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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.

michael grant quote

“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.’”

About CPLIX

CPLIX’s role in a portfolio is as an equity diversifier that will have significant volatility and significant dispersion from the Morningstar Long/Short Equity category. Many of the funds are what Grant has dubbed “long light” because of their tendency to hug the S&P 500.

Unlike many peers whose range of beta or overall exposure to the market are bound by prospectus, CPLIX is distinguished by its freedom to respond to changing market conditions and developing opportunities, without being forced to take mandated risk. This flexibility has worked to its advantage over the 18-year track record of the fund.

  • 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).

liquid alternatives the year in review 2019

Click here to view CPLIX's standardized performance.

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.

Past performance is not necessarily indicative of future results.

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. The opinions and views of third parties do not represent the opinions or views of Calamos Investments LLC.

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.

The Morningstar Long/Short Equity Category funds take a net long stock position, meaning the total market risk from the long positions is not completely offset by the market risk of the short positions. Total return, therefore, is a combination of the return from market exposure (beta) plus any value-added from stock-picking or market-timing (alpha).

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