Chief Causes for the Alger Spectra Fund’s Poor Showing in YTD 2016

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Performance evaluation of the Alger Spectra Fund

Until August, 2016 has been utterly forgettable for the Alger Spectra Fund – Class A (SPECX). It stands second to last among the 12 funds chosen for this review. It finds itself in the same position for the six-month period as well.

We have graphed SPECX’s performance against two ETFs: the iShares S&P 500 Growth ETF (IVW) and the iShares Russell 1000 Growth ETF (IWF). Let’s look at what has contributed to the fund’s forgettable performance in this year so far.

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Contribution to returns

Information technology stocks have been the biggest positive contributors to SPECX’s returns in YTD 2016. Facebook (FB) has outdone all other positively contributing stocks in the fund, including giants like Apple (AAPL) and Microsoft (MSFT). However, LinkedIn (LNKD), ServiceNow (NOW), and Alliance Data Systems (ADS) have been able to chip away some of the positive contributions.

Consumer staples and industrials have also emerged as sizable positive contributors to SPECX. Small positive contributions from various staples stocks like Pepsico (PEP), Altria Group (MO), and Molson Coors Brewing (TAP) have ensured the success of the staples sector.

Meanwhile, the industrials were led by Honeywell International (HON), and the sector has been supported by Tyco International (TYC), HD Supply Holdings (HDS), and Lockheed Martin (LMT). However, negative contributions from airline stocks such as Delta Air Lines (DAL) and Southwest Airlines (LUV), along with others like Stericycle (SRCL), have arrested further positive contributions from the sector.

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Healthcare has been the most hurtful to the Alger Spectra Fund – Class A (SPECX) in 2016 so far. Vertex Pharmaceuticals (VRTX) has wounded the sector, as has Gilead Sciences (GILD) and Allergan (AGN). Edwards Lifesciences (EW) and UnitedHealth Group (UNH) have healed the sector a bit, but not enough to overcome the negative contributions by other stocks.

Apart from healthcare, financials have also nicked the fund. Citizens Financial Group (CFG) led the sector down, but some of the overall negative contributions were reversed by Crown Castle International (CCI).

Investor takeaways

However, 2016 is not turning out to be a good year for SPECX. Apart from a poor return performance, the fund has an extremely high rate of portfolio turnover. Although it is a bit early to say whether fund managers are struggling to cope with the challenging events of 2016, we’ll know for sure in the next three months or so. For new investors, there are other options to consider for investing in large-cap US stocks.

In the next article, we’ll look at the American Century Growth Fund – Investor Class (TWCGX).

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