Brandon Nelson invites you to do the math.
Small cap fundamental momentum (rising sales and earnings estimates) + Intermediate term price momentum + Inexpensive relative valuation = High probability of outperformance
“The intermediate to long term setup for small caps looks too good for the recent correction to last much longer,” says Nelson, Senior Vice President and Senior Portfolio Manager of Calamos Timpani Small Cap Growth Fund (CTSIX). As he’s noted before (see post), when small caps take a leadership role, they tend to lead for seven years on average. Having started last September, this run is in only its tenth month.
In fact, Nelson declares, “The relative correction in small caps is over!” in the just-published issue of the Calamos Small Cap Market Snapshot. The Snapshot is a monthly review including Nelson’s market analysis and asset class performance and flow data (read here).
While substantial—with the Russell 1000 outperforming the Russell 2000 by 926 basis points from March 12 through the end of May—the pullback is getting “less intense,” Nelson notes. The large cap outperformance advantage in May was just 26 basis points. The first half of June has started out promising, with the Russell 2000 ahead of the Russell 1000.
The asset class still looks cheap vs. large caps, currently sitting at the inexpensive 22nd percentile, Nelson says.
Also, Nelson adds in the newsletter, “Don’t be surprised if the microcaps perform disproportionately well over the coming months and years. The smallest of the small are the cheapest of the cheap.” (See this related post.)
Nelson’s CTSIX is up 9.12% for the year as of the end of May, ahead of the year-to-date return of both the Russell 2000 Growth (up 4.10%) and the Morningstar Small Growth Category (up 8.95%). The 10-year-old fund has performed in the top quartile of its peer group for all time periods since inception.
Investment professionals, for more information about Nelson’s small cap outlook or CTSIX, contact your Calamos Investment Consultant at 888-571-2567 or email@example.com.
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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.
The Morningstar Small Growth Category includes small-growth portfolios that focus on faster-growing companies whose shares are at the lower end of the market-capitalization range.
The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index.
The Russell 2000 Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 companies with higher price-to-value ratios and higher forecasted growth values.