John Hillenbrand, CPA
Summary Points:
Over recent quarters, we have focused on the US economy’s path back to normalization as the extraordinary measures put into place in response to the pandemic unwind. Real GDP and employment growth have slowed to more typical levels, and inflation is also normalizing. In the second quarter, real economic growth continued at a 3% level, albeit with varying levels across different GDP components. The most recent figures were driven by improvements in private goods industries (oil and autos), while private services (financials and healthcare) showed steady growth.
Source: Bloomberg.
In terms of the normalization story, short-term interest rates have been a holdout—that is, until the final days of the quarter, when the Federal Reserve moved forward with its much-anticipated rate cut, reflecting reduced concern over inflation and a renewed focus on maintaining full employment.
Source: Bloomberg.
Lower rates should provide some tailwinds to growth in interest-rate-sensitive areas of the economy. US fiscal policy remains in flux, with the upcoming elections likely to shape future tax policies, spending priorities, and regulatory frameworks. Depending on election outcomes, different parts of the economy may be favored over others, but we do not expect a significant overall disruption in growth or inflation trends.
The Fed has joined a growing list of central banks more concerned about slowing growth than inflation. The European Central Bank began to lower rates in June 2024, as it saw inflation declining amid slow growth. On the heels of the Fed’s announcement, the People’s Bank of China announced cuts in policy interest rates and mortgage costs, along with support for the property and stock markets, as China’s government took significant steps to increase economic growth and manage market expectations more effectively.
More importantly, China’s Politburo has called for additional stimulus, signaling a shift toward the most aggressive fiscal and monetary policies seen for years. These measures aim to reset growth expectations and support aggregate demand, potentially leading to higher equity prices and higher global growth. That said, time will tell if there will be real growth improvement. China has embarked on policies such as these in the past without intermediate-term positive results in growth and asset prices.
Given our expectation of slow-but-positive economic growth over the next year, we are assessing the investment opportunities with a focus on real growth and return improvement, which includes areas where we see growth that others do not. Earnings surprises have played a significant role in market performance over the past year and explain a substantial share of the dispersion in returns we have seen between winning and losing stocks. We believe the dispersion in returns caused by earnings surprises has occurred because the market had been discounting less robust growth, but positive financial results have caused market participants to re-evaluate their views on current and future growth. We believe that our approach—i.e., seeking out companies with improving fundamentals and equity prices with upside to our intrinsic value calculations—will guide us to the right places.
These opportunities include areas with favorable cyclical factors driven by lower rates and government spending, and companies that can improve profitability in a slower-growth environment. Many companies have been successful in improving their returns on capital through increased efficiencies, normalized supply chains, and revised investment strategies based on the current interest-rate environment. In particular, improved profit margins in large-cap technology and interactive media companies have contributed significantly to the margin expansion of the overall equity market. The resilience of these companies’ profit margins has been a key factor in the overall market’s stability, even amid economic uncertainties. We believe these and other companies can continue to improve margins and returns, thus driving equity prices higher over the short- to intermediate-term. As the pace of corporate cost-cutting and restructuring has increased over the past several quarters across several areas, this gives our team more opportunities to identify companies with improving returns on capital.
More specifically:
Calamos Growth and Income Fund pursues lower-volatility equity participation through a multi-asset-class approach. We believe our multi-asset class approach will continue to serve the fund well by providing us with a wider pool of choices from which to select securities with the most favorable expected risk-adjusted returns. The majority of the portfolio is currently invested in common stocks. We are selectively using convertible bonds and options to gain exposure to some higher-risk industries in this low-volatility environment. Cash and short-term Treasuries remain useful tools to lower volatility in multi-asset-class portfolio; although yields are declining, they are still high.
Before investing, carefully consider the fund’s investment objectives, risks, charges and expenses. Please see the prospectus and summary prospectus containing this and other information which can be obtained by calling 1-866-363-9219. Read it carefully before investing.
Diversification and asset allocation do not guarantee a profit or protect against a loss. Alternative strategies entail added risks and may not be appropriate for all investors. Indexes are unmanaged, not available for direct investment and do not include fees and expenses.
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 appropriate 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.
Important Risk Information. An investment in the Fund(s) is subject to risks, and you could lose money on your investment in the Fund(s). There can be no assurance that the Fund(s) will achieve its investment objective. Your investment in the Fund(s) is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund(s) can increase during times of significant market volatility. The Fund(s) also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund’s prospectus.
The principal risks of investing in the Calamos Growth and Income Fund include the potential for convertible securities to decline in value during periods of rising interest rates and the possibility of the borrower missing payments; synthetic convertible instruments risks include fluctuations inconsistent with a convertible security and components expiring worthless. Others include equity securities risk, growth stock risk, small and midsize company risk, interest rate risk, credit risk, liquidity risk, high yield risk, forward foreign currency contract risk, and portfolio selection risk.
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