Emerging Markets Indices: Who's In and Who's Out?

There is no single definition for "emerging market" and therefore for "emerging market investing." Indices use different criteria to classify countries. As a result, one index's emerging market may be another index's developed market. Country weights may also differ significantly, directly affecting an investor's exposure.

Interactive graph: Click on the below countries to view the country weightings across three Emerging Markets Indices.

Test Your Emerging Markets Knowledge? Differences among indices drive emerging market exposures for investors in surprising ways.

Indices are unmanaged, their returns do not reflect fees and expenses, and they are not available for direct investment. Data as of July 31, 2015. Fund data is calculated as a percentage of portfolio excluding cash. Geographic allocation is subject to change daily. Information is provided for informational purposes only and should not be deemed as a recommendation to purchase or sell holdings in the areas referenced. Portfolios are managed according to their respective strategies which may differ significantly in terms of security holdings, industry weightings, and asset allocation from those of the benchmark(s). Portfolio performance, characteristics and volatility may differ from the benchmark(s) shown. Information contained herein is for informational purposes only. 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 MSCI Emerging Market Index is a free float adjusted market capitalization index. It consists of the following 23 emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. The FTSE Emerging Index is a market-capitalization weighted index representing the performance of around 850 large and mid-cap companies in 22 emerging markets. The S&P Emerging BMI captures all companies domiciled in the emerging markets within the S&P Global BMI with a float-adjusted market capitalization of at least US$100 million and a minimum annual trading liquidity of US$50 million.

Truth 1. The Potential is Compelling

An Unprecedented Opportunity

A Rapidly Changing World Creates New Opportunities

Emerging markets are in the midst of economic and demographic shifts that offer exciting potential for investors. Emerging countries are expected to increase their share of the global medium-high middle classes and affluent segments from 24% in 2000 to 67% by 2025.*

Emerging Markets Transform the Global Economy

Emerging markets are a powerful driver within the global economy and now contributes 40% of global GDP, twice their level in 2000. As they prosper, emerging markets are undergoing rapid urbanization. Of the 538 cities in the world with populations of 1 million or more, 413 are in emerging markets.

Source: International Monetary Fund, World Economic Outlook Database, April 2014
*BBVA EAGLES Economic Watch, March 2015

Sources: IMF World Economic Outlook Database and Thomas Brinkhoff, Major Agglomerations of the World, http://www.citypopulation.de
*According to MSCI Emerging Market Index

Investments in emerging markets can be more volatile. As mentioned above, the normal risks of investing in foreign countries are heightened when investing in emerging markets. In addition, the small size of securities markets and the low trading volume may lead to a lack of liquidity, which leads to increased volatility. Also, emerging markets may not provide adequate legal protection for private or foreign investment or private property.

Information contained herein is for informational purposes only. 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. We believe the information provided here is reliable. The views and strategies described may not be suitable 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.

Emerging Markets Spur Consumer Demand

Emerging Market Consumers, Emerging Investment Opportunities

U.S. consumer activity is generally recognized among the most important drivers of the global economy. Yet, the EM consumer has already overtaken the U.S. consumer in terms of global share of consumption. We expect this trend to build momentum, creating a new landscape for investors.

Source: JP Morgan, Guide to the Markets, March 31, 2015

Source: IDC, World Economic Forum, McKinsey and Company, 2015.

Truth 2. Significant Exposure Is Essential

EM Opportunities Merit a Core Asset Allocation

We believe that successful asset allocations reflect long-term growth themes. The demographic and economic trends in the emerging markets have gained impressive momentum, which looks poised to continue. Investors seeking to benefit from the seismic shift in global growth drivers should revisit their allocation to emerging markets.

Underappreciated and Underweighted?

At Calamos, we believe that asset allocations should reflect long-term growth opportunities. By any number of measures, many investors are underweighted to emerging markets. Currently, only 3% of mutual fund assets are invested in emerging market equity funds, but emerging market companies make up more than 13% of the global equity market. The gap widens even more from a secular perspective. Emerging markets represent more than 40% of the global economy, based on a measure of GDP growth that accounts for purchasing power. To commensurately reflect this, investors may choose to make a larger, core allocation to emerging markets.

...YET ONLY 3% OF US MUTUAL FUND ASSETS ARE INVESTED IN EM EQUITY FUNDS.

Due to rounding, the pie chart may not equal 100%. The MSCI ACWI Index is a free-float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. Sources: Morningstar, International Monetary Fund World Economic Outlook, April 2015, and Calamos Advisors LLC. MSCI ACWI data as of 9/30/2015. GDP data shown below is based on purchasing power parity, which is an reflects an adjustment to equalize currency rates.

Truth 3. Our Revenue Focus Is Pivotal

Companies, Not Countries: An Innovative Approach

We focus on what a company does and where it earns its revenues, not where it is headquartered. Calamos Evolving World Growth participates in EM opportunities by investing in:

  1. Companies based in developed markets that are providing goods and services to emerging markets
  2. EM companies exporting to developed markets
  3. EM companies that serve their local markets

Our view of emerging market investment opportunity sets us apart from funds that limit themselves to EM companies alone. By investing in developed market companies, we may mitigate the risks of a pure-EM portfolio.

Truth 4. Actively Managing Risk Is Crucial

A Risk-Managed Approach to Emerging Markets

Demographics and economic fundamentals make the long-term case for emerging market allocations. Still, the risks of EMs may be higher than in developed markets. At Calamos, we address these risks through an active, multipronged approach.

Managing Risk Through Security Selection

The companies in the portfolio have better growth attributes (as measured by return on invested capital) and better balance sheets (as measured by debt to capital) than the emerging market equity index as a whole.

A Broader View on Emerging Market Opportunity

Because our participation in emerging markets is based on secular growth themes, we have more opportunities to choose among—and more ways to manage risks—versus funds that constrained by where a company is headquartered.

A Broader View on Emerging Market Opportunity

Because the opportunities and risks of emerging markets vary widely from country to country, an active approach is essential. From a geographic perspective, Calamos Evolving World Growth Fund differs significantly from the MSCI Emerging Market Index. We believe this to be an important differentiator for the risk-conscious investor.

As of March 31,2016. Fund data is calculated as a percentage of portfolio excluding cash. Geographic allocation is subject to change daily. Information is provided for informational purposes only and should not be deemed as a recommendation to purchase or sell holdings in the areas referenced. The MSCI Emerging Market Index is a free float adjusted market capitalization index. It includes market indexes of Hong Kong, South Korea, United Arab Emirates, Qatar, Hungary, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey Portfolios are managed according to their respective strategies which may differ significantly in terms of security holdings, industry weightings, and asset allocation from those of the benchmark(s). Portfolio performance, characteristics and volatility may differ from the benchmark(s) shown.

Convertible Securities Can Help Manage Equity Risks

At Calamos, we have used convertible securities for more than 35 years to help manage the downside volatility in the equity markets. Convertible securities combine attributes of stocks and fixed income securities.

Through opportunistic, actively managed investments in convertibles, our goal is to capture more equity upside than downside over full market cycles.

SEEKING TO OFFSET MARKET FLUCTUATION
Upside Potential

When the underlying stock rises, convertibles may capture a portion of the capital appreciation

Downside Protection

If the underlying stock price drops, convertibles may provide consistent income and other fixed income characteristics (e.g., principal repayment)

Convertible Securities Risk: The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security's investment value.

Equity Market Participation with Historically Lower Volatility

Calamos Evolving World Growth Fund has delivered its returns with less risk, as measured by a number of statistics.

Actively Managing Risk Is Crucial

Since its inception, the Calamos Evolving World Growth Fund has historically demonstrated lower volatility (as measured in terms of beta and standard deviation) than the broader emerging market equity market, represented by the MSCI Emerging Markets Index. Moreover, it has participated in a portion of the market's upside with relatively less downside than its peers (up/down capture). The fund provided a higher level of return than would be expected given its risk profile (Sharpe Ratio).

Beta
Up/Down Capture of MSCI EM Index
Standard Deviation
Sharpe Ratio
Over 90% OF THE TIME, THE FUND OUTPERFORMED WHEN EMERGING MARKETS DECLINED

Data since inception, as of 03/31/16
Beta - A historic measure of a fund's relative volatility, which is one of the measures of risk; a beta of 0.5 reflects 1/2 the market's volatility as represented by the S&P 500 Index, while a beta of 2.0 reflects twice the market's volatility.
Standard Deviation - Standard deviation is measure of volatility.
Upside Capture Ratio - Upside capture ratio measures a manager's performance in up markets relative to the named index itself. It is calculated by taking the security's upside capture return and dividing it by the benchmark's upside capture return.
Sharpe Ratio - Sharpe ratio is a calculation that reflects the reward per each unit of risk in a portfolio. The higher the ratio, the better the portfolio's risk-adjusted return is.
Diversified Emerging Mkts, EM - Diversified emerging-markets portfolios tend to divide their assets among 20 or more nations, although they tend to focus on the emerging markets of Asia and Latin America rather than on those of the Middle East, Africa, or Europe. These portfolios invest at least 70% of total assets in equities and invest at least 50% of stock assets in emerging markets.

Morningstar 5 star overall rating among 561 Diversified Emerging Markets Funds. The fund’s Class I shares had 5 stars overall, 4 stars for 3 years, and 5 stars for 5 years out of 561, 561 and 376 Diversified Emerging Markets funds, respectively, for the period ended 9/30/15. Morningstar Ratings are based on the risk-adjusted returns. Past performance is no guarantee of future results. Morningstar Ratings™ are based on risk-adjusted returns for Class A shares and will differ for other share classes. Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. 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 Fund’s maximum front-end sales load of 4.75% had it been included, the Fund’s return would have been lower. For the most recent Fund performance information visit www.Calamos.com. In calculating net investment income, all applicable fees and expenses are deducted from the returns. 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. The Fund also offers Class B and C shares, the performance of which may vary. Performance shown reflects an expense reimbursement that improved results. As of the prospectus dated 3/1/15, the gross and net expense ratios for Calamos Evolving World Growth Fund, Class A and Class I shares are 1.62% and 1.37%, respectively. Class A Load-waived shares are not available to all

The standardized performance as of 3/31/16 for the Evolving World Growth Fund A-shares for 1, 3, 5, and since inception is -11.95%, -2.99%, -2.59%, and 2.72% respectively. A-Shares load-waived performance for 1, 3, 5, and since inception is -16.13%, -4.55%, -3.54%, and 2.07% respectively. I-Shares performance for 1, 3, 5, and since inception is -11.77%, -2.78%, -2.35%, and 2.98% respectively. MSCI Emerging Markets Index performance for 1, 3, 5, and since inception is -11.70%, -4.15%, -3.80%, and 0.73% respectively.

Truth 5. The Strategy Is Timely

Put Theory Into Practice Today

"You just can't think about what is going to happen today or tomorrow. You have to look through the near-term volatility and think longer-term," says John P. Calamos Sr.

Investment Team

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