We are living in interesting and turbulent times. The human impact of COVID-19 globally is tragic, and the resulting economic disruption is causing great hardship for many. The monetary and fiscal policy responses globally to address the economic dislocation broadly have been unprecedented.
From a business standpoint, there are industries, notably in the travel, hospitality and aviation spaces to name a few, that were generally healthy going into the crisis but have been severely disrupted by it. But some businesses were already vulnerable to and experiencing disruption at the hands of secular forces in place before the pandemic.
Taking a step back, secular themes are long-term trends that can drive growth for years, even decades, within or across industries or sectors. Companies with secular forces at their backs are better positioned and have a greater capacity to grow in both favorable and unfavorable economic climates. Meanwhile, businesses less favorably exposed to a secular theme are likely to have more limited growth opportunities and face persistent challenges, particularly during periods of broader economic weakness.
The common thread or “north star” across many growth themes is productivity enhancement in our daily lives: working, learning, shopping, socializing, entertaining. Investing behind the drivers of disruption and beneficiaries of disruption while avoiding the losers is an important part of how we build the Calamos global and international portfolios.
When we look across the vector of secular forces already in place for the last decade, it has been striking to see how much the gap has widened between winners and losers in the span of just a few months. Indeed, this shock across the global economy is accelerating the disruption we were seeing before the crisis.
The chart below illustrates the potential impact of thematic tailwinds, using baskets of stocks tied to each theme.* Each has strongly outperformed the MSCI ACWI and S&P 500 Index for the year-to-date period, as well as for the trailing one-year and 2-year periods.
The extent and duration of the damage from shuttering economic activity in response to the pandemic is difficult to estimate, particularly given it is still uncertain when or how things will begin to normalize. Financial market volatility will likely remain elevated. Identifying and investing along strong growth themes has been helpful to portfolio performance this year as well as over the long term. We expect that will continue.
Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. The views and strategies described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.
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.
*Baskets shown are equal weighted average returns, all periods are through 4/30/20. Companies included within each basket are as follows. Cloud: CRM, 268 HK, COUP, NOW, WDAY, MSFT; Payments: V, MA, ADYEN NA, PYPL, SQ; Bioprocessing: LONN SW, DHR, 2269 HK, RGEN; ecommerce: AMZN, SE, SHOP, BABA, MELI; Online Services: 1044 HK, NTES, 035720 KS, 035420 KS, EDU, 1833 HK.
The S&P 500 is considered generally representative of the U.S. equity market, and the MSCI All Country World Index is considered representative of global equities. Indexes are unmanaged, do not include fees or expenses, and are not available for direct investment.
This material is distributed for informational purposes only. The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the information mentioned and, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable.
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