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Rating:Fred Alger Looks on the Bright Side Not Rated 3.2 Email Routing List Email & Route  Print Print
Thursday, August 16, 2007

Fred Alger Looks on the Bright Side

News summary by MFWire's editors

Fred Alger Management is looking to reassure clients and all investors in general that the economic picture is not as grim as it may seem. The New York City-based asset manager on Thursday issued a news release saying that that the relative strength of the U.S. economy will lead to an abatement of the pain in the market -- and soon.

Fred Alger Management, a leading asset manager, believes the fundamental strength of many companies, of the global economy, and of the U.S. economy is a powerful sign that what lies ahead for the stock market is likely to be another round of gains rather than a sustained period of declines, adding that it is likely the panic over the meltdown in the sub-prime mortgage space will abate -- and soon.

Alger asserts that market fundamentals and economic fundamentals have diverged as of late, and in fact, economic news -- especially global economic news -- has been getting better even as the stock market has been weakening.

"GDP growth is strong mainly due to consumer spending, capital expenditures by companies, and U.S. exports that have all been better than expected," explains Zachary Karabell, chief economist and executive vice president at Fred Alger. "In addition, job growth has moderated. While this is hardly good news in the real world, it is positive news for the overall economy insofar as it keeps the threat of inflation contained."

Alger stresses that the recent sell-off has also obscured the fact that earnings growth has been significantly better than Wall Street anticipated. At the beginning of the reporting season, for example, consensus expectations were for about 4.2% growth; now, with most companies having reported as of mid-August, the figure looks to be at least 8%.

"Once again, companies have been outperforming for the same reasons: global growth and low-ball estimates, said Dan Chung, Fred Alger's CEO and Chief Investment Officer. "Market pundits have been notably slow to adjust their expectations and, with the current swoon, the result has been a continued accentuation of the negative."

And while the bottom-line of many Wall Street firms and hedge funds, not to mention several hundred thousand home owners, has been directly impacted by this deep sense of unease due to the sub-prime mortgage market, Alger notes that some voices -- including Fed chairman Ben Bernanke -- have pointed out that the actual size of the sub-prime and related fallout is perhaps 1% of the overall U.S. economy (approximately $100 billion). Even if that figure is low, and even if exposure due to derivatives and other financial instruments is considerably greater, it is still dwarfed by the $55 trillion net worth of U.S. households.

Nevertheless, Alger urges investors to be very selective when evaluating the financial sector, and to look for companies benefiting from an increase in volatility that have limited direct exposure to sub-prime credits. They anticipate increased housing defaults and overheated real estate in many markets over the next two years; however, they believe these problems do not have to translate into a bear market. They remind investors that there have been similar pullbacks each year for at least the past three years, and each time, the markets came roaring back.

"We believe that this is very much a mid-cycle slowdown which is precisely what the markets need to continue advancing in the medium to long term," say Mr. Chung and Mr. Karabell. "The fact remains that even with this August swoon, the markets are up for the year. We believe these market sell-offs offer excellent opportunities to add or increase positions in growth companies whose opportunities are, in fact, just beginning."

About Fred Alger Management

Founded in 1964, Fred Alger Management, Inc. is a leading asset management firm employing a bottom-up approach in its attempt to identify the fastest growing companies in their respective sectors. For more than 40 years, Alger has followed a rigorous process, a consistent approach, and a core philosophy: find dynamic, innovative companies creating change and invest in them. Fred Alger Management offers investment advisory services to separately managed, sub-advised and wrap accounts. Fred Alger & Company, Incorporated offers mutual funds as well as institutional funds for defined benefit and defined contribution plans. For more information including a prospectus containing other information about the funds, please visit http://www.alger.com. Before investing, carefully consider a fund's investment objectives, risks, charges and expenses. Read the prospectus carefully before investing. The views expressed are the views of Fred Alger Management, Inc. as of August 16, 2007. 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 are not meant to provide investment advice and should not be considered a recommendation 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 tend to be higher in relation to their companies' earnings and may be more sensitive to market, political and economic development. CONTACTS: John Patteson Kekst and Company 

Edited by: Erin Kello

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