It’s been said that performance dispersion in stock returns presents opportunity to express investment skill. If that’s the case, this is the season for expressing skill.
The dispersion of S&P 500 returns has risen to its widest level since 2009, according to Goldman Sachs Global Investment Research and as shown below.
The same is true in small caps, says Brandon Nelson, Senior Portfolio Manager of Calamos Timpani Small Cap Growth Fund (CTSIX). “The year-to-date performance spread between dead weight and winners has been enormous,” according to Nelson. “In the past several weeks, the market has sorted through the rubble, quickly and clearly identifying which companies are well positioned and which are poorly positioned.”
In this environment, the skills of Nelson and the CTSIX team are expressed in the fund’s performance results both during the drawdown and as the snapback has continued through May.
Demonstrated outperformance relative to the index is a function of the fund’s active management. Such a performance gap is inevitable, according to Nelson. “Passive index investing does a good job of getting investors exposure to an asset class, but inevitably gets investors disproportionately exposed to underperforming stocks of companies that have poor fundamentals.” Such dead weight can hurt overall returns.
Note, too, CTSIX’s outperformance versus its Morningstar Small Growth Category peers during the drawdown, snapback and year-to-date ending 4/30/20.
Here are three points Nelson uses to crystallize what he believes are the fund’s advantages:
Whether via earnings calls or one-on-one conversations, the first quarter earnings season gave the team unprecedented access to management teams and heightened disclosure, including the progression of trends from late March to early May.
Overall, says Nelson, the theme is that “things are getting less bad.” While not close to 100% back to normal, of course, the recovery is in motion, he says.
Nelson has been optimistic about small cap prospects since March, when he commented on the factors making small caps especially compelling (see this post for more):
Investment professionals, for more information about CTSIX, talk to your Calamos Investment Consultant at 888-571-2567 or firstname.lastname@example.org.
Before investing carefully consider the fund’s investment objectives, risks, charges and expenses. Please see the prospectus and summary prospectus containing this and other information which can be obtained by calling 1-800-582-6959. Read it carefully before investing.
Opinions are subject to change due to changes in the market, economic conditions or changes in the legal and/or regulatory environment and may not necessarily come to pass. This information is provided for informational purposes only and should not be considered tax, legal, or investment advice. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.
Important Risk Information. An investment in the Fund(s) is subject to risks, and you could lose money on your investment in the Fund(s). There can be no assurance that the Fund(s) will achieve its investment objective. Your investment in the Fund(s) is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund(s) can increase during times of significant market volatility. The Fund(s) also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund's prospectus.
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.