By John P. Calamos Sr.
There’s been a lot of talk about the so-called “Lost Decade” from 2000 to 2009, when equities as an asset class – as measured by the S&P 500 Index – basically went nowhere. In fact, the S&P 500 Index had negative performance during this period.
There are two key points I’d like investors to understand: One is that this does NOT mean that investing in equity markets was a bad idea. The second is that it clearly does matter HOW and WHERE you invest.
I’ve been in the investing business nearly 40 years and believe the lesson of the Lost Decade is the potential value of active management versus index investing. I believe the Lost Decade reaffirmed the value of actively managed investing. It highlights the necessity of seeking to manage risk over both the short term and long term.
I say this because, at Calamos Investments, we are extremely zealous about managing portfolios for the long run and believe our performance tells a different story than the Lost Decade would suggest. We aren’t the only asset manager offering actively managed strategies that can make this statement. In other words, the Lost Decade wasn’t a “loss” if you were in the right place.
A New Decade Ahead
But the past is past, and now what’s important is the future. What will the new decade bring? Will it be similar to the 1970s and early 80s, when the equity markets went sideways for over 10 years?
We believe that even in that type of environment, actively grinding out returns quarter-to-quarter has the potential to provide returns above market averages. The market volatility experienced during the ‘70s and ‘80s provided some excellent opportunities for investors.
At Calamos, we believe current conditions strongly favor those accustomed to managing investments actively. We anticipate a slower-growth economy, an uncertain political landscape, and higher valuation spreads at sector and industry levels. We also expect continued volatility and uncertainty regarding longer-term growth.
Global Opportunities
In this environment, we are looking for opportunities around the globe, where many markets continue to develop and grow. As these markets evolve in the coming years, the opportunity for active managers will grow as well. We believe it may also be the opportune time for investors to increase their allocations to global securities.
With more choices to scrutinize, and more potential opportunities to pursue, active managers appear well positioned for the new decade.
As we view the global markets, we’re particularly interested in global growth companies, where we feel the combination of strong balance sheets and attractive valuations offer good opportunities.
Alert To Risk
But we now recognize, more than ever before, the importance of keeping a constant eye on risk. In particular, during a period of six to nine months beginning in the fall of 2008, we learned a valuable lesson about systemic risk. The term refers to the potential risk that financial markets as a whole will cease to function.
When the economic crisis shook markets worldwide, we learned that systemic risk can be very real. We learned it can come quickly, unannounced, and affect investments across nearly all strategies. Today, with Greece in the news daily, the global financial markets are now concerned about sovereign risk.
In our view, the need for investors to keep an eye on risk and the potential for market downturns provides another strong argument in favor of active management.
When markets move swiftly and unpredictably, active managers are in a position to respond more quickly with changes in their strategies. Passive investments are left solely at the mercy of the markets’ fury.
While it is impossible to manage short-term performance, we strongly believe that constantly trying to manage downside risk and carefully assessing each asset can help achieve long-term investment goals.
Drawing on our two decades of experience investing globally and our risk-managed investment process, we are excited about the opportunities we see. We are especially excited about the potential benefits active management can bring to investors.
John P. Calamos, Sr. is Chairman, CEO/Co-CIO of Calamos Investments www.calamos.com.
Please write to JPCsr@calamos.com, or call 888.857.7604 with questions or comments.
The opinions referenced are as of February 2010 and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.
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