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 May 08, 2019

Our Perspective on Growth vs. Value

This post was written by Nick Niziolek, CFA, Co-CIO, Head of International and Global Strategies, Senior Co-Portfolio Manager; Dennis Cogan, CFA, SVP, Co-Portfolio Manager, and Todd Speed, CFA, SVP, Portfolio Specialist.

Last week’s Barron’s cover story asked whether U.S. value stocks are primed to break out of their “funk” after 10 years of underperformance vs. growth stocks.

We Agree with Warren Buffett

From the Chairman and CEO’s 1992 letter to Berkshire Hathaway Inc. shareholders

“Most analysts feel they must choose between two approaches customarily thought to be in opposition: ‘value’ and ‘growth.’ Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago). In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive."

Included in the case for value is a standard definition of value investing: “At its most basic, it’s buying stocks that are cheap and holding them until the rest of the market realizes these great companies are selling at a bargain price, and pile in, driving prices up.”

Such an argument separates growth and value equities by stock price while overlooking a fundamental difference between the two. We base this on our perspective on international growth and value stocks.

Many of the “growth” companies that dominate growth indexes/portfolios and look more “expensive” are actually the winners of secular changes that have occurred while value indices/portfolios are littered with casualties of the change.

For us, growth vs. value—as they are often defined rigidly and simplistically in benchmarks—is not a binary choice. We prefer to think of growth and value in concert, as we invest in businesses with compelling growth fundamentals that support the ability to compound intrinsic value over time. This is fundamental to our approach to finding the best growth businesses and understanding the path to intrinsic value creation.

Technology Spending Skews P/E

Our team believes that conventional valuation metrics like P/E may not be appropriate in measuring value in an increasing number of instances.

The application of tremendous innovations in technology to a variety of industries is disruptive. There are companies that have and continue to invest heavily to build scale, in internet retail, media, financial services, advertising and cloud computing, among other areas.

This spending often isn’t accounted for properly as an investment (something we try to address with our economic profit-based approach) so it reduces current reported earnings and increases the P/E in some cases to levels well beyond the comfort zone of traditional value investors. But those investments are helping build scale and other competitive advantages that increase the longer-term cash generation capacity of the business—which results in growing intrinsic values.

Several leading platform technology companies are investing heavily to support growth initiatives, but we also see the pricing power they are exhibiting over recent quarters with minimal or no impact on user growth. These companies are taking price and, after you factor this into longer term cash flow projections, don’t look as expensive as a simple P/E may indicate.

Meanwhile, many of the low P/E stocks that screen well within a classic value universe are being “creatively destroyed,” and the current cash flows that make them look cheap are highly vulnerable over the longer term. (Creative destruction, as originally coined by Joseph Schumpeter, refers to the incessant product and process innovation mechanism by which new production units replace outdated ones.)

The Secular Vulnerability of Value Stocks

Differences in business models and industry opportunities have important implications on the investible universe within growth and value benchmarks. Such disruptive shifts may be most evident in the realm of the consumer in the economy, and in the consumer discretionary sector for investors.

Internet retail, for example, is over 4% of the MSCI ACWI Growth Index vs. essentially non-existent in the Value Index, where consumer companies are mainly represented in traditional brick and mortar retail and automotive industries, for example.

internet retail almost non-existent in value index

Financial services companies are also operating in a context of rapid change, with digital payments as a key frontier area. The Financials sector is 29% of the MSCI ACWI Value Index vs. 9% in Growth—with the Growth universe having significant exposure to digital payments in addition to disruptive technology companies with a leading foothold in mobile payments. The Value index, on the other hand, is heavily represented in traditional banking services.

digital payments in growth index vs value index

Ultimately, we are interested in investing in sound businesses offering good growth prospects at reasonable valuations. While we recognize the role of simple, rules-based indexes to determine a set of growth and value companies, we highlight the dynamic that security prices and single-period valuation metrics may not always be an effective shorthand for the underlying business value over time.

This is a recurring example of the critical intersection of art and science in investing, of quantitative analysis and qualitative judgment. It’s a key foundation of our investment philosophy and how we aim to add value for investors over time.

For more about the team’s approach to international investing or about the opportunities our Calamos International Growth Fund (CIGIX) is pursuing in particular, talk to a Calamos Investment Consultant at 888-571-2567 or email caminfo@calamos.com.



    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.

    Data as of 3/31/18

    international growth fund average annual returns

    Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. The views and strategies described may not be suitable for all investors. 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. 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 principal risks of investing in the Calamos International 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, foreign securities risk, emerging markets risk, small and mid-sized company risk and portfolio selection risk. 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.

    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.

    Important Risk Information. An investment in the Fund is subject to risks, and you could lose money on your investment in the Fund. There can be no assurance that the Fund will achieve its investment objective. Your investment in the Fund 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 can increase during times of significant market volatility. The Fund also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund’s prospectus.

    Price-to-earnings ratio (P/E) is a valuation ratio of a company's current share price compared to its per-share earnings.

    The MSCI ACWI ex-U.S. Growth Index is a free float-adjusted market capitalization weighted index that is designed to measure the growth equity stock market performance of developed markets, excluding the United States, and emerging markets.

    The MSCI ACWI Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.

    The MSCI EAFE Growth Index captures large- and midcap securities exhibiting overall growth style characteristics across Developed Markets countries around the world, excluding the U.S. and Canada.

    The MSCI ACWI Growth Index captures large and mid cap securities exhibiting overall growth style characteristics across 23 Developed Markets (DM) countries and 24 Emerging Markets (EM) countries.

    The MSCI ACWI Value Index captures large and mid cap securities exhibiting overall value style characteristics across 23 Developed Markets countries and 24 Emerging Markets (EM) countries.

    Funds in the Morningstar Foreign Large Growth Category seek capital appreciation by investing in large international stocks that are growth-oriented. Large cap foreign stocks have market capitalizations greater than $5 billion. Growth is defined based on high price/book and price/cash-flow ratios, relative to the MSCI EAFE Index. These funds typically will have less than 20% of assets invested in U.S. stocks.

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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 performance information, please CLICK HERE. 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. For the most recent month-end fund performance information visit www.calamos.com.