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Small Surge, Micro Mighty
October 2, 2025
Brandon Nelson, CFA
Additional insights:
Winning with CTSIX: Three Potentially Powerful DriversSummary Points:
- During the third quarter, small caps trounced large caps, and microcaps set the pace to beat.
- Supported by Q3 gains, Calamos Timpani Small Cap Growth Fund (CTSIX) and Calamos Timpani SMID Growth Fund (CTIGX) remain well ahead of their benchmarks and peer averages for the year-to-date.
- We are optimistic about the funds’ prospects—our fundamental-momentum investment style has been increasingly embraced by the market, our security selection within our framework has proven advantageous, and our nimble asset base has provided the flexibility to invest meaningfully in microcaps.
- Sustained asset class rebounds would be the icing on the cake—nice to have but not required.
Strong earnings and a US Federal Reserve interest rate cut fueled healthy equity performance during the third quarter. Even September returns were positive despite consensus concerns relating to typical seasonal weakness. Although large caps still lead small caps year-to-date by 421 basis points (as measured by the Russell 2000 Index versus the Russell 1000 Index),1 small caps outperformed for the quarter, rising an impressive 12.39% and exceeding large-cap performance by 440 basis points.
Microcaps, the smallest of the small, were up a whopping 17.03% for the quarter, as measured by the Russell Microcap Index. Microcaps have outperformed small caps and mid caps for four consecutive months and are actually leading all equity asset classes year-to-date (even large caps!). Even so, they still trade at a significant discount to all equity asset classes when looking at 2026 consensus P/E ratios.
Both Calamos Timpani Small Cap Growth Fund (CTSIX) and Calamos Timpani SMID Growth Fund (CTIGX) had excellent quarters. Each fund outperformed its respective benchmark and Morningstar category average during the quarter, extending year-to-date gains.
CTSIX and CTIGX: Strong Outperformance in 2025 Versus Benchmarks and Peers
Source: Morningstar. Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. Please refer to Important Risk Information. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Funds’ maximum front-end sales load of 4.75%. Had it been included, the Funds’ return would have been lower. All performance shown assumes reinvestment of dividends and capital gains distributions. As of the prospectus dated 2/28/2025, CTSIX’s gross expense ratio is 1.10% and CTIGX’s gross expense ratio is 1.56%.
As shown below, the September quarter was extremely difficult for most active small growth and SMID growth asset managers. For instance, only 15.4% of small growth managers and 5.1% of SMID growth managers outperformed their comparable market benchmark, which we believe makes the strength of the Calamos Timpani funds that much more impressive.
Past performance is no guarantee of future results. Source: Jefferies, October 1, 2025, using FactSet, Lipper Analytical Services, FTSE Russell, Jefferies. Small-cap growth benchmark is the Russell 2000 Growth Index; SMID-cap growth benchmark is the Russell 2500 Growth Index.
So what’s been driving our strong performance? It’s been a combination of our investment style being embraced by the market (our focus on fundamental momentum—sustainably fast and underestimated growth) and successful stock picking within that framework, including our exposure to microcaps.
While most of our stock picks are one-off situations, we’ve also identified compelling niche themes relating to AI infrastructure, online gambling, education, advanced military technology, and securing supply chains of critical materials. We believe these themes have room to run and our ability to find idiosyncratic opportunities will continue.
As our performance has shown, we don’t need asset class strength to put points on the board. However, asset class strength could provide another way for our funds to win. We believe microcaps, small caps, and mid caps may be poised for a performance rebound relative to large caps. Small caps have lagged for over eight years, marking the longest losing streak on record and making their valuations relative to large caps look quite stretched (10th percentile). Importantly, a projected earnings acceleration for small caps (+20% in 2026) and additional Fed rate cuts could act as catalysts to trigger valuation multiple expansion.2
Recent small-cap outperformance may have marked the end of the losing streak. Historically, the first year of a new small-cap winning streak results in an average of 2,700 basis points of small-cap outperformance relative to large caps, and the best quarter for small caps has tended to be the fourth quarter.
Asset allocators, I would pay attention.
1 For the year to date ending 9/30/2025, the Russell 1000 Index gained 14.60% and the Russell 2000 Index gained 10.39%.
2 Relative valuation of small caps to large caps is in the 10th percentile as of September 30, 2025; lower percentiles indicate more favorable relative valuations for small caps. Source: Jefferies, using FactSet, FTSE Russell and Jefferies. Jefferies estimates for year-over-year expected earnings growth % is annual as of September 15, 2025, using FactSet, Standard and Poor’s and Jefferies.
Total Returns as of 09/30/25
| 3Q 2025 | 1 Year | 3 Year | 5 Year | 10 Year | Fund Inception | |
|---|---|---|---|---|---|---|
| CTSIX | 13.31% | 30.17% | 22.88% | 10.50% | 12.86% | 12.56% (3/23/11) |
| Russell 2000 Growth Index | 12.19% | 13.56% | 16.68% | 8.41% | 9.90% | 9.87% |
| Morningstar US Small Growth Funds Average | 7.51% | 8.11% | 14.03% | 7.73% | 10.50% | 9.98% |
| CTIGX | 11.57% | 15.58% | 24.91% | 22.85% | — | 11.97% (7/31/19) |
| Russell 2500 Growth Index | 10.73% | 12.62% | 15.96% | 7.76% | — | 9.08% |
| Morningstar US Small Growth Funds Average | 7.51% | 8.11% | 14.03% | 7.73% | 10.50% | 8.41% |
Performance data quoted represents past performance, which is no guarantee of future results. Average annual total return measures net investment income and capital gain or loss from portfolio investments as an annualized average. All performance shown assumes reinvestment of dividends and capital gains distributions. Returns of more than one year are annualized.
The chart shows the performance of the Predecessor Fund's Institutional Class, which has been adopted by the Class I shares of the Fund for periods prior to the Reorganization. The information shows you how the Predecessor Fund's performance has varied year by year and provides some indication of the risks of investing in the Fund. The average annual total return table compares the Predecessor Fund's Institutional Class performance, adopted by the Fund's Class I shares, and Class Y performance, adopted by the Fund's Class A shares and adjusted to reflect the maximum sales load of 4.75%, to that of the Russell 2000 Growth Index. "Since Inception" return shown for the Russell 2000 Growth Index is the return since the inception of the Predecessor Fund's Class Y shares. An index reflects no deduction for fees, expenses or taxes. To the extent that dividends and distributions have been paid by the Predecessor Fund, the performance information for the Predecessor Fund in the chart and table assumes reinvestment of dividends and distributions. If the Predecessor Fund's investment adviser had not waived or reimbursed certain Predecessor Fund expenses during these periods, the Predecessor Fund's returns would have been lower. As always, please note that the Fund's past performance (before and after taxes) cannot predict how it will perform in the future.
Class I shares are offered primarily for direct investment by investors through certain tax-exempt retirement plans and by institutional clients, provided such plans or clients have assets of at least $1 million. For eligibility requirements and other available share classes see the prospectus and other Fund documents at www.calamos.com.
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.
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.
Diversification and asset allocation do not guarantee a profit or protect against a loss.
Morningstar Small Growth Category funds focus on faster-growing companies whose shares are at the lower end of the market-capitalization range. Stocks in the bottom 10% of the US equity market's capitalization are defined as small caps. Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields). The Russell 1000® Index measures the performance of the large-cap segment of the US equity universe. The Russell 2000® Index measures the performance of the small-cap segment of the US equity universe. The Russell 2000® Growth Index measures the performance of the small-cap growth segment of the US equity universe. It includes those Russell 2000® companies with higher price-to-value ratios and higher forecasted growth values. The Russell 2500® Growth Index measures the performance of the small to midcap growth segment of the US equity universe. It includes those Russell 2500 companies with higher growth earning potential. Unmanaged index returns, unlike fund returns, do not reflect fees, expenses or sales charges. Investors cannot invest directly in an index. The Russell Microcap® Index measures the performance of the microcap segment of the US equity market, and consists of the smallest 1,000 securities in the small-cap Russell 2000® Index, plus the next 1,000 smallest eligible securities by market cap.
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 Timpani Small Cap Growth Fund and Calamos Timpani SMID Growth Fund include equity securities risk consisting of market prices declining in general, growth stock risk consisting of the potential increased volatility due to securities trading at higher multiples, and portfolio selection risk. The Funds invest in small-capitalization companies, which are often more volatile and less liquid than investments in larger companies.
Foreign security risk: 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.
NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
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