Calamos sees strong case for defensive equity strategies
Calamos Investments’ latest quarterly Global Economic Review and Outlook highlights defensive equity strategies and corporate bonds among the current investment opportunities.
The Calamos Investment Committee’s global economic outlook is one of cautious optimism. We expect a measured recovery to continue in the global economy. Supportive factors include accommodative monetary policy globally and a US fiscal cliff in the rear-view mirror. Our caution reflects concerns about the potential impact of macro events, including debt ceiling debates in the US and fiscal austerity in the euro zone, potentially contributing to a continued slowdown in earnings growth.
The US economy looks positioned to maintain a slow growth path. A resilient consumer remains at the heart of the recovery. Corporate balance sheets are strong, with operating margins near historic highs and high cash balances. Although contentious debt ceiling debates lie ahead, we believe Congress ultimately understands the US must pay its bills.
Emerging markets should make continued significant contributions to global growth. Recent data out of China has been encouraging, including rebounds in manufacturing. With lower debt levels relative to GDP, many emerging markets have policy latitude to navigate their economies. The expansion of the middle class in emerging markets is a momentous secular trend that can drive long-term growth.
In the eurozone, the tail risk of break up appears to be mitigated. Eurozone members have demonstrated resolve in the face of ongoing challenges. In 2013 and beyond, the euro zone must continue to aggressively address imbalances among countries, as economic weakness has spread into core and neighboring economies.
Japan could be a game changer. The return of Prime Minister Abe to leadership has catalyzed the Bank of Japan to move more decisively to stimulate economic growth. Given the size of Japan’s economy, this could be highly consequential for the global economy as a whole.
Encouragingly, we see indications that market participants are again focusing on company fundamentals and de-emphasizing “risk-on, risk-off” timing. Upward volatility spikes persist in the wake of macro and political events, but these are increasingly followed by declines in volatility.
Equities are highly compelling. Valuations are attractive on the basis of a number of earnings measures. Multi-national companies remain particularly attractive as they have the opportunity to participate in a broader range of secular growth themes and to go where capital is treated best. Growth equities, in particular, remain undervalued to the broader equity market.
We believe the case for defensive equity strategies is strong. Volatility will likely persist even as risk-on, risk-off market vacillations abate. As the economic recovery continues, we see favorable trends within the global convertible securities market, providing an expanded universe for defensive equity strategies.
Corporate bonds provide a more attractive choice for fixed-income allocation. The Calamos team continues to keep duration low and is finding attractive risk/reward characteristics among mid-grade credits. Against the backdrop of continued recovery, we see increased opportunities in a broader range of credit tiers.