It’s a Market of (Global) Stocks, not a Stock Market

Nick Niziolek, CFA, Dennis Cogan, CFA, Paul Ryndak, CFA, and Kyle Ruge, CFA

Summary Points:

• Calamos Global Equity Fund’s quarterly and year-to-date returns exceeded those of its benchmark.
• CIGEX’s positioning aligns with our view that the economy is in a disinflationary growth market cycle regime.
• This environment favors growth equities, including those positioned to benefit from secular growth themes.

Global equity markets added to year-to-date gains during the second quarter, even though economic data regarding the growth and inflation outlook remained mixed. Peak Covid re-opening tailwinds and peaks in inflation and accelerating growth are all in the rearview mirror for most major economies. Even so, we believe the global economy is resilient overall, and recession is not our base case.

Regarding our macro framework, we believe we are in a period of disinflationary growth characterized by decreasing inflation and decent economic fundamentals, which is a generally a benign backdrop and an ideal environment for growth equities, including those with secular tailwinds.

Calamos Global Equity Fund Has Performed Strongly in 2024

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 3/1/2024, CGCIX’s gross expense ratio is 1.26%.

Below, we highlight some key positioning themes in Calamos Global Equity Fund:

US Markets: More to Cheer than Just the Mag 7

Although Calamos Global Equity Fund is underweight to the US versus the MSCI ACWI Index and MSCI World Index, US companies are the fund’s largest country weighting as of June 30, 2024. The disinflationary growth narrative certainly appears to be in force in the US: Some recent economic data and indicators have weakened, but overall growth remains solid, and inflation continues to fall. This creates a favorable backdrop for companies benefiting from strong and sustainable growth, including those at the center of powerful secular growth themes. Our investment process is focused on finding the best of these. Secular growth has been a driver of the market’s strong year-to-date performance, and the fund has been positioned for these tailwinds as well.

One of the most common concerns—or even complaints!—that investors are voicing these days relates to the concentration of the market’s returns in a small number of stocks, most often— the “Magnificent Seven.” We find this a little confusing. Consider the Russell 1000 Index. Although on a market-cap-weighted basis, it is true that a relatively small number of companies have driven a large portion of the Index’s year-to-date return, it’s also true that more than 100 names have returned more than 25% year-to-date. These performers represent a variety of industries, market caps, and growth themes. For active managers who are willing and able to express conviction, we believe there will continue to be many opportunities to invest in companies that the market will reward for their strong fundamentals and ability to grow their intrinsic values. And this is only in the US; globally, the opportunity set is even greater!

Japan: Targeting Pockets of Opportunity

Japan counts among our top five country weightings as of the end of the quarter. We recently returned from a research trip to Japan, which included company tours, meetings with senior management teams, and spirited debates and discussions with some of our peers. Although the tone from company management teams was generally optimistic and investor interest in Japanese equities is high, we are mindful of changing sentiment within the domestic economy. In 2023, we were struck by how the average worker was cheering inflation—and the significant wage gains inflation fueled. However, the realization that inflation is eroding purchasing power is sinking in. This new reality is likely to have knock-on effects on consumer-driven sectors of the economy.

Consequently, although the combination of valuations, improved corporate governance, and a focus on optimizing capital allocation supports our optimistic view of Japan’s equity market, we have emphasized global companies domiciled in Japan because these multinationals can also benefit from the continued unfolding of the global capex cycle.

Another cause for optimism within the Japanese equity market centers on the success of recent retirement savings reforms, which have led to increased investments in local and overseas markets. New savings plans create a steady flow of capital from the retail segment into the capital markets and have also increased the average person’s interest in the markets. We believe this higher engagement will help drive additional reforms and incentivize companies to be shareholder-friendly.

Industrials: A Closer Look

Our exposure to the industrial sector is multi-dimensional, spanning secular, turnaround/capital improvement, and more cyclical names. Reflecting the sector’s breadth of opportunity, the fund includes a healthy overweight to industrials. The secular opportunities for data center infrastructure are among the most exciting for the sector. Both power and thermal equipment will see an uptick in demand because AI chips and servers use three to four times more electrical power than traditional central processing units. According to the IEA, global data center total electricity consumption is expected to double from 2022 to 2026.

As overall electricity consumption rises, new infrastructure investments will be made inside data centers (e.g., new servers, cooling equipment, and additional power supplies) and outside the centers to expand power generation and transmission to meet demand.

Our overweight also reflects the bottom-up fundamentals in many industrial companies, including improved operational efficiencies, margins, and cash flows; and new management teams committed to strengthening competitive positioning. Japan-domiciled companies are well represented within our industrial holdings, where country-specific factors provide new catalysts for management teams to improve operational efficiencies, eliminate noncore holdings, and return capital to shareholders—a welcome shift after years of stagnant corporate evolution.