Winning with CTSIX: Three Potentially Powerful Drivers

We asked Senior Portfolio Manager Brandon Nelson to share what’s driven Calamos Timpani Small Cap Growth Fund’s (CTSIX’s) performance and his thoughts about the fund’s prospects. Key points include:

• CTSIX is up 15.32% year to date through August 31, 2025, more than 800 basis points ahead of the Russell 2000 Growth Index and more than 1000 basis points ahead of the Morningstar US Small Cap Growth Fund peer group average.
• Individual security selection has driven returns year to date¹—what Senior Portfolio Manager Brandon Nelson calls “winning for the right reasons.”
• Nelson sees three drivers for investors to potentially win with CTSIX in the future—the fund’s fundamental momentum investment process, its security selection, and the prospect for a rebound in the small-cap asset class.

Figure 1. CTSIX Has Delivered Outperformance Over the Short and Long Term

Past performance is no guarantee of future results. Data as of 8/31/2025. Source: Morningstar, Calamos. Rankings based on percentile rankings for the I share class within the Morningstar Small Growth Category. As of 8/31/2025, the fund was ranked 14 of 534 funds for the year-to-date period, 10 of 534 funds for the one-year period, 6 of 533 funds for the 18-month period, 28 of 525 for the three-year period, 98 of 517 funds for the five-year period, and 65 of 476 funds for the 10-year period.

Q. Why do you believe investors should consider CTSIX?

A. CTSIX has historically provided strong performance through many periods, which I hope gives confidence that our process is repeatable. I believe there are three ways investors can potentially win with CTSIX:

1. The fund utilizes an investment process—fundamental momentum—that has tended to be well-received by investors.
2. We’re focused on finding favorable and unique company-specific situations within that fundamental momentum framework.
3. We believe there’s a rebound on the horizon for an asset class that is temporarily down and out.

Q. Tell us more about how you select stocks based on fundamental momentum.

A. For us, fundamental momentum means two things: sustainably fast growth and underestimated growth. We want companies that have an open-ended growth opportunity in front of them—typically a situation where they have low but quickly rising market share of a large market.

The underestimated growth portion of fundamental momentum tends to relate more to management’s ability to successfully manage expectations for investors. We seek companies beating expectations quarter after quarter—whether that’s three quarters, three years, or more. The market tends to reward stocks beating expectations with higher and higher valuations.

I would rather buy a stock where the sustained growth is expected to be 15% and they consistently report 23% than buying a stock where the sustained growth is 35% but they consistently report 30% growth. A company has to have both sustainably fast growth and upside to growth.

Q. Let’s turn to your second point—finding favorable and unique situations.

A. This is the idiosyncratic layer where we spend all of our time—digging deep with company management teams and our network of contacts. The small-cap market is inefficient, sometimes creating misaligned stock prices. There aren’t as many eyeballs looking at these stocks. But if you get the right small caps—that can be really exciting. We believe CTSIX’s results show that we’ve done a good job of that over the life of the fund.

Idiosyncratic security selection has been the main driver of outperformance this year, and it’s not just one or two names driving performance. We have a nice variety of names putting points on board—in health care, consumer discretionary, financials, technology, and industrials. To me, this means we’ve won for the right reasons.

We’re investing with conviction but also staying diversified, which has historically been a winning formula for us. Most of our investments are one-off situations, but we’ve also found some compelling themes in AI infrastructure, online gambling, and corporate reshoring in response to tariffs and recent legislation.

Q. What do you say to the investor who says, “small caps have underperformed for years, why bother?”

A. I get this question a lot. I think a lot of investors who aren’t in small caps today will look back and see this as a missed opportunity. Consider:

• Small caps have generally won. It may not have been the case over the past 10 years or so, but if we look back over much longer time periods, small and large caps alternate, and small caps have led large caps overall.

  Figure 2. Small has often outperformed big: Big versus small since 1928

  

  Past performance is no guarantee of future results. Source: Oppenheimer & Co, Kenneth R. French, and Bloomberg. December 31, 1927 =1. Graph uses log scale.

• We believe rotation is overdue. While the past doesn’t predict the future, history can provide useful context. According to research from Jefferies published this spring, small caps have been on their longest losing streak ever, at more than 8.4 years, considerably longer than the average down period of 4.4 years.²
• When the baton pass has happened, small caps have come out of downturns with jaw-dropping strength—on average, outperforming large caps over the subsequent one-year period by more than 27%, according to the same Jefferies study. I believe that’s a reason to be in small caps ahead of the turn.

• Valuations for small caps are very attractive, in my view, on both an absolute basis and relative to large caps. Most stocks these days are being valued on 2026 earnings, and it’s fascinating how linear this relationship is. The largest 300 stocks are trading at about 20 times estimated earnings, and the micro caps are at only 12 times.

  Figure 3. Smaller stocks, better-priced growth prospects

  

  Past performance is no guarantee of future results. Source: Leuthold. Data as of 7/31/2025. P/E ratios based on consensus estimates. Small Cap/Large Cap P/E Premium Discount is a measure of the degree to which the price/earnings ratios of small caps are greater or less than those of large caps. A negative value, or discount, indicates that price/earnings ratios of small caps are less than those of large caps. Price/earnings ratios measure the price of a stock relative to its earnings per share.

• Mathematically, research shows that big winners can disproportionately come from the small and micro buckets, even when small caps aren’t leading in the market. From 2013 to 2023, 77% of huge winners (1000+%) still came from the small and micro cap space.³

Q. Any closing thoughts for investors?

A. I hope that CTSIX’s results and our approach make it easy for investors to build strategic allocations to small caps. Our fundamental investment process has served us well historically, and it’s encouraging to see the market is paying more attention to company-specific growth drivers. From a bottom-up standpoint, I’m really excited about CTSIX’s portfolio—it’s stacked with small and micro caps that check all the boxes for our team. While we’ve demonstrated we don’t need the small cap asset class to win, there are many reasons to believe that a baton pass from large to small is coming into focus, which could give our holdings an additional boost.