April 2025 Outlook: Calamos International 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, 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.
• 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, 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.

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.

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. With 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.