April 2025 Outlook: Calamos Global Equity 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.
• 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.
• We believe the opportunity set within Europe continues to evolve and expand, and we’ve been increasing our exposure to the region, identifying great companies exposed to emerging cyclical tailwinds.
• We maintain a selective approach to China but see a loosening of fiscal and monetary policy providing a catalyst for economic and market recovery.

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 investment in innovation 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.

United States. The first quarter brought substantial volatility to US markets, with equities and the US dollar weakening and US Treasury yields dropping meaningfully. Uncertainty was elevated on multiple fronts, most prominently along the vectors of US fiscal, regulatory, and trade policy under the new presidential administration. Artificial intelligence spending expectations were also a focal point for anxiety, where the main winners thus far have been US companies. While these clouds formed over the US, the skies became a bit clearer overseas; and the beginning of the unwind of several years of passive investment flows in pursuit of “US exceptionalism” likely exacerbated the market dynamics.

A variety of macroeconomic indicators and some recent corporate commentaries have signaled a weakening outlook for growth, likely in response to uncertainty around trade and tariff policy, immigration, DOGE, and cuts to US federal spending, and the net impact of these on growth and inflation. It’s reasonable for businesses to defer significant decisions until they get more clarity on the macroeconomic outlook, and that appears to be happening now.

The concern is that this caution could cascade from a slowdown into something more severe. Indeed, the new administration has acknowledged trading shorter-term pain for longer-term gains, as Treasury Secretary Bessent recently articulated multiple times. However, markets look forward, and policies to deregulate and drive fiscal efficiency ultimately contribute to a long-term bullish outcome for the US economy, albeit with market beneficiaries that could be quite different from the leaders of the last decade.

In regard to the thematic drivers of volatility, there have been two main developments. The first was the release of DeepSeek, a large language model (LLM) built in China using innovative piggybacking on US LLMs, at a much lower cost with great functionality. DeepSeek has raised far-reaching questions about capex efficiency and the sustainability of the capital spending plans that the market had expected. The impact of DeepSeek was felt most acutely by the semiconductor and industrial value chains that have benefitted in recent years from huge capex going toward the buildout of data centers.

The second development is linked to the aforementioned policies of the new administration, which have the high-level objective of reversing the impacts of more than two decades of globalization. Whether this can be accomplished is a topic of much debate, but the policies promoted toward this end could create headwinds for multinational companies that have optimized their supply chains and cost structures under a “world is flat” global trade regime. Many of the largest US growers continue to be great businesses with incredible growth prospects, but the days of “US exceptionalism,” particularly for mega-cap multinationals, may be drawing to a close.

Alongside the recent volatility, the Federal Reserve has communicated that it’s positioned to provide a counterbalance to any deterioration in US economic conditions. Markets responded favorably to what was perceived as a dovish stance at the March Fed meeting, which included a slowing pace of balance sheet reduction (QT). An easing in financial conditions would clearly be helpful for US risk assets, although the global transmission of that policy would also be a significant tailwind for international and emerging market risk assets, particularly through the currency channel if the dollar continues its path downward.

Europe. While there have been extended periods when US equities outperformed their European counterparts or vice versa, the current cycle has been exceptional in terms of the length (17 years) and the magnitude of US equity outperformance.

Relative Performance of European Equities Compared to US Equities since 1970 (in USD)

Past performance is no guarantee of future results. Source: Kepler Cheuvreux, “Keep calm and carry on,” March 17, 2025, using data from Datastream and Kepler Cheuveurx. Performance represented by MSCI indices.

For a long while, we have been on the lookout for a catalyst to arrest this trend, and several catalysts have converged over the past few months that give us confidence that the year-to-date counter-trend rally in European equities is sustainable and may even be the beginning of a new cycle.

As we wrote in our recent post, “Overseas Investment Opportunities: US Policy Shifts Awaken the Sleeping Giants,” “America First” policies ultimately may be the catalyst for overseas equity outperformance, as countries realize that they may no longer be able to rely on the US for export-led economic growth and security. Germany recently passed infrastructure and defense spending plans that we estimate can bring 1%–2% to GDP annually over the next few years and pull the German economy out of recession. As we wrote in our recent post, “In Defense of Higher Spending: Geopolitics Creates Secular Opportunities,” we expect NATO countries will increase defense spending to 3%–5% of GDP. This commitment boosts the growth prospects of many companies, and we are finding many new opportunities for the fund.

Meanwhile, we anticipate Germany’s infrastructure proposal will further widen this opportunity set. We believe transportation, power, energy, education, rails, and ports are all compelling areas of investment focus, and we have identified a range of European industrials and materials companies that we expect to benefit from these new plans.

As these stimulus packages work their way through the economy, European banks are positioned to benefit from increased loan growth and a more favorable regulatory environment. (For more, see our recent post, “European Banks: Hard Work Pays Off.”)

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. Economic freedoms—such as private property rights and fair and transparent capital markets—are as good as any scorecard to measure 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.