Look beyond
the horizon
While some investors may opt to avoid international equities, they could be inadvertently passing up the opportunity to access innovative companies and compelling investment opportunities. Active growth equity investor Alger maintains a comprehensive understanding of the ever-evolving global marketplace. This exciting and growing arena presents a plethora of businesses with high financial quality, wide economic moats, and long growth potential. The team responsible for managing Alger’s portfolios have decades of experience conducting extensive, proprietary, bottom-up, fundamental research to assess developmental trends and innovative breakthroughs that can propel businesses through the next decade and beyond. The Alger team believes there is an extensive range of untapped alpha sources in non-US companies. You just need to know where to find them.
A world of opportunity
VIDEO
Watch
Read more
The team
Working together
ARTICLE
The great transformation
EM innovation
Identifying investment opportunities
Quality is the key to investing outside the US
in association with
ESG
The Alger way
I
Click here to find out more
Learn about Alger's unique history and timeless commitment to clients
Can EM equities rebound?
International innovation
Teamwork makes the dream work, they say. In the case of Greg Jones and Pragna Shere, it also leads to a holistic investment approach to international equities. They have been working together for decades and complement each other in multiple ways.
It’s second nature
Europe may not be a traditional hotbed of innovation, but for active growth equity investor Alger, it is an exciting new prospect.
If asked to name the capital of innovation, one would likely snub Europe in favor of the US. But despite conceptions, the former is home to more than half of the world’s most innovative companies. In fact, Switzerland and Sweden have consistently ranked in the top three of the world’s most innovative countries for over a decade. In 2021, they took the top two spots in the Global Innovation Index – compiled by the World Bank and World Economic Forum – followed by the US in third place. Also ranked within the top 20 were the UK, the Netherlands, Finland, Denmark, Germany, France, Austria, Ireland and Norway. Pragna Shere, portfolio manager and senior vice president at Alger, is finding innovation in unexpected places on the continent. While the great bull run for US equities was led by technology, innovation is now extending to other areas like the energy, fintech, manufacturing and automotive industries. ‘The strength of our fundamental research capabilities is leading us to unearth investment opportunities in companies that are breaking new ground in industries and places that may be overlooked by others,’ says Shere.
Pragna Shere
Senior vice president and portfolio manager of the Alger Global Focus, Alger International Focus and Alger Emerging Markets Strategies
Riding the renovation wave
One particularly attractive trend is Europe’s ‘renovation wave’ – an EU Green Deal strategy to make buildings more energy efficient. As Europe strives to become the first continent to reach carbon neutrality by 2050, with an interim goal of cutting emissions by at least 55% by 2030, attention is set to broaden from decarbonizing energy to reducing emissions related to buildings. Construction renovation rates are expected to double over the next decade with a potential 35 million buildings – from homes and hospitals to schools and stores – tipped for renovation by 2030. This groundswell of activity presents investment opportunities in companies, paving the way for more energy efficient buildings. Smart switches, thermostats and meters can improve efficiency by monitoring behavioral patterns and turning off energy consumption when it is not needed, while protective coatings, sealants, mortars and waterproofing solutions can repair and protect the core fabric of buildings, improving temperature control and ultimately reducing the energy intensity required for heating and cooling. ‘Companies adapting to these structural trend shifts are seeing accelerating growth that we believe is likely to last for several years,’ says Shere.
Digging for alpha
Going back to the construction process, she sees great potential in additives and mixtures that can reduce the amount of carbon-intensive material used in concrete and cement, thereby reducing emissions. Swiss-based Sika – one of the world’s most innovative specialty materials companies in their opinion – has been a pioneer in the field of chemicals since 1910. Its newest innovation is reCO2ver, which marks a milestone in concrete recycling. This process enables demolished concrete to be completely recycled and saved from landfill, thus sequestering a significant amount of carbon emissions. ‘The significance of this technological breakthrough shouldn’t be underestimated given that the European Commission attributes 25-30% of all waste generated in the EU to construction demolition materials,’ says Shere. Allied to that is the potential for companies like Sika – which are perceived to be ‘ESG friendly’ – to rerate on the back of the EU taxonomy for sustainable activities, a classification system established to clarify which investments are environmentally sustainable in the context of the Green Deal. For Alger, this combination of innovation and re-rating to higher valuations presents a wealth of alpha opportunities. ‘While something like concrete may not seem particularly enticing, dig a little deeper and it is innovations precisely like these that are exciting us at Alger because of their incredible potential to transform markets and economies, and deliver strong long-term returns to our investors.’
Pragna Shere is senior vice president and portfolio manager of the Alger Global Focus, Alger International Focus and Alger Emerging Markets Strategies. She joined Alger in March 2018 and has 32 years of experience. Prior to joining Alger, Pragna worked at Redwood Investments, Ashfield Capital Partners, United Nations Joint Staff Pensions Fund and Clay Finlay, Inc. Shere has a BA from State University of New York at Stony Brook and is a CFA charterholder.
One of Alger’s greatest cultural strengths is the ability to focus on one goal: delivering results for clients. The firm’s history of developing talent started with the firm’s founding in 1964 and continues to this day. With an emphasis on meritocracy, analysts at the firm are encouraged to bring their diverse ideas, thoughts and opinions to the table.
Back to the roots
How should you go about picking international stocks? Alger follows an approach that focuses on high-quality companies with growth potential. But that’s just one aspect. Greg Jones and Pragna Shere explain what makes their investment process stand out and why they’re still as passionate about non-US stocks as they were when they first started.
Alger fund managers Gregory Jones and Pragna Shere explain how falling valuations could lead to long-term opportunities.
The recent market correction has brought valuations in international markets down after a ten-year-plus bull run. It might seem tempting to buy equities in fear of missing out, but buying the index may not be the answer, says Alger portfolio managers Gregory Jones and Pragna Shere. They say stock fundamentals are now more important than ever. While markets continue to be haunted by inflation fears and central bank policy responses, fluctuating investor sentiment could indicate a likelihood of bear market rallies. But these recoveries are likely to be more local, based on specifics. ‘As we move beyond the initial broad market correction phase and into the path and pace of recovery across various markets, we are likely to see a greater divergence in the cross-sectional country/stock performance, based more on fundamentals and earning revisions,’ Jones said.
Pricing power is key
In uncertain conditions, companies that can maintain their margins are likely to be most resilient. This environment could favor companies that can protect margins with growth and pricing power, as well as structural growth stocks. But where are these opportunities to be found? According to Shere, the growth of innovation and specifically the tech sector outside the US is creating a broader set of attractive opportunities across markets, particularly given digitization outside the US is in earlier stages of growth. With geopolitical tensions on the rise, particularly the war in Ukraine, another global theme is the partial deglobalization taking place as governments emphasize policy and investments in national interests related to energy security, and availability of critical supply chain infrastructure – for example, in the semiconductor sector. ‘This theme is creating a broader subset of local opportunities rather than the complete dominance of large global multinationals,’ Jones said. In the face of this changing landscape, stock selection is becoming ever more important in non-US equities. ‘Indexed exposure to cap-weighted benchmarks focused on old world companies may miss opportunities created by these historic paradigm shifts,’ Shere said.
How does Alger invest
To capitalize on these opportunities, Alger focuses its portfolios on companies with high financial quality, wide economic moats, long growth runways and positive revenue and earnings revisions. New ideas are ranked on an ‘EVQ’ basis – based around Earnings revisions, Valuation, and Quality (assessed via Return on Equity). This in-depth analysis then helps to develop a view that differs from consensus. Each company that reaches this stage is evaluated for its competitive advantage, growth potential, growth catalysts, management team, valuation and overall risk – with all of these factors and the EVQ ranking being continually monitored and discussed by portfolio managers.
What areas look cheap?
Looking forward, different areas of non-US markets could provide opportunities for active stock selection, Jones said. In Europe, fears of a deeper crisis and possibly contagion stemming from the war and energy crisis have abated, providing hope that economic conditions in 2023 may not be as bad as expected, ultimately reducing the risk premium for equities in the region. Emerging markets (EMs) could also present opportunities for those with the right stock selection. While China dominates headlines, the dispersion of returns across EM countries indicates more decoupling within the region, according to Shere. ‘This bodes well for an active management approach in 2023 as correlations across country performance decline.’ But especially in these volatile markets, it’s essential to have the right tools to find opportunities, she said. While accounting standards have improved across the world, other factors such as corporate governance and other ESG policies have lagged U.S. and European standards. This, however, is an opportunity as ESG policy adoption and actions take hold in certain countries and companies. A seasoned international team with deep experience in country characteristics and company fundamentals should be able to identify opportunities as we move beyond the current macro dominant environment.
From niche to mainstream
Emerging markets, as Greg Jones so aptly put it, are no longer about ‘hope and prayer’. Instead, they’ve grown and truly arrived. Emerging countries are a force to be reckoned with and represent a tremendous opportunity for investors. But you need to know what you’re doing – which is where Jones and Pragna Shere come in.
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Maecenas ex sem, auctor sed elementum quis, tincidunt sed mi. Vivamus a velit purus. Suspendisse porttitor tellus eget nulla ultricies varius. Quisque pulvinar, justo sed rhoncus volutpat, urna sapien vulputate magna, non iaculis tortor libero vitae lectus.
With a more uncertain global environment, investors are looking elsewhere for growth
Global economies have faced several challenges recently, leading to poor stock market returns. The war in Ukraine, rising inflation and interest rates, and the strong US dollar has had a ripple effect on the global economy. Despite these headwinds, emerging economies remain resilient and appear well-positioned to withstand geopolitical and economic shocks. Gregory M Jones, senior vice president and portfolio manager at Alger, believes now is the time to consider emerging market (EM) equities.
Rise of innovation
The developed world no longer holds a monopoly on innovation. While Covid-19 increased near-term risk of investing in EMs, the rise of innovation and value-added industries have placed their trajectory on a more stable footing. China in particular is playing an important role in global innovation, as it moves from replicating technology to producing genuine innovation. According to Jones, ‘automation has the potential to boost productivity and help developing countries move up the manufacturing value-added curve.’ ‘Also, we believe the penetration of low-cost smartphones has resulted in a significant increase in the number of previously unbanked adults that are now connected to the formal economy for the first time. We believe this has a profound impact on GDP growth, government efficiency, social mobility, female empowerment and new business creation and savings.’ Strong higher education institutions, supportive public policy and generous research and development spending by the private sector have resulted in the impressive transformation of China into an economic powerhouse: the country has led the world in the number of patent applications and the number of patents received. In 2020, the World Intellectual Property Organisation (WIPO) reported that China was granted 530,000 new patents on nearly 1.5 million patent applications – well ahead of patents granted to US entities.
Gregory Jones
Rise of Moving further
From biotechnology to information technology, South Korea is another standout that is becoming a global leader in many areas of innovation. The country has thrived as an economic powerhouse with a technological edge, where companies producing batteries and battery materials for electric vehicles are pushing the boundaries of performance, price and safety. ‘The government initiatives to promote basic, as well as applied research, is transforming South Korea from a ‘fast follower’ to a first mover’,’ adds Jones. Turning to India, the country has significantly improved performance in global rankings for innovation, competitiveness and ease of doing business. Notably, the country deployed technology to advance public health priorities during the COVID-19 pandemic. It has also demonstrated the important role of technology to advance equitable development through efforts to promote digital empowerment and last-mile financial inclusion. One of the rapidly developing new technology categories is communications-platform-as-a-service (CPaaS) – a market in which India’s Route Mobile is establishing itself as an important player. In short, it is clear that today’s innovation looks different than it did a few years ago. According to Jones, ‘with positive trends in innovation around the world and improved levels of competitiveness within developing countries, the opportunities for active equity management of non-US equities have never been so exciting.’
Gregory Jones is senior vice president and portfolio manager of the Alger Global Focus, Alger International Focus and Alger Emerging Markets Strategies. He joined Alger in March 2018 and has 37 years of experience. Prior to joining Alger, Gregory worked at Redwood Investments and Ashfield Capital Partners, Clay Finlay, Inc. and Jadeite Capital. Jones has a BA from Duke University an MBA from The University of Chicago Graduate School of Business and is a CFA charterholder.
Innovative opportunities overseas at attractive prices
The US may no longer be the hotbed for innovation. In many ways, we think it’s lagging behind other countries, which are redefining manufacturing, automation, energy transition and electrification. Greg Jones and Pragna Shere are looking for growth opportunities around the world and, what’s more, they’re not focusing on one specific country. It’s the company that counts.
