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

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.