April 2025 Outlook: Calamos Evolving World Growth Fund

Nick Niziolek, CFA, Dennis Cogan, CFA, Paul Ryndak, CFA and Kyle Ruge, CFA

Summary Points:

• As long-term investors, we seek to identify inflection points and position the fund to capitalize on secular growth themes and disruption.
• As fiscal spending shifts from the US to abroad, we believe investors are becoming increasingly excited about the potential for a pick-up in growth outside the US. A sideways to downward move in the US dollar further supports this case.
• We maintain a selective approach to China but see a loosening of fiscal and monetary policy providing a catalyst for economic and market recovery.
• The fund remains diversified across a range of cyclical and secular themes, and we are excited that the breadth of opportunities has expanded across the global market, as previously out-of-favor areas of the markets enjoy renewed interest.

During the first quarter of 2025, global markets sharply and quickly reflected the possible commencement of an inflection in investor sentiment to favor ex-US markets over the long-preferred US market. After years of US and foreign investors building up exposure to the US market, tariff and fiscal policy developments may be catalysts for capital migration out of the US and into ex-US markets at the margin. 

US policies—from both DOGE and tariff perspectives—have introduced sentiment uncertainty into the US economic outlook, potentially indicating a crack in the US-exceptionalism trade. In contrast, in Europe, policymakers have initiated efforts toward increased defense and fiscal spending impulses, in concert with a stronger focus on innovation investment throughout the continent. Additionally, we continue to see increased policy efforts toward consumer support in China and a refreshed willingness from leadership to support the country’s most innovative companies. As fiscal spending shifts from the US to abroad, we believe investors are becoming increasingly excited about the potential for a pick-up in growth outside the US. (For more, see our recent post, “Overseas Investment Opportunities: US Policy Shifts Awaken the Sleeping Giants.”)

We welcome this environment. Our time-tested investment process is designed to quickly identify companies across an expansive universe that can benefit most from inflections. We then promptly size up our portfolio exposures to these opportunities. The fund remains diversified across a range of cyclical and secular themes, and we are excited that the breadth of opportunities has expanded across the global market, as previously out-of-favor areas of the markets enjoy renewed interest.

In this commentary, we examine some of these dynamics in more detail and provide insight into some of the ways we have positioned the fund to benefit from these changing dynamics.

China. One of the core principles of our investment philosophy is that capital will naturally move to where it is treated best. Throughout the years, we have frequently discussed the importance of economic freedoms in allocating capital globally. We believe economic freedoms—such as private property rights and fair and transparent capital markets—are as good as any scorecard at measuring the attractiveness of a destination for capital.

Capital has also quickly returned to markets where positive developments are occurring. Thus, from an investment standpoint, we believe the “delta” of a country’s economic freedoms (i.e., the degree of change that a country makes toward being more—or less—economically free) is more consequential than the absolute level of economic freedom. Through this framework, we can more fully appreciate the underperformance of Chinese equities over the past five years. More importantly, we can also appreciate the drivers of the recovery unfolding in Chinese equity markets.

Over the past decade, capital has steadily moved away from China as regulators cracked down on the private sector, increased the uncertainty about potential new regulations on industry, and extended restrictions on the movement of people and capital during the Covid crisis. Lately, however, we’ve seen some important indications of change—the all-important delta. For example, in recent months, President Xi hosted a roundtable with the same technology leaders he was cracking down on several years ago. We’ve also seen an increase in monetary and fiscal stimulus to support Chinese economic recovery, and the government communicating the importance of and its support for capital markets. Although much damage has already occurred, and economic freedoms in China are likely perceived as being much lower today than they were a decade ago, it does appear that an inflection point has been reached, with conditions now trending more positively than they have for many years.

That said, we continue to take a selective approach to investing in China. Where possible, we utilize structures that limit downside risk and focus on quality companies most exposed to the positive inflections we have identified. In recent months, we’ve seen a stabilization and some improvement in the Chinese property market, which remains a critical industry for both the psyche of the Chinese consumer and the economic growth it can provide.

Indeed, we believe we are beginning to see green shoots of improving economic activity in China following a loosening of fiscal and monetary policy. As the economy potentially faces new shocks from evolving global trade policies, we expect this support will increase as China seeks to create a “floor” under its economic growth forecasts of 5% in 2025.

US dollar. The move in the US dollar has historically been a telling indicator of the relative performance prospects of international versus US stocks. An extended period of a sideways-to-weaker dollar has historically supported higher relative returns for international stocks, as it traditionally encourages global allocation and capital flows into ex-US developed and emerging markets.

During the first quarter, softer US economic data, tariff concerns, and fiscal uncertainty contrasted strikingly with major international economies enacting economic stimulus policies. Against this backdrop, the US dollar began a steady decline lower from a starting valuation position, arguably at its most extended position over the past 50+ years (see figure below).

The US dollar Recently Traded over Two Standard Deviations above the Average of Other Currencies

Source: CLSA, “Top Dollar,” February 20, 2025, using CLSA, Oxford Economics. Past performance is no guarantee of future results. PPP = purchasing power parity, which measures the price of a basket of goods in different currencies.

We may not be witnessing a “weak dollar” but, for the first time in a very long time, a “strengthening euro.” Regardless, the change contributed to decisive international equity markets’ outperformance during the quarter. (For more, see our post, “Why the Dollar Inflection Should Not Be Ignored.”)

Major global assets tend not to move in a straight line in one direction. That said, we believe the dollar’s trajectory during the first quarter could be a preview of a sustained tendency for a sideways-to-downward US dollar.

Defense. We believe global defense spending is undergoing a significant shift as the US tightens its defense budget while Europe’s NATO members announce massive plans to ramp up spending on defense and security. In addition, with the change in US policy on Ukraine, European nations feel more intense pressure to accelerate and increase already planned spending.

This changing landscape has created new investment ideas supported by attractive fundamentals and valuations. (It’s a theme we’ve discussed throughout the past few years, including most recently in Jay Stewart’s post, “In Defense of Higher Spending: Geopolitics Creates Secular Opportunities.”)

Although it is unlikely European countries will reach the 5% of GDP target recently suggested by President Trump, 3% seems reasonable for many nations. Germany, in particular, is leading the way with aggressive spending ambitions while Estonia and Lativia have announced defense spending targets of 5% of GDP.