The New Normal Could Support Market Leaders

by DAN CHUNG, CFA, CEO, CIO, Portfolio Manager, Alger Management Ltd., a La Française group-member company

Barbecue ribs are increasingly finding a spot in aircraft cargo bays and wine is more likely to appear in a local delivery person’s hands. It’s all part of the many surprising twists and turns in the economy resulting from economic shutdowns and stay at home orders implemented to slow the spread of Covid 19. These actions have driven rapid growth for companies like online retailers and home delivery services, as well as remote office and virtual conference technology providers.
As countries ramp up their Covid 19 vaccination programs, some investors have grown fearful that beneficiaries of the pandemic, such as providers of virtual conference technology or other services that enable social distancing, could experience a deceleration of demand for their products. However, we believe that significant shifts in supply chains, logistics and consumer and business behavior have positioned leading companies for potentially strong growth even after the pandemic is contained and we return to a new normal.

Disruption from Innovation

At Alger, we seek to invest in highly innovative companies because we believe innovation is an extremely disruptive force that can help leading businesses capture market share and grow their earnings often at a rate that many investors underestimate.
We believe the concerns about these companies and the potential end of Covid 19 overlook the new normal, including, among many examples, leading restaurants launching services to deliver prepared food in response to dining rooms being shut down and wine vineyards developing e commerce as an alternative to brick and mortar stores.

Online Shopping Accelerates

From a broader perspective, online shopping has seen near exponential growth, with FedEx commenting that shipping volumes that were previously expected to be reached by 2026 will now occur by 2023 due to increased online shopping. This acceleration is happening after decades of growth in online retailing, which benefit large online retailers, but also smaller retailers who had the foresight to adopt and even primarily build their businesses online, often using technology from Shopify, Inc., Square, Inc. and HubSpot, Inc. We believe e commerce will continue to grow well above the retail industry average because individuals are benefiting from the convenience of using the internet.

Employers Adopt Collaboration Technology

Demand for technology that supports online collaboration, videoconferencing, business process management, network capacity and security for remote workers is also likely to continue.

A study by Gartner found that 82% of executives say they plan on letting employees work remotely some of the time and 47% said they will allow employees to work remotely all of the time (executives could select more than one answer). This shift in thinking could support strong demand for providers of online collaboration technology that have already benefited from stay at home orders including Microsoft , which offers
collaboration through its Microsoft Teams service The adoption of technology extends beyond online meetings as businesses increasingly digitize operations. Paylocity is enjoying increasing demand for its cloud
based payroll and benefits administration services while Bill.com is experiencing growing demand for its technology that streamlines the procurement process by digitizing invoices and the approval of payments for vendors. Firms such as DocuSign that allow firms to manage contracts electronically with functions such as e signatures are also experiencing strong demand for their services.

Health Care Innovation Gets a Boost

The adoption of innovation in health care has also accelerated as medical professionals and consumers have embraced telemedicine to practice social distancing. In addition to convenience for patients, telemedicine is helping health care providers reduce their reliance on costly offices within hospitals or other facilities so we believe this trend will continue during the new normal.
Adoption is also accelerating for many other technologies that enable remote care, including continuous glucose monitoring (CGM) for insulin dependent diabetics and pulse oximetry for monitoring
patient health metrics. The rapid development of Covid 19 vaccines resulting from genetic science, including messenger RNA (mRNA), is also significant.
For Moderna’s mRNA Covid 19 vaccine, the company was able to go from DNA sequencing and product design to conducting first in human trials in about 63 days. The potential promise of mRNA medicines is to instruct a patient’s own cells to produce proteins that could prevent, treat or cure disease. We believe the use of mRNA could potentially accelerate now that the technology has been validated and we have identified at least 13 companies that are using it to develop treatments for oncology, infectious diseases, cardiovascular care and pulmonary disorders. Acceleration is also prevalent in the adoption of immunology oncology, which engages the immune system to fight cancer, and genetic editing, which attempts to directly address diseases caused by genetic disorders. In the field of diagnostics, the development of a new generation of blood based tests seeks to increase the sensitivity and accuracy of cancer detection and monitoring for cancer survivors; a more detailed understanding of the pathology of a patient’s cancer, it is hoped, will also improve the design of cancer treatments for patients.
If successful, these new blood based diagnostic tools will likely supplement or, in some cases, substantially reduce the use of traditional biopsies in cancer treatment. At the same time, the use of “Big Data” is
likely to continue to expand significantly. Through the use of machine learning and artificial intelligence, health care companies are able to leverage large patient data sets to develop new therapeutics, more effectively diagnose diseases and allow patients to better manage chronic conditions.

The Road Ahead

At Alger, we will continue to focus on conducting in depth research to find companies with strong business models and innovative products that have potential to thrive through economic cycles, including when the new normal finally arrives.

DISCLOSURE

The views expressed are the views of Fred Alger Management, LLC (FAM) and its affiliates as of February 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 Disclosure: 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 their companies’ earnings and may be more sensitive to market, political, and economic developments. Technology and healthcare companies may be significantly affected by competition, innovation, regulation, and product obsolescence, and may be more volatile than the securities of other companies.
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 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 subportfolio 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 an authorized person 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.
The following positions represented the noted percentages of Alger assets under management as of 12/31/2020: Federal Express, 0.0%; Shopify, Inc., 0.4%; Square, Inc., 0.10%; Hubspot , Inc., 0.10%; Gartner, 0.0 %; Microsoft, Inc., 4.50%; Paylocity, 0.50%; Bill.com Holding, 0.10%; DocuSign, 0.10%; and Moderna , 0.10%.