.  Right out of the gate with the sharp collapse in oil prices and pressure in China, the market headed south pretty quickly.  As such, we came into the year a little high on net exposure.

By the end of January, we have the portfolio much more defensively positioned, and we’re down to mid-40's net exposure now, which I think is a more conservative position.  If you look at some of the down and up days, and we’ve had a fair amount of volatility over the last few weeks, I think we’ve been performing more like what we’d like to see.  So, I think some of the repositioning we’ve done in terms of names and exposures has put us in a better position here going forward in the market.

That said, we’re not widely negative here.  Our analysts are seeing opportunities in the selloff and in a number of instances recent earnings reports have been quite supportive.  The flip side is, with the continued pressure on oil prices, credit market concerns, and weak economic outlook in China, the markets are likely to remain volatile.  Many of these issues are intertwined and creating significant worry about the health of the global economy and, as a result, the U.S. economy as well.  We feel these concerns are overblown and recent U.S. employment and consumer spending data has been supportive.  That said, pressure on sovereign wealth funds to liquidate equities and other investments to support domestic spending and the reduction of leverage in the system in general, driving many trading strategies, could continue and create additional volatility.

On the long side we have been eliminating lower conviction names and adding exposure to our higher conviction names that have traded down with the market; so, in a sense, re-deploying within our long exposure.  The net/net is that we have lowered our exposure a bit both long and short.

That’s a quick rundown on the positioning and where we are in the Dynamic Opportunities Fund. 

 

The views expressed are the views of Fred Alger Management, Inc. These views are subject to change at any time and should not be interpreted as a guarantee of 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.

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 price of growth stocks tends to be higher in relation to their companies´ earnings and may be more sensitive to market, political and economic developments.

The Alger Dynamic Opportunities Strategy may engage in selling stocks short. Short selling (or "selling short") is a technique used by investors who try to profit from the falling price of a stock. It is the act of borrowing a security from a broker and selling it, with the understanding that it must later be bought back and returned to the broker. In order to engage in a short sale, the strategy arranges with a broker to borrow the security being sold short. In order to close out its short position, the strategy will replace the security by purchasing the security at the price prevailing at the time of replacement. The strategy will incur a loss if the price of the security sold short has increased since the time of the short sale and may experience a gain if the price has decreased since the short sale.

Performance shown for the Alger Dynamic Opportunities Fund (the “Fund”) is gross performance, calculated as of 2/8/15.  Please view the Alger Dynamic Opportunities Fund Product Page for more recent performance history of the Fund net of fees and expenses that is as of the last business day.

The S&P 500 Index is an unmanaged index generally representative of the U.S. stock market without regard to company size.  The Russell 2000 Growth Index is an unmanaged index designed to measure the performance of the 2,000 smallest companies in the Russell 3000 Index with higher price-to-book ratios and higher forecasted growth values.  The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on the total market capitalization. The Russell MidCap Growth Index is an unmanaged index designed to measure the performance of the 800 smallest companies in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values.  The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe.  Index performance does not reflect deductions for fees, expenses or taxes. Investors cannot invest directly in any index. 

Founded in 1964, Fred Alger Management provides investment advisory services to institutional and individual investors through traditional and alternative strategies in a variety of products, including separate accounts, mutual funds and privately offered investment vehicles. For more information, please visit www.alger.com.