Growth with Moderate Risk Showcasing Strong Confidence
The Alger Concentrated Equity ETF (NYSEARCA: CNEQ), actively managed by Fred Alger Management, LLC, offers a growth-focused investment strategy with a focus on long-term capital appreciation. With a relatively balanced and diversified sectoral allocation, the ETF aims to provide a better risk-adjusted return profile for growth investors.
CNEQ's portfolio is tech-heavy and growth-oriented, with at least 25% allocation to tech and innovative growth bets. The ETF's tech exposure is less than an NDX following ETF like QQQ, which has a tech exposure of ~54%. However, the ETF's top 10 holdings are relatively diversified compared to QQQ, with a ~64% concentration in the top names.
One notable holding is Nvidia, which accounts for more than 15% of the ETF's weight, representing a high concentration risk on individual names. Nevertheless, the ETF also has significant weights allocated to high conviction names like Sea, Nebius, TSMC, and AppLovin.
During a bull phase, CNEQ's total return was approximately 57%, compared to ~30% for QQQ. In the tariff sell-off in April this year, CNEQ had a drawdown of ~27%, while QQQ had a drawdown of ~21%. Over market cycles, CNEQ's drawdown might be worse off by 6-7 percentage points, but it can deliver an alpha of 25-30 percentage points overall.
The maximum portfolio size is 30, with room for defensive cash positioning up to 15%. The ETF's agility of active management may theoretically handle prolonged or deeper downturns better, as seen in April 2025.
However, the ETF's lower tenure and lack of empirical evidence in prolonged or deeper downturns is the only reason for not considering higher allocation in CNEQ. The ETF's expense ratio of 0.55% is higher than other growth ETFs like QQQ's 0.2%. However, the performance makes the incremental fees more digestible.
For a growth investor, the return mileage in CNEQ is far better compared to the minimal increase in risk appetite required. Partial allocation in a growth portfolio will eventually enhance total returns without harming risks by too much. Given its better risk-adjusted return profile, I rate CNEQ a Buy. The higher risk profile in CNEQ is unmissable but appears to be lower than anticipated.
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