The Non-consensus View of CPLIX’s Michael Grant, and Why He’s Positioned for ‘High Financial Risk’

“Consensus expectations for a meaningful recovery in worldwide profitability in 2020 are illusory,” says Michael Grant, Calamos Co-CIO and Senior Co-Portfolio Manager of Calamos Phineus Long/Short Fund (CPLIX) in his 2019 review and 2020 outlook published today. After having maintained roughly net neutral exposure for most of last year, Grant and his team continue to lean defensively.

“The cyclical and structural challenges ahead have not been resolved in an unusually complex environment,” he writes.

Download the PDF to read Grant’s perspectives on:

• CPLIX’s performance in 2019.
  Underperformance versus Morningstar’s Long-Short Equity category and the S&P 500 was the result of the fund being “too defensive” for the liquidity and sentiment that drove U.S. equities and valuations to new highs.

Grant comments on what the team got right (as expected, economic data weakened domestically and abroad) and what the team got wrong (the stimulative fiscal policy in the form of the rising budget deficit this late in an expansion and the “aggressive capitulation” of the Fed).

Last year, according to Grant, “was emblematic of the entire investment paradigm of the post-2008 era. All of the equity gains represented valuation inflation due to central bank largesse. The year commenced with the Fed’s abandonment of monetary normalization and concluded with a ‘melt-up’ associated with 'not QE.’”

• In the 2020s a very different decade (also see these Grant videos) and in 2020 a very different year. “The logic of ‘bad news is good’ cannot continue forever,” says Grant, who looks for the momentum of risk assets to continue no further than the first quarter. Between spring and early summer, he expects recession anxiety to return amid rising U.S. political uncertainty.

  “The odds favor a ‘soft landing’ for the U.S. economy rather than recession, but the window for stalling economic activity is from H2 2020 to Q1 2021,” says Grant, calling for the return of volatility by the second quarter.

• The declining value of price signals. Grant acknowledges that “the consensus view is that the rise of equities to new highs is sustainable due to the institutionalized support of central bankers.” But the successful navigation of markets, he believes, requires more accuracy than the widely held view incorporated in prices.

  “There was a time when active fundamental investors dominated equity behavior,” he says. “Investors like ourselves would develop fundamental theses and discern whether stock prices were confirming or denying our premises. Today, the relationship between price action and the fundamental setting has become tenuous.”

  The team’s view is non-consensus, and considers today’s cyclical and structural setting “cautionary, typical of end-cycle markets and representing high financial risk.”

Financial advisors, download Grant’s narrative for detail on CPLIX’s current positioning including asset allocation, geographic and sector perspectives. For more, please talk to your Calamos Investment Consultant at 888-571-2567 or email caminfo@calamos.com. Calamos is the #2 manager of assets in the Alternatives category, as ranked by AUM by Morningstar (12/31/19).

Click here to view CPLIX's standardized performance.