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Returns Increasingly Reliant on Earnings Surprises, Revisions? That’s Right in CTSIX Wheelhouse

Ages ago, a Smith Barney television commercial popularized the saying, “We make money the old-fashioned way, we earn it.”

In fact, that is what’s happening today. To be sure, investment returns coming from price/earnings multiple expansions have tailed off. But, as Cornerstone Macro has said, “Earnings are driving 100% of the market’s return as multiples remain flattish as the macro backdrop continues to stabilize. Stable macro = stable multiples.”

s&p 500 share of total return

Underestimated Growth and Small Caps

This year is a reminder, says Calamos Senior Portfolio Manager Brandon M. Nelson, CFA, that there’s another way for investors to win: By focusing on companies with underestimated growth. Historically, when P/E multiples are flat, earnings surprise and positive revisions (i.e., underestimated growth) have worked well, notes Nelson, leader of the Calamos Timpani Small Cap Growth Fund (CTSIX) team.

best performing factors in years when pe/s are flat

Underestimated growth, along with sustainable growth, is a key factor the CTSIX team looks for in identifying small cap opportunities. Evidence of underestimated growth shows itself in the form of positive revisions and positive earnings surprises.

“Why are we so focused on finding underestimated growth? Because historically it works,” says Nelson. “Companies that are growing fast and have a knack for beating analyst and investor expectations (i.e., displaying underestimated growth) tend to be winning stocks. The stock market embraces these characteristics and tends to disproportionately reward stocks of companies that exhibit these traits.”

According to data analyzed since 2016, more than two-thirds of the fund’s holdings have consistently surprised—helping drive the fund’s long-term performance.

more than two-thirds of ctsix have consistently surprised

Nelson anticipated the potential for companies to distinguish themselves in their response to the business turndown as early as last April, just one month after the bottom of the COVID-19 market decline.

“The good management teams are not just sitting on their hands,” Nelson said in this April 22, 2020, post, “watching their businesses collapse. They are finding creative ways to reduce expenses and increase efficiencies in an attempt to minimize the profitability hit,” he said. “I think we are going to see a lot of this, and it will have meaningful, positive implications for the stock market.”

Investment professionals, for more information about CTSIX, contact your Calamos Investment Consultant at 888-571-2567 or

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.

Calamos Timpani Small Cap Growth Fund average annual returns and expense ratio

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is 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. 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.

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.

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