CPLIX’s Grant Called the Market Rally, and Continues Risk-on
June 15, 2020
Few investors had the conviction of Calamos Co-CIO Michael Grant in March and April. As anxiety over COVID-19 closed down the economy and stressed the markets, Grant turned bullish on U.S. equities.
“For the first time in years, the math for equity investors makes sense…Investors stand to be paid to engage equity risk once again,” Grant, Senior Co-Portfolio Manager of Calamos Phineus Long/Short Fund (CPLIX), said on a call on March 25, near the bottom of the drawdown (see post).
Long story short: He was right.
“When the virus permits a resumption of activity, markets will enjoy a sharp rebound,” Grant declared in his April commentary, and positioned the fund accordingly.
Through June 10, the S&P 500 was back in positive territory for 2020, after having fallen almost 34% during the drawdown. By the close of the market two days later, and after a near 6% loss on June 11, the broad market was down -4.98%.
Meanwhile, CPLIX gained 36.04% from the trough of the bottom (March 24) through June 12. Its performance ranked it #1 among its peers in the Morningstar Long-Short Equity category as of June 12.
In a call with investment professionals last week, Grant continued to express optimism about an eventual global synchronized recovery.
“For now, all we need to know is how extraordinary the stimulus has been, and that no one is going to back away until the world looks a lot better,” he said.
What’s more, he predicted, “Politics will not allow another shutdown, the costs have been too severe. Even if there is a mild second wave, politicians will plow through it.”
Grant anticipated that CPLIX would retain its positioning through June, and then re-assess the possibility of consolidation or correction in July/August, as risks related to the national elections begin to heighten.
Investors Continue to Underestimate the Opportunity
Grant reflected on the market’s recovery, which he characterized as unusual by historical standards: The initial rally favored the same high-quality “safety” stocks that dominated before the drawdown. More recently, it has transitioned to a more classic recovery, led by cyclical issues.
To be in a position to benefit, the team has employed a barbell strategy.
“The objective is balance,” Grant explained on an April 30 call (see post). Noting the positioning by others in cyclicals at unprecedented lows at that time, he said, “Everyone is standing on one side of the boat. When I see everyone standing on one side of the boat, I at least want to have a leg on the other side.”
The team participated in the first leg of the recovery, then adjusted mid-May to capture the broader recovery.
Grant Called It
In conference calls and commentary published in March and April, Michael Grant went on the record with several high conviction statements. They included:
- That the recession started in February (see his April commentary). This was confirmed last week by the National Bureau of Economic Research.
- That the “extraordinary” policy response from the Federal Reserve would triumph over COVID-19’s economic implications (see this post). Having declined almost 34% by March 23, the S&P climbed all the way back, turning positive on June 7.
- In order for the equity recovery to continue, Grant said in this post, it would need to broaden to include value, high beta, and higher risk sectors and stocks. Leadership shifted toward risk-on sectors mid-May.
Many investors today continue to be “dazed and confused,” according to Grant. He noted high cash levels in investor portfolios and “remarkably bearish” sentiment and positioning. “Too many investors have capitulated, selling out of the market or selling the wrong sectors at levels we may never again see the rest of our careers.”
Grant believes that many are underestimating economic and corporate data through June. And he emphasizes the role being played by the Fed.
“In 2.5 months [the Fed] has thrown liquidity at the system that it took five years to throw in 2008…We simply have never seen this liquidity backdrop, which is why we need the risk-on move to unfold.” Grant gives the Fed an A+ for keeping corporate credit markets functioning during the darkest days of the crisis.
If S&P 500 earnings can reach an average of $180 per share, the index could rise to 3,500, he said. More broadly, if the U.S. does in fact achieve a V-shaped economic recovery, the S&P 500 could reach 3,800 by 2021.
Investment professionals, for more information about Grant’s outlook or CPLIX, talk to your Calamos Investment Consultant at 888-571-2567 or caminfo@calamos.com.
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Archived material may contain dated performance, risk and other information. Current performance may be lower or higher than the performance quoted in the archived material. For the most recent month-end fund performance information visit www.calamos.com. Archived material may contain dated opinions and estimates based on our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions at the time of publishing. We believed the information provided here was reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load. Had it been included, the Fund’s return would have been lower.
Archived material may contain dated performance, risk and other information. Current performance may be lower or higher than the performance quoted in the archived material. For the most recent month-end fund performance information visit www.calamos.com. Archived material may contain dated opinions and estimates based on our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions at the time of publishing. We believed the information provided here was reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load. Had it been included, the Fund’s return would have been lower.
Archived on June 15, 2021