Fund Profile: Calamos Growth Fund
by Ann C. Logue
Recession or not, the market has to turn around at some point; so much doom and misery has been discounted into prices that stocks can't go much lower. Although it's theoretically possible that they could go to zero, that seems a bit unlikely. Even if 81% of Americans think that the country is on the wrong track, will they stop consuming out of disgust? Probably not, which means that someday soon, the market is going to pick up and those who buy low will be the happiest. The Calamos Growth Fund has been hit hard in recent months, like many funds that favor growth over defense, so maybe — just maybe — it's now time to buy.
The Calamos Growth Fund is down 9.99% as of April 3, 2008, and believe it or not, that's an improvement: the fund was down 13.54% for the first two months of this year (after a strong 2007, in which the fund posted gains of 23.26% and the average large-growth fund was up 13.35%). For the last five years, Calamos Growth returned an average of 15.18% per year, compared with a category annual average of 10.84%. The S&P 500, meanwhile, had an average annual total return of 11.63% for the same period.
The fund's investment style is straightforward. The father and son chief-investment-officer team of John and Nick Calamos are assisted by a team of analysts. They run quantitative screens to generate a list of companies that meet minimum growth and financial criteria. That's the starting point for more qualitative research that looks at what the companies do and why their businesses should — or should not — do well. Then, the firm uses a cash flow valuation model to figure out if the stock is cheap to buy right now. The result? Sixteen billion dollars in assets held in 182 different stocks and a 66.4% annual turnover. Holdings are split between mid-cap and large-cap, with 43.0% of assets in companies with a market capitalization of $12 billion or less and the remaining 57% in larger companies.
The fund's largest holding is Apple, Inc. (Nasdaq: AAPL), at 4.8% of assets. The second-largest position is the king of all search companies Google Inc. (Nasdaq: GOOG), which represents 4.6% of assets. The third-largest holding, at 3% of funds, is Research In Motion Limited (Nasdaq: RIMM). It's no surprise, then, that information technology is the largest industry sector in the fund, at 38% of assets; it's unclear if the investment criteria for these companies includes serving as a competitive threat to Microsoft Corporation (Nasdaq: MSFT), which is not in the fund. The second-largest sector is consumer discretionary, at 16% of assets, with industrial holdings coming in third at 12.4%.
The Calamos funds are designed to be sold through brokers and financial advisors, but the company is willing to be flexible to get assets in the door. The A shares are sold through third parties and have a front-end load of 4.75% on a minimum investment of $2,500. The first breakpoint is at $50,000, and there's a 12b-1 fee of 0.25%. The fund also comes in class B shares with no front load, a contingent deferred sales charge on redemptions starting at 5%, and a 1% 12b-1 fee. These automatically convert to A shares after eight years. Investors have the option of Class C shares, with no load but no conversion privileges and a 1% 12b-1 fee.
On top of the sales charges, the fund levies other fees. The management fee is 0.79% of assets and other expenses come in at 0.17%. Throw in the class A 12b-1 fee, and total expenses are 1.21%. Calamos waives .01% of its fees, related to the percentage of fund assets kept in the Calamos Money Market Fund, bringing the expense ratio down to 1.20%. That's lower than the 1.37% charged by the average Large Growth fund.
At the risk of being like Herbert Hoover, predicting prosperity around the corner as the U.S. economy crumbled around him, the markets can't go much lower. (Can they?) Absent another brokerage firm bail-out, business has to turn. The stock market is always oriented to the future; maybe now it will start assuming a recovery. If that's the case, it's a good time to look at the Calamos Growth Fund.
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