Extending its strong 2020 performance into the new year, Calamos Timpani Small Cap Growth Fund (CTSIX) in January demonstrated the advantage of both its active management and size.
Small cap outperformance since September has been pronounced, and Senior Portfolio Manager Brandon Nelson expects that to persist. (When small caps have led, they’ve led for an extended period of time—an average of 84 months and historically never less than 40 months—read more in this post.)
Getting less attention is what Nelson calls the “staggering” outperformance of microcaps. In January, there was a more than 1300-basis point difference between large cap growth (which had a negative month) and microcap growth.
Here’s how the CTSIX team worked the microcap outperformance to the fund’s full advantage:
The universe of stocks below $1.5 billion in market cap is less efficient. This accentuates what Nelson likes so much about working with small caps: the potential to discover “big winners.”“You still have to pick the right stocks,” Nelson says. “This is where our time-tested investment process helped in both finding those big winners and cutting losers quickly when we run into trouble.”
Consequently, 18.3% of the CTSIX portfolio in January was in the smallest companies—that was almost twice the microcap representation in the Russell 2000 Growth Index (9.7%). That microcap portion of the fund drove more than 90% of month’s outperformance, according to Nelson.
Also compare CTSIX’s outperformance to its peers in the Morningstar Small Growth category. Microcap leadership status caught many other managers by surprise. But Nelson and team were ready for it, and had positioned the portfolio to benefit.
Microcap investing is another exciting arena within the fund's opportunity set. Investment professionals, for more information, contact your Calamos Investment Consultant at 888-571-2567 or firstname.lastname@example.org.
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The principal risks of investing in the Calamos Timpani Small Cap Growth Fund include: equity securities risk consisting of market prices declining in general, growth stock risk consisting of potential increased volatility due to securities trading at higher multiples, and portfolio selection risk. The Fund invests in small capitalization companies, which are often more volatile and less liquid than investments in larger companies. As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries.
The Russell 1000® Growth Index measures the performance of the large cap growth segment of the US equity universe. It includes those Russell 1000® companies with higher price-to-book ratios and higher forecasted growth values.
The Russell Midcap® Growth Index measures the performance of the midcap growth segment of the US equity universe. It includes those Russell Midcap® Index companies with higher price-to-book ratios and higher forecasted growth values.
The Russell 2000 Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 companies with higher price-to-value ratios and higher forecasted growth values.
The Russell Microcap Growth Index measures the performance of the microcap growth segment of the U.S. equity market. It includes Russell Microcap companies that are considered more growth oriented relative to the overall market as defined by Russell's leading style methodology.