Brandon Nelson, CFA
What a wild quarter. January started strong with a short-covering surge in beaten down stocks. Cyclical stocks in industries relating to semiconductors, retail, transportation, homebuilding and building products led the way. Throughout February, macro data points had investors continuing to fret about the trajectory of Federal Reserve interest rate hikes. By early March, a banking crisis was born, and regional bank stocks were significant loss leaders, triggering investors to rotate toward high-quality growth stocks and away from cyclicals.
Although the banking crisis is likely to result in tighter lending standards, the upshot is that the Federal Reserve likely won't need to hike interest rates as much to achieve its goals. Ending the hikes could have a sustained positive impact on equity valuation multiples.
That's a lot of twisting and turning—but quietly, in the background, something very important is happening: Correlations among stocks are trending lower and are back to near-average levels. Why is this important? When correlations are high, it means stocks are all moving together and are being driven largely by macro developments. Falling correlations mean the macro impact is lessening and that company-specific developments are driving more of the stock price action. This can often be a favorable backdrop for savvy stock pickers who focus on company-specific fundamentals.
We believe Calamos Timpani Small Cap Growth Fund (CTSIX) and Calamos Timpani SMID Growth Fund (CTIGX) are well positioned for the current environment. Both funds struggled over the past several months, mostly because of investment stylistic headwinds. In the first half of 2022, the market punished high growth small cap stocks; and in the fourth quarter of 2022 and January of 2023, companies with murky fundamentals rallied the most.
Our funds are tilted toward stocks with above-average growth and very visible fundamental strength. Oddly enough, those were bad places to be in 2022 and early 2023. However, we believe the markets are on the verge of appreciating companies with fundamental momentum once again and we began to see evidence of this change for the better in early February.
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 1-800-582-6959. 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 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 potential increased volatility due to securities trading at higher multiples, and portfolio selection risk. The Fund invests 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.