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Watch: Small Cap Active Management: The Buy/Sell Process That Differentiates CTSIX

September 24th Webcast Replay Go behind the scenes with Brandon M. Nelson, CFA, Senior Portfolio Manager of Calamos Timpani Small Cap Growth Fund (CTSIX) in this series of brief video interviews with Robert F. Behan, CFA, Calamos President and Head of Global Distribution. Nelson explains the team’s investment process, describes a representative holding and comments on the fundamental fatigue that would prompt a sell decision.

Financial advisors, for more from Nelson and Ryan B. Isherwood, CFA, Senior Research Analyst—and for the opportunity to get your questions answered—register for the September 24 webcast, “Finding Growth in a Low-Growth World.”

The Goal: Fundamental Momentum

In this video, Nelson elaborates on the two components of fundamental momentum:

  • Sustainable growth (“Is it a large market? Is the company investing enough in the sales force? Are they investing enough in research and development and planting seeds to grow the business further?”)
  • Underestimated growth (“What is management's history of communicating with investors and speaking with analysts? Do they have a track record of meeting and exceeding expectations?”)

“You really want to have both of those working for you,” Nelson says. “If you have one without the other, you might be OK. But if you have both of those, where [a company is a] good operator and has a sustainable growth profile and they know how to manage communications with the outside world, that's when you tend to get the most valuation expansion.” 

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One Small Cap Story: Vericel

Nelson offered Vericel as an example of a CTSIX health care holding believed to have promising growth prospects, and one that meets the team's fundamental expectations. Having penetrated just a portion of their target market, with a second market identified, this $750 million market cap company has sustained growth potential. The underestimated growth derives from the management team's track record of communication about earnings and revenue expectations.

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A No-Nonsense Sell Discipline

When it's time to go, it's time to go—and quickly, says Nelson in this video.

"Let's say the P/E ratio on a stock went from 20 times to 45 times over the course of six or seven quarters while they were beating and raising, and then things start to change and some of the metrics start showing fatigue,” he says. “When you're at this elevated valuation and you sense that fatigue, it's important to act quickly because that valuation expansion you enjoyed when the company was executing well is vulnerable to compressing again."

Describing its sell discipline as a differentiator of the fund, Nelson discusses the team's post-sale analysis of stocks. After they've been sold out of the portfolio, they persist as losers. (Financial advisors, our September 24 webcast will provide additional detail on this analysis.)

Nelson also comments on turnover that results from the team's approach, calling it a myth that above-average turnover necessarily leads to tax inefficiency. “To the contrary,” he says. “We buy and hold stocks for long periods of time. We like to let our winners run, so we're deferring gains for long periods of time. When we get losing situations, we're acting quickly and we're realizing those losses quickly. That in and of itself is very tax-efficient—not tax-inefficient.”

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The #1 Lesson About Investing in Small Caps

“Don't fall in love with your companies," says Nelson. "These are small cap stocks; they're not family members that you're stuck with for life." Watch this video to see Nelson expand on the risk of becoming emotionally involved with small cap stocks and their managements—and how the CTSIX team seeks to avoid forming an attachment.

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For more information about CTSIX, talk to your Calamos Investment Consultant at 888-571-2567 or caminfo@calamos.com.

Click here to view CTSIX's standardized performance.

Videos recorded 8/23/19.

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. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

Important Risk Information. An investment in the Fund(s) is subject to risks, and you could lose money on your investment in the Fund(s). There can be no assurance that the Fund(s) will achieve its investment objective. Your investment in the Fund(s) is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund(s) can increase during times of significant market volatility. The Fund(s) also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund’s prospectus.

It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.

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.

Active management does not guarantee investment returns or eliminate the risk of loss. It should not be assumed that any securities mentioned in this recording will be profitable or experience equal performance in the future.

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