Grant is Senior Co-Portfolio Manager of Calamos Phineus Long/Short Fund (CPLIX), which closed the first 10 months of the year with a -2.24% return versus the S&P 500 Index’s decline of -17.70%. This result reflected the fund’s positive beta to equities, given its average net equity exposure of 58.73% in Q3.
“Fears around an imminent fundamental downturn are misplaced,” writes Grant, “because the problem today is inflation, not deflation. Inflation implies healthy levels of nominal activity that feed directly into consumer and corporate income.” By the middle of next year, “fears of runaway inflation will appear absurd,” he comments.
Acknowledging that risks of recession have become heightened, “we believe an actual downturn is neither imminent nor likely to be severe.” The balance sheets of households and the corporate sector are “strikingly healthy based on key metrics like debt-to-income ratios and liquidity levels. The seeds of the end of any expansion are normally behaviors that lead to excessive spending and borrowing, which has not happened in the current cycle,” he says.
Grant believes he’s more optimistic than most about the spending potential of the US consumer. “The market is viewing consumer strength as a sign that the Fed will ‘keep at it.’ Our view is that the US consumer will hold together long enough for inflation to cool. With $2.3 trillion in excess savings, the rate sensitivity of the consumer may be less than generally assumed.”
Third quarter earnings reports to date have been generally positive, supported by continuing strong consumer demand. CPLIX's weightings in cyclicals, such as airlines, transportation and hotels, as well as financials, have been well suited for pent-up post-COVID consumer demand.
While positive on the medium term outlook for equities, Grant notes that the bull market in equities ended in December 2021. He expects “the major indices to move in a broad rangebound pattern between today’s levels and the former highs for much of the current decade.”
Consequently, he says, an investment landscape characterized as a long era of price stability is being replaced by a new experience of quasi-price instability (read more here).
For more information about Grant’s perspective or about CPLIX, reach out to your Calamos Investment Consultant at 888-571-2567 or email@example.com.
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The principal risks of investing in the Calamos Phineus Long/Short Fund include: equity securities risk consisting of market prices declining in general, short sale risk consisting of potential for unlimited losses, foreign securities risk, currency risk, geographic concentration risk, other investment companies (including ETFs) risk, derivatives risk, options risk, and leverage 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.
Alternative investments may not be suitable for all investors. The fund takes long positions in companies that are expected to outperform the equity markets, while taking short positions in companies that are expected to underperform the equity markets and for hedging purposes. The fund may lose money should the securities the fund is long decline in value or if the securities the fund has shorted increase in value, but the ultimate goal is to realize returns in both rising and falling equity markets while providing a degree of insulation from increased market volatility.