Having Turned the Page on a 54% 2020, CNWIX’s Niziolek Sees a Continued Bright Future for Emerging Markets

Calamos Evolving World Growth Fund (CNWIX) is positioned for the next leg of the market, which the Global team expects to be pro-growth and reflationary (see this just-published outlook).

Then again, Co-CIO, Head of International and Global Strategies and Senior Co-Portfolio Manager Nick Niziolek acknowledges, the team settled on its outlook last year at this time and it was “quickly thrown out the window.”

Such is the advantage of the flexibility of active management. “We didn’t stand still with the prepared outlook,” Niziolek says. “We adapted to new information as it was available and re-positioned our portfolios multiple times throughout the year.”

On Wednesday’s CIO call (listen to replay here), Niziolek looked back on a 2020 that seemed like a full economic cycle in 12 months, including: pro-growth positioning heading into the new year, a defensive tilt mid-February through late March, consolidation around core secular winners for most of the middle part of 2020, and ultimately rotation into its current positioning.

The continuous adaptation worked as Calamos’ four global portfolios all rank in the top quartile of their Morningstar categories as of 2020’s year-end. CNWIX, specifically, returned 54.24% for the year—almost three times the return of its MSCI Emerging Markets benchmark or Morningstar Diversified Emerging Markets Category peers.

Weaker Dollar and the Return of Inflation

Much of the team’s optimism for 2021 is rooted in its conviction that we’ve entered a new multi-year cycle where the U.S. dollar will weaken against most global currencies.

“There’s a very high correlation between overseas equity market outperformance relative to U.S. markets. It’s not just the translation benefit of the stronger currencies overseas. It’s the fact that the fundamentals of those economies also benefit.” Asian currencies, especially, benefit from stronger pick-up in economic growth and export demand, Niziolek said.

Reflationary prospects also are expected to lift emerging markets this year. Demographic and technological influences on sustained inflation continue, he said. But the scope of monetary and fiscal stimulus, wide availability of loan guarantees, and a trend underway to bring the supply chain home all could provide inflationary pressures near-term. Inflation has been beneficial to the fund’s cyclical positioning when certain sectors pick up.

Green Infrastructure Opportunities

Niziolek singled out one secular theme that the team has done some work on, and which Barron’s Tuesday based an article on. As explained in this December post, the global move to renewable energy and related green infrastructure is creating commodity demand that has thus far been underappreciated. The Calamos team is positioned for heightened demand for copper, cement and steel as facilities are built and opportunities present themselves. This could turn out to be as significant as the China infrastructure build-out of the early 2000s, Niziolek believes.

With the green infrastructure direction, opportunities arise up and down the supply chain. “When you think green, you think solar plants, wind farms, etc. and there may be opportunities there, as well,” he said, “but with our team it’s not just the first derivative.”

For example, the team’s work has led it to battery technology, which is enabling the move into electrical vehicles and electrical vehicle manufacturers in Korea and China. And, Niziolek added, “there’s value to be had in cement and iron ore manufacturers, and copper producers as well.”

Niziolek acknowledged China as an emerging markets performance leader in 2020, and a likely significant contributor this year. But, he said, “to look where the puck is going,” the team now is drawn to opportunities in countries hit hard by COVID-19 and are early in their recovery.

In the last few months, the team has been adding to financials, consumer and industrial sectors in India, industrials and consumers in Brazil, and consumers in Mexico and the Philippines. “There’s an export story going on in these markets, and there’s a consumer story, and we want to be exposed to both sides of that,” he said. The populations of these countries are much younger, and the team is tracking a significant snapback in activity and a broadening out of returns.

In response to a question about China, Niziolek commented that the change in U.S. leadership could have a positive effect on relations. While unlikely to alter the course of China pursuing its own trade agenda and elevation of its national brand, the Biden administration is likely to be more communicative and less volatile, and China “will appreciate that,” said Niziolek.

Investment professionals, your Calamos Investment Consultant can share much more with you about CNWIX. For more information, reach out at 888-571-2567 or caminfo@calamos.com.