True or False: Growth has outperformed value for years and may be overextended.
That statement is false—if you’re talking about small cap growth, says Calamos Senior Portfolio Manager Brandon M. Nelson of the Calamos Timpani Small Cap Growth Fund (CTSIX). The following chart, he says, may surprise people.
Data on the rotation between small cap growth and value stocks goes back decades, as shown in this chart from The Leuthold Group. The periods when the line was up and to the right were periods when growth was beating value. Down and to the right was when value largely led.
“As you can see, in looking back over 40 years,” says Nelson, “small value beat small growth about two-thirds of the time. Small value largely outperformed in the first 25-30 years while small growth outperformed in more recent years.”
The significance of this in late summer 2021, a volatile year for small caps overall? “People seem to think that growth is extended, that growth stocks are way out over their skis. When I look at this chart, I don't see that at all,” says Nelson.
“I see something that's bouncing off the bottom,” he continues. “Small cap growth stocks had a bit of a spike, it's retesting and sort of rebuilding. To me, it looks like it's rebuilding to make a move higher, which would suggest growth is ready to win versus value.”
Investment professionals, this is just one chart Nelson cites in making the case for allocating funds to small cap stocks with what he considers “rock-solid fundamentals” (see the latest issue of the monthly Small Cap Snapshot).
But this is essential to understand how the PM views the prospects for CTSIX: “We don’t need growth to win overall for our portfolio to do well. If it does, that would likely be an additional tailwind,” he says.
For more on Nelson’s perspective and CTSIX, reach out to your Calamos Investment Consultant at 888-571-2567 or email 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 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. The Russell 2000 Growth Index is published and maintained by FTSE Russell.
The Russell 2000 Value Index measures the performance of small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.