global
exchange
fall 2013
{pg 6}
bill o’donnell, jr. –
a life of resilience
{pg 12} mitigating interest
rate risk
{pg 21} global considerations
in asset allocations
contents
{ pg 3}
letter from the editor
{ pg 4}from
the desk of
john p. calamos, sr.
lessons from
the shutdown and
the importance of goal-driven
asset allocation
{ pg 6}
{ pg 12}
inspiring human capital
o’donnell, jr. –
a life of resilience
{pg 15}
mitigating
wealth matters
so
{pg 18}
... where do you live?
wisdom & wealth
entitlement:
{pg 21}
lessons from trees
investing perspectives
global
{pg 26}
calamos in the news
bill
asset allocation insights
fall 2013
considerations
in asset allocations
news & notes
interest rate risk
Cover mosaic of Calamos founder, John P. Calamos, Sr. is made up of Calamos employee photographs.
letter
from the
Government shutdowns, the housing crisis, corporate bailouts,
TARP, the euro zone crisis. It seems that in life – whether speaking
personally or about the global economy – we are either in a fire,
coming out of a fire, or just walking into a fire. Resilience is so
vitally important and we are thankful for it as the markets continue
to heal and march on through the turbulence.
In this issue of the Calamos Global Exchange, the theme of resilience
is reflected upon throughout. Included are investment related
articles about the recovering economy, investing in a rising interest
rate environment and the emerging markets. Our Wisdom and
Wealth section features an article about preventing ourselves
from being enablers of an entitlement mentality with the next
generation.
Entrepreneur Bill O’Donnell, Jr., founder of Sierra Tucson and
Miraval Resort, has displayed a true life of resilience. The article
takes us through his shattering setbacks and fantastic successes.
Whether you define the pinnacle of entrepreneurial success by way
of amassing wealth or by improving the economy and lives of others,
Bill is a wildly successful entrepreneur with an incredible story.
editor
Finally, I am excited about the cover of this issue. During the
tumultuous markets of the 1970s, Calamos began investing for
clients, helping them manage risk and build and protect wealth.
Led by our founder John P. Calamos Sr., we have continued
servicing clients over numerous market cycles through the global
economic struggles and times of marketplace resilience.
The cover, a mosaic made up of Calamos employee photos, is a
tribute to our founder.
As John says, “Where there is risk, there is opportunity. It is how
you manage the risk that makes the difference.”
I hope you find this issue educational, thought-provoking
and inspirational.
Cara Mossington
fall 2013 {pg 3 }
from the desk of
john p. calamos, sr.
lessons from the
shutdown
and the importance of goal-driven
asset allocation
By John P. Calamos, Sr., Chairman, CEO & Global Co-CIO
The most recent U.S. debt ceiling debates and government shutdown have reminded us
that uncertainty is unavoidable and often out of our control. There’s no reason to believe
this will change. We have a debt ceiling deadline behind us, but there’s another right
around the corner and the acrimony in Congress looks deeper than ever. We also have the
still unknown economic impact of the government shutdown and an unclear timeline for a
tapering of the Fed’s bond-buying program—and the higher interest rates that will result.
We often speak with clients about how they should position their asset allocations
to address these myriad uncertainties. Economic and political issues are all highly
consequential, and there is no doubt that this recent shutdown had significant impact
on many Americans. Successful wealth management strategies do take the economic landscape into account, both in the
U.S. and globally. But having invested professionally for more than 40 years, I believe that what matters most for long-term
asset allocation is much closer to home—your home, to be precise.
The wealth management strategies that are most likely to succeed are guided by an investor’s personal considerations.
This approach, which we could think of as “goal-driven asset allocation,” doesn’t focus on the short-term ups and downs
in the economy, the debt ceiling debates or who wins the next election. Also, goal-driven asset allocations are attune to
broad market trends and patterns, they are not necessarily about beating a market index each and every week. People have
grandchildren to send to college, businesses to grow, long-term care needs, and dreams of world travel. Indexes don’t.
}
{pg 4 } calamos global exchange
“the wealth management strategies
that are most likely to succeed are guided
by an investor’s personal considerations”
In other words, while indexes are about performance,
goal-driven wealth management strategies go a step further by
balancing returns with risks to achieve your personal goals. The
short-term gains of a particular index may be eye-catching, the
longer-term risks of the securities in that index may be unsuitable
for your situation.
Pension funds have their own form of goal-driven investing, called
liability-driven investing (LDI). The LDI strategy isn’t new, but it
has been broadening its footprint. In an LDI strategy, a company
focuses on what its liabilities are—for example, the amount it
needs to cover its pension obligations—and uses that rather than
an index as a benchmark for performance.
Here are some of my principles for goal-driven asset allocation:
1. Focus on your aspirations, not a benchmark. Your goals should
trump indexes every time. Define what you want to achieve
and prioritize your goals. You may be able to take on more
volatile investments to support long-term goals, while shorterterm needs call for a more conservative strategy.
2. Recognize your risk tolerance. Often, more speculative
investments fall as fast as they rise. Timing the ups and
downs isn’t possible, so if you want to invest in the high-flying
segments in the market, understand the downside risks.
3. Stay long term. There’s little reason to check in on your
portfolio every day. More often than not, short-term thinking
typically ends up whipsawing investors by selling and buying at
just the wrong times.
4. Rely on active managers. As a balance to principle number
three, I firmly believe in enlisting active managers to invest
on your behalf. Active managers can adapt to the risks and
opportunities of a changing market. Passive strategies cannot,
and this exposes your asset allocation to risks that an active
manager may be able to avoid.
5. Think globally. The most compelling growth trends are global,
such as the rise of the middle class in emerging markets. For
long-term investors, there’s no need to focus on China’s GDP,
but work with your trusted advisor to make sure you have the
appropriate level of participation in global secular trends.
6. Diversify your portfolio. Most people have more than one
goal, and a well-designed asset allocation can address this.
For example, non-U.S. stocks can be used for long-term
appreciation potential, and a market neutral income strategy
can help meet nearer-term income objectives. Better still,
having different types of investments in your portfolio may
help smooth out the ups and downs of individual strategies.
7. Rebalance periodically. Strike the right balance between
checking your portfolio’s performance every day or week
and putting your portfolio on an indefinite cruise control. A
financial advisor or wealth manager can help you determine
an optimal schedule. But, be sure to also reach out if your
circumstances change.
On behalf of all of us at Calamos, here’s to your goals. I wish you
well in achieving them.
Diversification does not assure a profit or protect against losses.
about the author
John P. Calamos, Sr. is founder, chairman, chief executive officer and global
co-chief investment officer of Calamos Investments.
fall 2013 {pg 5 }
inspiring
human capital
Bill O’Donnell, Jr.–
a life of resilience
{pg 6 } calamos global exchange
{
“it’s not what’s
in your pocket that’s important,
it’s what’s in your heart.” }
By Cara Mossington, Calamos Global Exchange Editor & Calamos Wealth Management, Director of Marketing
I once heard someone say that, “We tend to pray for easier paths when we should be praying for stronger
shoes.” William T. O’Donnell, Jr. got strong shoes!
Let me introduce you to Bill with a snapshot of his life and career: He grew up in a family of eight with a
doting mother and a father who, despite many hardships in his life, became a very successful businessman and
provided a life of opportunities for his family. Bill’s education includes degrees from Brown and Northwestern
Universities and his career began at Bally Manufacturing in 1971. His father, William T. O’Donnell, Sr., who
rose from salesman to chairman at Bally, was known for taking Bally from a small maker of pinball games into
the world’s largest producer of slot machines and a dominant player in the health club business with Bally
Total Fitness.
In 1983, after rising through the ranks at Bally, Bill moved out of his father’s line of business and into the
healthcare field by opening Sierra Tucson, a behavioral health rehabilitation facility in Tucson, AZ. Bill built
the company from its origins as a small rehab center into a world renowned treatment facility that has helped
thousands of people rebuild their lives. Bill eventually took Sierra Tucson public and made a fortune in the
process. He also founded Miraval Resort, a 400 acre award-winning resort and spa and was chairman of the
board of directors of NextHealth, Inc.
fall 2013 {pg 7 }
inspiring
human capital
Today Bill resides in a Chicago suburb splitting his time between family,
friends, hobbies and his investment and development firm, ODE, LLC.
Whether you define the pinnacle of entrepreneurial success by way of
amassing great wealth or by improving the economy and lives of others,
Bill is a wildly successful entrepreneur.
That’s the “polished” version of his biography. In the 1970s, while a
successful executive at Bally and happily married father of three, Bill was
abusing alcohol to deal with the stresses of managing it all. In 1975, Bill
was introduced to cocaine and furthered his downward spiral that nearly
claimed his life. His family, career, and fortune turned from blessings into
enablers as he led the life of the “executive addict”. His money allowed
him to continue to purchase the drugs and alcohol, his employees made
excuses for him and looked the other way, and his family kept on loving
him. Similar to other areas of his life where willpower, determination, and
hard work had made him successful, he thought he could overcome his
problem alone.
Bill is a strong soul. He became captain of the Brown University football
team after being told in high school that he would never play. He
convinced Northwestern University to accept him into their first Masters
of Management program despite not meeting the requirements – he was
in the first graduating class in 1978 and is still the youngest person to
have ever earned the degree. He thought the same “if there is a will, there
is a way” concept would apply to conquering his addictions. With this
mountain to climb, that solution would not work.
Above: Bill O’Donnell, Jr. and his family
Right: Bill and his father, Bill O’Donnell, Sr.
{pg 8 } calamos global exchange
The drugs and alcohol pulled him deeper and deeper into guilt,
depression, and paranoia until finally his wife told him to get sober
or get out. Bill moved out, stating, “I couldn’t stay sober. It was the
first thing I couldn’t achieve.” It got so bad he was physically and
emotionally shattered and severely neglecting his career and family.
His boss at Bally finally told him to get help or he would lose his job
and Bill checked himself into a rehab facility. Just six months after
being treated for his illness and beginning a new life of sobriety,
he decided to leave the high-powered job at Bally and pursue an
entrepreneurial endeavor and his success story with Sierra Tucson
and Miraval unfolded.
Bill was given love and privilege in his youth, and realized personal
success in family and career, having arguably never known true
failure or hard times. How does someone with this seemingly
perfect life, find the strength and resilience to humble himself
enough to admit defeat, ask for help, and overcome a great obstacle
that many find impossible to conquer? He then went on to re-invent
himself, began a new career, and completely turned his life around.
Where does the strength come from? In spending time with Bill
and asking him the following series of questions, my goal was to
unpack his life, even a bit, in an effort to learn from his journey of
resilience.
{cara} Your life is certainly one of experience, strength and hope.
You were very successful in building Sierra Tucson into
a facility that is synonymous with cutting-edge, high-end
treatment that has spawned hundreds of imitators around
the world. You were not only successful with the clinical and
care side of Sierra Tucson but you were also a success on
the business side. Over the years, you made tens of millions
through taking the company public, selling stock, and then
through a well-timed transaction that took the company
private again. Do you attribute your business savvy to your
father?
{bill} Yes. My father was a self-made man. He came from nothing
and had a tough life. His father died when he was ten, he
helped raised his younger siblings, and never graduated
from high school. Two of the key things my father taught
me were, “If you are willing to work hard, you can be
anything you want to be.” and that “It’s not what’s in your
pocket that’s important, it’s what’s in your heart.” My dad
lived out those things and he also taught me street smarts,
how to deal with people.
{cara} What are the key elements of your life that led to taking
your greatest challenge and turning it into one of your
greatest successes?
{bill} My father, as well as my own life experience, taught me
that it’s not how hard you fall, it’s whether you get up.
This is a family disease and I had watched my grandfather
and uncle suffer from alcoholism. They were some of the
people that helped get me on the road to recovery. I also
realized that I needed to leave my current workplace to stay
sober, so I tried to find other opportunities. Amazing things
happened.
{cara} Along with two small children, you have three grown sons
who are each successful in their own way. How have you
taken what you have learned and earned in your life and
purposefully guided them in their own journeys?
{bill} My number one goal is that they know they are
unconditionally loved. Sometimes that is a soft and warm
love and sometimes it’s a tough love. Living a sober life
has allowed me to spend time with them and be fully
present to provide words of advice. I have supported them
financially with entrepreneurial, real estate, education, and
other endeavors. It is important to me that there is a clear
communication of motives, reasons and expectations of
what they want to do with the money. This needs to be clear
up front because while you give to be helpful, money can
also be a disruptive force.
fall 2013 {pg 9 }
inspiring
human capital
{cara} What words of advice do you have to those struggling
with hardships, who know they need help, but may
be in the midst of being enabled by their own family
and money?
{bill} With this disease, from the alcoholic to the person
addicted to prescription drugs, the strongest symptom
is denial. When I was suffering, I would point to
all of my successes and say, “I can’t be an alcoholic
and addict.” My advice would be not to let the pain
(emotional, physical, spiritual) get so destructive that
you lose the things most important to you before
you ask for help. Hopefully the consequences do
not end up ruining their life and they ask for help
or have a loved one willing to intervene. Due to the
denial aspect, this is often the trickiest part. Telling a
person that does not believe they need help to “get
help” doesn’t work. A beginning is for the sufferer
to try to be honest with themselves and ask “do I like
the way my life is going?” and “have I tried to change
my behavior without succeeding?” and finally I tell
them to take 20 to 30 seconds each morning and look
closely at their face in the mirror and ask “do I like the
person I see?”
{pg 10 } calamos global exchange
{cara} What nuggets of wisdom do you hope to pass on to the
next generation of the O’Donnell family?
{bill} I always try to share with them what has worked for me
and then it is their decision whether to use it or not.
It is also always in my mind that on so many issues and
through time, I have learned more from my children
Billy (38), Ryan (36) and Christian (33) than I might
have taught them and this means it is more important
to listen than to talk. This is even true with Aidan (10)
and Kate (7). They are all great teachers.
While some days I feel I have clarity of my walk and
other days I am not so sure, I have two cards that I
always carry in my wallet. They help remind me of
how I want to make decisions and live my life. One
is about my everyday practices and the other is a list
of questions I ask myself when making a significant
decision. These are thoughts and ideas I have
collected over the years.
Bill was gracious enough to share the two tattered cards from his wallet. They read as follows:
My Everyday Practice:
1. Unconditional love for myself and everyone I come in contact with.
2. Detach from the outcome and observe.
3. Give generously of your time and unconditionally.
4. See your vision hold it in your mind. (intuition, intention)
5. Know it, relinquish all doubt. (No fear)
6. Commit to only observing negative thoughts and emotions, releasing from them and move on.
7. Set your intent to be the best you can be at all of them every day…and laugh.
Decision Making:
1. Do I have a passion for what I am trying to do?
2. Do I believe (not just mentally) that I can do this?
3. Is this effort consistent with my values in life?
4. Am I willing to take action on and put my full energies behind this effort?
5. Is what I want going to assist me in growing and becoming a better person, i.e. in achieving a more fulfilled life or am I just indulging myself?
6. If you begin a path of action with an effort and find a lot of resistance (problems), ask yourself: Do I really want this? Am I committed to the idea or not? What are the consequences, obligation, or energies involved that I may be resisting? Am I investing too much of myself in this idea (effort)? Are my actions powerful and appropriate?
As Theodore Roosevelt once said, “Courage is not having the strength to go on; it is going on when you don’t have the
strength.” Bill shared his thoughts with me just after having celebrated 30 years of being clean and sober. Hopefully
through Bill’s story we can learn a bit about courage and resilience in the hope of turning our own bumpy paths into
progress. After all, life is about continued progress, not perfection. Here’s to strong shoes!
“a beginning is for the sufferer to try
to be honest with themselves and ask
“do i like the way my life is going?”
fall 2013 { pg 11 }
}
asset allocation
insights
mitigating
interest
rate risk
By John P. Calamos, Sr., Chairman, CEO & Global Co-CIO
Since the Federal Reserve
raised the prospect of tapering
its bond buying program,
many investors have become
increasingly concerned about
the impact of rising rates
on their asset allocations,
especially longer-term U.S.
government bond holdings.
{pg 12 } calamos global exchange
{
“amid the uncertainty,
there is time to be proactive.” }
Positioning a portfolio with an eye to managing interest rate risks is challenging because it’s impossible to know
when rates will move up, or how quickly, or for how long. This spring, interest rates spiked at the mere suggestion
of a tapering, only to come back down as the Fed decided to forestall the tapering. We believe that a rise in rates
is not imminent and that quantitative easing will continue at least until March, when Janet Yellen will assume the
reins from Federal Reserve Chairman Ben Bernanke.
Amid the uncertainty, there is time to be proactive. Investors have an opportunity to position their asset allocations
ahead of the curve and potentially mitigate the deleterious effect of rising interest rates. We believe that:
1. Equities remain attractive. The Federal Reserve has made clear its intention to keep rates low until
employment data is better, an indication of a stronger economic recovery. Historically, higher price-toearnings ratios have accompanied periods of moderately higher rates that occurred during periods of
economic expansion. Income-oriented investors can consider allocations to dividend growth securities, which
may be able to provide a distribution stream that keeps ahead of the inflation often associated with higher
interest rates.
2. Convertibles provide a “best of both worlds” approach. Historically, convertible securities have been less
susceptible to rising interest rates because they offer equity participation as well as coupon income. Figure 1
illustrates how this reduced interest rate sensitivity contributed to compelling performance during periods
when 10-year Treasurys rose more than 100 basis points. Moreover, we believe the merits of these hybrid
securities can be significantly enhanced through active management—making them a good choice for full
market cycles, not just periods of rising rates.
fall 2013 { pg 13 }
asset allocation
insights
figure 1. in rising rate environments, convertibles have held up well
Bonds tend to lose value in an environment of rising interest rates. However, convertible returns have tended to more
closely reflect equity returns than bond returns when the 10-year Treasury yield rose more than 100 basis points.
10/15/93 - 1/18/96 11/7/94
6/12/96
10/5/98 1/20/00
11/7/01 4/1/02
6/13/03 6/14/04
6/1/05 6/28/06
12/30/08 - 10/7/10 6/10/09
2/8/11
7/26/12 9/6/13
Yield Increase (bps)*
287
154
263
125
176
136
189
115
155
BofA Merrill Lynch All
U.S. Convertibles Index
-2.28%
11.97%
68.85%
2.29%
11.49%
9.46%
24.68%
11.63%
25.43%
S&P 500 Index
2.22
11.42
46.59
3.07
14.66
6.71
9.41
14.89
26.91
Barclays U.S. Government/
Credit Index
-5.15
-4.08
-3.38
-3.09
-3.64
-1.49
-2.08
-3.94
-3.62
Past performance is no guarantee of future results. *10-year Treasury yield. Performance shown is cumulative. Sources: Morningstar and Bloomberg
3. Traditional bonds warrant caution. U.S. government bonds have been especially vulnerable to rising rates because their
yields become less competitive when bonds are issued with coupons tied to the new higher interest rates. For investors
who wish to diversify away from equities, high income corporate bonds may provide a good alternative, particularly midgrade bonds with moderate durations. (Duration is a measure of a bond’s interest rate sensitivity, with higher durations
indicating more sensitivity.) Liquid alternative strategies, such as a market neutral income approach, can also provide
income opportunities with less interest rate sensitivity.
conclusion
A rise in rates looks inevitable. The bad news is that we don’t know when it will happen. As we’ve seen in the 1970s, 1980s,
and once again in 2013, sharp spikes can occur with little notice. But at this point, the good news outweighs the bad:
Investors have time to revisit their asset allocations and work with a trusted advisor to shift their portfolio into strategies that
are more rate resilient—and still aligned with their long-term goals.
The price of equity securities may rise or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. Equity
securities are subject to “stock market risk” meaning that stock prices in general (or in particular, the prices of the types of securities in which an investor invests) may decline over
short or extended periods of time. Fixed income securities are subject to interest rate risk. If rates increase, the value of fixed income investments generally declines.
The Bank of America Merrill Lynch All US Convertibles Ex Mandatory Index (V0A0) is broadly representative of the U.S. convertible securities market, consisting of publicly traded
issues, denominated in U.S. dollars, of all credit qualities, and excluding mandatory (equity-linked) convertibles. The S&P 500 Index consists of 500 stocks chosen for market size,
liquidity, and industry group representation. It is a market-value weighted index (stock price times number of shares outstanding), with each stock’s weight in the index proportionate
to its market value. The “500” is one of the most widely used benchmarks of U.S. equity performance. Unmanaged index returns assume reinvestment of any and all distributions and
do not reflect any fees, expenses or sales charges. Investors cannot invest directly in an index.
The opinions referenced are as of the date of publication 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. The information in this report should not be considered a
recommendation to purchase or sell any particular security.
{pg 14 } calamos global exchange
wealth
matters
so ... where
do you live?
By Terry LaBant, Senior Wealth Strategist
The new tax act passed
by Congress earlier
this year has brought
more certainty to
income tax discussions
for individuals.
As you may recall, the new law is known as The Taxpayer Relief Act of 2012. Yet, the term “relief” in the name
of the new tax act remains a bit of a misnomer since all wage earning taxpayers will owe more tax this year
than last year. The new tax act also creates more ways for someone to be classified as a “wealthy” taxpayer
subject to higher rates, loss of exemptions and deductions and the new surtax on net investment income.
In light of these changes, taxpayers remain sensitive to saving some federal income taxes when possible.
But, they also have become more sensitive to the cost of state taxes that they may pay over time.
Of course, each state maintains its own laws to collect income tax. State income tax rates may have a
meaningful impact on a taxpayer’s cash flow and spending power during retirement. This impact even may
influence a taxpayer’s decision to relocate during retirement.
fall 2013 { pg 15 }
wealth
matters
So, it’s no surprise that as the “baby boom” generation retires, wealth preservation discussions involve decisions to move
to another state. A retiree may enjoy the warmer weather or a change of scenery, but he or she also may enjoy some
beneficial tax savings.
income taxes
Income tax rates vary widely from state to state. Some states do not tax income at all; whereas, other states have tax rates
that approach or exceed 10%. Some municipalities within states even maintain additional regional income taxes.
Some states distinguish between taxing wage income as compared to investment income; whereas, other states
distinguish between taxing retirement income as compared to other income.
The accompanying illustration provides much of this detail in a single picture. Do you now see our country any
differently than you had before?
top state income tax rates
highest statutory marginal income tax rate by state, tax year 2013
Source: Tax Foundation (www.taxfoundation.org), state forms and instructions
{pg 16 } calamos global exchange
{
“state income tax rates
may have a meaningful impact on a
taxpayer’s cash flow and spending power
during retirement.” }
moving away
Speaking broadly, there are a couple of options that taxpayers consider when relocating during retirement. Some
taxpayers sell their home and relocate to another state. Other taxpayers purchase another home and share time
between their primary (new) and seasonal (prior) homes.
The problem with the latter approach usually revolves around two concerns. States often define residency differently for
tax purposes. And, the state a taxpayer has left usually will miss those taxpayer dollars (and may still try to collect them if
possible).
Many states that are losing tax dollars have increased their audit practices especially in cases where taxpayers retain some
connection to their “former” state. These states may not simply accept a round trip plane ticket to bookmark the dates a
taxpayer claims to be absent from that state. They now may review a long list of facts and circumstances to demonstrate a
taxpayer’s true intent to make a new home a permanent residence.
So, taxpayers must plan carefully when moving from one state to another while retaining more than one home. For this
purpose, it’s not only important for a taxpayer to prove he or she has arrived in a new home state; it’s also important for
that taxpayer to demonstrate a formal departure from the prior home state. This could prove difficult when the taxpayer
maintains a home and other ties to the former state for family or social reasons.
Failure to plan properly could result in paying more state income taxes than intended. This could arise not only because
states collect taxes at different rates. It also could arise because states don’t necessarily offer credits for taxes paid
to another state. In other words, income taxes could be due in more than one state. And, these costs could become
surprising and significant.
So . . . Where do you live?
Sources: The American Taxpayer Relief Act of 2012 (Public Law 112-240); Patient Protection and Affordable Care Act of 2010 (Public Law 111-148); Tax Foundation, state
forms and instructions; CCH, a Wolters Kluwer Business
Opinions referenced are as of October 1, 2013 and are subject to change due to changes in the market, economic conditions or changes in the legal and/or regulatory
environment and may not necessarily come to pass. This discussion is intended to be informational only and is not exhaustive or conclusive. While Calamos Wealth
Management has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability or completeness
of third party information presented herein. Calamos and its representatives do not provide tax or legal advice. Each individual’s tax and financial situation is unique. You
should consult your tax and/or legal advisor for advice and information concerning your particular situation. This information is provided for informational purposes only
and should not be considered tax or legal advice.
For more information about federal and state taxes, please consult the Internal Revenue Service and the appropriate state-level departments of revenue, respectively.
CWM and its representatives do not provide accounting, tax or legal advice. Each individual’s tax and financial situation is unique. You should consult your tax and/or legal
advisor for advice and information concerning your particular situation. This information is provided for informational purposes only and should not be considered tax or
legal advice. Please refer to important disclosures on last page.
fall 2013 { pg 17 }
entitlement:
lessons from trees
By Cara Mossington, Calamos Global Exchange Editor &
Calamos Wealth Management Director of Marketing
While passing on wealth and
providing wonderful life
experiences for our children
are certainly not bad things,
how do we remain purposeful
in also passing on our valued
work ethic?
{pg 18 } calamos global exchange
wisdom
& wealth
{
children to grow and ask for us to help
‘make them’into something ... }
“we want our
Most know the story of the prodigal son found in the Bible. While there are many thoughts as to the meaning of the story, it
strikes me that when the son decides to leave, he says “Give me” to his father. “Father, give me my share of the estate.” After
he recklessly squanders his inheritance and is left starving with the pigs, he decides to take a chance that his father may have
mercy on him and goes back with a new request. That request was “Make me”. A very different question after a hard lesson
learned. He asked his father to make him one of his employees. The story ends with the father, grateful that his son returned,
showing mercy and forgiveness. All the difference in the world was in the request – “Make me” instead of “Give me”.
We want our children to grow and ask for us to help “make them” into something by providing them with education, life
experiences, funding for a business, or words of guidance. We don’t want them to continually be saying “Give me” and
expecting the well to never run dry.
How does it change one’s life when you are born into a family with a significant or at least seemingly significant net-worth?
How and why can this impact your self-worth? I have a good friend who often speaks of his “hard earned inheritance” and
why he believes that, instead of providing blessing, the fortune passed down may have done more harm than good for his
life and the lives of his siblings and cousins. He is in his 50s and struggles with a perceived inability to support himself if his
money runs out, a lack of confidence in believing that he has really achieved anything fully on his own, and questions his
ability to ever live up to the expectations of his family despite his many achievements. This was surely not the intent of his
successful grandfather who provided a life of luxury for his children and set up trusts for future generations.
We all know the problems a sense of entitlement can bring: The child who can’t keep a job; the one who refuses to take
responsibility for their actions; the one who lacks purpose and is in a perpetual state of seeking fulfillment, to no avail.
finding purpose and fulfillment
Wishing to share the blessings of their monetary successes, parents often provide their children with things that many agree
make up a full life and provide the hope of much opportunity. Large family homes, rooms stocked with entertainment,
successful family friends, vacations to foreign countries, paid college tuitions and more. Give, give, give...That is what we
want to do as parents and grandparents.
Here is the reality of it….We likely are not going to stop providing these things. So, what are some things we can
purposefully do to inspire our children to find their passions and work hard to achieve them?
Years ago, there was a family patriarch who was very concerned that his six children would be negatively impacted by
his self-created significant wealth and well-known family and company name. He came up with a successful plan for his
children to help instill in them a passion for knowledge, for dreaming, and for aiming towards living a productive life full
of self-worth.
fall 2013 { pg 19 }
wisdom
& wealth
He didn’t stop giving, he gave with purpose. One of his efforts
began by dividing his large basement into six small rooms, similar
to office cubicles. He gave one cube to each of his children. Each
Christmas, he paid for them to recreate their space into a room
with a theme of something they may wish to be when they grow
up. His children created chemistry labs, television stations, art
and dance studios, elementary school classrooms and more. The
children would spend hours and hours in their spaces inspiring
imagination and uncovering dreams in the process. The story
ends with the man raising six healthy children, each successful by
their own definition including a doctor, missionary, small business
owners and stay at home mothers.
deep roots
I know a man who was visiting England with his wife some years
back, a land known for being lush and beautiful due to the mild
weather and plentiful rain. While they were there, a terrible
windstorm hit much of the country and thousands of trees were
toppled in one night. After the storm, they were walking outside
Buckingham Palace when his wife noticed something strange about
the fallen trees. While the trees themselves were very tall and wide,
their roots were unbelievably shallow and they were puzzled at this
inexplicable disproportion.
The reason for the unstable tree foundations was due to the
weather and the water levels being so close to the surface that the
roots didn’t have to go deep to get their nourishment. Then, when
any kind of substantial storm comes along, you see these enormous
trees topple to the ground.
Is this comparable to our entitlement conundrum? We certainly
don’t want to create an environment that provides no need for
digging deep, working hard, and developing life sustaining roots.
{pg 20 } calamos global exchange
a vision beyond our ability to fund
Rick Harig, founder of Legacy Resources LLC, has counseled
over 75 affluent families. Rick has a belief that everyone needs a
goal, whether large or small, which is beyond their ability to fund
today. Whether that goal is to save for a suitable retirement or
your goal is to provide clean drinking water to villages in a foreign
country, it’s important to have one or many. I asked Rick to share
his thoughts on this belief and the topic of how to prevent a sense
of entitlement in the next generation. Rick responded with the
following thoughts:
“It starts with you and me. What changes when we have a vision that
stretches us beyond what we have? When it happens, we return to that
“Promised Land”, where we need others again, where we tax our best
thinking, and must rely on a community of laborers to accomplish
valued outcomes. Consider Bill Gates. Mr. Gates is an extreme case of
someone who does not have a compelling financial need, yet both he and
his wife, Melinda, find themselves caught up in a vision that exceeds
even their capacity to fund it. So, breath-taking is their vision they have
been able to draw financial peers like Warren Buffet to join them in
their heroic cause for the larger good.”
“So, how do we defeat entitlement? I believe it has something to do with
finding whatever triggers compassion in a person. As life interrogates
us, we begin to understand why we’re here. Some of us discover this
earlier than others. Either way, once clear, we can write the story with
our lives the next generation was meant to read. The old chestnut still
holds: More is caught than taught. As such, as young eyes observe us
and the lives we lead, our values, right or wrong, become theirs.”
As they say, “If you could kick the person in the pants responsible
for most of your trouble, you wouldn’t sit for a month.” May we
all set out to make the most of the lifetime that has been given,
leverage what has been sewn in our hearts, and do well with what
has been put in our hands.
investing
perspectives
global
considerations
in asset allocations
An Interview with John P. Calamos, Sr., CEO and Global Co-CIO
fall 2013 { pg 21 }
Most investors recognize the value of including non-U.S.
investments within their asset allocations. But deciding what to do
next can be more challenging. We asked John P. Calamos, Sr. for
his thoughts on global asset allocation and the best ways to position
a portfolio to participate in worldwide growth opportunities. He
also spoke at length about the opportunities the Calamos team sees
within emerging markets.
{q}
What is one of the biggest misconceptions that you encounter in
regard to global asset allocation?
{a}
I speak with individuals who still view non-U.S. investments
as tactical, short-term allocations, rather than long-term core
allocations. So, they’ll be focused on whether they should
choose between the U.S., Europe or the emerging markets.
Investors shouldn’t think of geographic diversification as an
“either/or” proposition. In my view, global allocation should
be framed more strategically, with the goal of participating in
worldwide secular growth themes across the broad markets.
Today, a well-diversified portfolio typically includes investments
in U.S. markets, developed non-U.S. markets and emerging
markets. In fact, our team strongly believes that emerging
markets should be viewed of as a portfolio core, right
alongside U.S. and global allocations.
{
well-diversified
portfolio typically includes
investments in U.S. markets,
“today, a
developed non-U.S. markets and
emerging markets.” }
{pg 22 } calamos global exchange
Of course, striking the right balance among investments will
differ, depending on an investor’s personal circumstances and
risk tolerance. This is where a trusted investment professional
can be of tremendous value. And, there may be times when a
more a pronounced tilt toward one particular market or region
may make sense, but these tactical portfolio enhancements
should complement—not compromise—a strategically minded
asset allocation.
{q}
Could you speak to the evolution of emerging markets over
recent years?
{a}
Recently, there’s been a lot of press coverage about weakening
data coming out of emerging markets. While it’s true that
we’re seeing deceleration in some markets, we need to step
back and look at what’s been happening longer term. First,
we need to differentiate between deceleration and economic
weakness. China may not be delivering GDP growth in the
double-digits, but its growth rate remains high in absolute
terms and relative to elsewhere in the global economy.
Second, we can’t lose sight of how emerging markets have
redefined their roles in the global economy and capital markets.
In the 1990s, we had a Russian debt default, the Asian financial
contagion, and Latin American debt crisis. Since then, many
emerging markets have strengthened their balance sheets,
lowering their debt levels significantly, while most of the recent
sovereign debt anxiety has been in the euro zone.
Many emerging markets have made considerable gains
in economic freedoms, such as clear and credible rule of
law, private property rights, more transparent markets and
greater openness to foreign investment. These factors make
it much easier to invest abroad. However, we believe the most
powerful investment trends in the emerging markets relate
to demographics—especially the rise of the emerging market
middle class consumer.
investing
perspectives
{q}
Why is the emerging market consumer so important to the
global economy?
{a}
It’s about magnitude and momentum. The emerging markets
middle class is at the center of wealth and demographic shifts
that are transforming the global economy. Some estimates
already place the number of emerging market consumers
at nearly two billion. We have younger populations in the
emerging markets, while populations in the developed markets
are aging—think of the baby boomers in the U.S. This younger
EM population is making great strides in achieving higher
levels of education and prosperity. This, in turn, is feeding a
mega-demand-trend, in everything from soft drinks to smart
phones to household appliances, even luxury goods.
People talk about the U.S. consumer as one of the most
important engines driving the U.S. economy and, by
extension, the global one. That’s why economists follow
measures of consumer sentiment and confidence so closely.
However, the EM consumer has actually overtaken the U.S.
consumer in terms of global share of consumption (Figure 1).
figure 1. em consumers are driving
the global economy
share of global nominal consumption
U.S. Consumption % of Global
40%
EM Consumption % of Global
Also, the rise of the middle class is leading to new
infrastructure needs as people move from rural areas to cities.
Consider that China has 63 cities with a million or more
residents, and India has 55. The U.S., meanwhile, has only five.
The growing ranks of urban populations provide significant
opportunities to invest in companies involved in construction,
light rail, energy production—even agriculture, as countries
seek to provide more and better food efficiently.
{q}
Could you elaborate on why emerging markets should be a
core allocation?
{a}
For me, the case for a core allocation to emerging markets
is built on the secular growth opportunities in the emerging
markets—especially those tied to the rapidly growing emerging
market consumer class. While I don’t believe asset allocation
decisions should simply be a reflection of the size of the
world’s stock markets or their economies, I do believe they
can be one factor we can use to establish an allocation. By
either measure, many people are likely underweight emerging
markets. Emerging markets make just about a tenth of the
global stock market, but when we look at a measure of global
GDP that accounts for purchasing power, emerging markets
represent more than 50% of the global economy. To me, this
data illustrates the economic force of the emerging economies
and the strength of the secular trends tied to them.
{q} H
ow can investors increase their global allocations without taking
on disproportionate risks?
{a}
It’s true that many non-U.S. markets are more risky and
that emerging markets can be especially volatile. Active
management is the key to managing potential risks. This
means choosing investment managers with established
expertise while avoiding passive strategies.
35%
30%
25%
20%
15%
1990
1995
2000
2005
2010
Source: J.P. Morgan Asset Management, Guide to the Markets, 4Q 2013.
fall 2013 { pg 23 }
figure 2. emerging markets: a respectable share of the global stock market,
a dominant force in the global economy
weights in msci all country world index
share of global gdp
% global market capitalization, float adjusted
Based on purchasing power parity
Europe ex-U.K.
16%
Europe ex-U.K.
16%
U.K.
8%
United States
48%
Emerging Markets
11%
Emerging
Markets
51%
U.K. 3%
Other
Developed
5%
Japan 5%
Canada 2%
Japan
8%
United States
19%
Pacific 5%
Canada 4%
Source: J.P. Morgan Asset Management, Guide to the Markets, 4Q 2013.
Global financial markets and economic conditions can change
rapidly, and your portfolio should be able to respond. Earlier, I
had mentioned that we have seen some economic deceleration
in the emerging markets, but it is not the same story in every
emerging market. We have more concerns about countries
like Brazil and India, and we are able to position the portfolio
proactively because we are active managers.
At Calamos, we also manage risk through rigorous research.
Whether we are in Beijing meeting with CEOs or at an
industry conference in New York City, we are focusing on
understanding companies from top to bottom. We focus on
what companies do and how they derive their revenues. In my
experience, that’s a far better window into a company’s growth
prospects than where a company is headquartered. We look
for companies that are tied to global growth trends, such as
technology innovation. In our emerging markets approach, we
invest broadly in emerging markets opportunity: in companies
{pg 24 } calamos global exchange
located in developed markets that are providing goods and
services to emerging markets, in emerging market companies
exporting to developed markets, and in emerging markets that
serve their local markets. We could invest in a semiconductor
manufacturer located in an Asian emerging market, as well as
in the U.S. company that purchases those semiconductors to
make smartphones that it sells to customers all over the world.
{q}
Any other tips for investors about global asset allocation?
{a}
Just as I believe investors are best served by choosing active
investment managers, I also encourage an active approach to
asset allocation that includes consulting with a trusted advisor
to rebalance according to a set schedule, or more often if
personal circumstances change.
investing
perspectives
global opportunities make the case for global asset allocation
The Calamos approach focuses on the marriage of top-down considerations (economic data and growth themes) and
company-specific research. In this map, we highlight our some of views of global opportunity.
united states
euro zone
china
We believe that the U.S. stock market is in the
mid-cycle of a secular bull market, and that
stock valuations have more room to expand.
By investing in U.S.-based multinationals, we
participate in the secular growth trends driving
emerging market investment opportunity,
while benefiting from the stability afforded by
companies located in developed markets.
The euro zone has inched into economic recovery,
and the risk of break up is very low in our view. The
euro zone economy still has a great deal of healing
ahead, but we’re seeing increased opportunities.
European-based companies are leading global
providers of a wide range of goods, from yogurt
and chocolates, baby food and medical nutrition
products, health care innovations and watch makers.
China’s growth will likely not be at the doubledigit rates of past years, but economic growth
still looks compelling on an absolute level and
relative to other countries. We’re especially
interested in companies that are tapped
into consumer spending, as the Chinese
economy becomes more balanced between
manufacturing and service sectors.
mexico
We’re encouraged by reform trends
that point to greater economic
freedoms, which have historically
been a catalyst for rising prosperity
and investment opportunity. The
government is introducing positive
structural reforms, such as providing
more opportunities for international
companies within the its oil and
gas industry, and has also moved to
liberalize the power sector.
brazil
africa
japan
We pay close attention to both country and
company risks. Our concern is that the country’s
balance sheet isn’t strong as we’d like and
the country may be especially vulnerable to a
weakening of its currency. The good news is that
the emerging market growth story is about far
more than the four BRIC economies, providing
us with abundant investment opportunities.
We’re even more cautious on many other Latin
American countries, where governments don’t
promote economic freedoms.
In our investment process, we favor countries with
a higher degree of economic stability, transparent
markets, and private property rights. Our criteria
typically preclude our direct investment in the
frontier markets that dominate much of the
continent. We do participate in the growth prospects
of the region through developed market companies
involved in energy, materials and natural resources,
as well as through other emerging market companies
that derive revenues from African nations.
We’re encouraged by the economic
reform measures championed by Prime
Minister Abe. We do find opportunities
in Japan but because the country has
struggled with decades of economic
malaise, we think a wait-and-see
approach is still prudent.
Diversification does not assure a profit or protect against losses. As a result of political or economic instability
in foreign countries, there can be special risks associated with investing in foreign securities, including
fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In
addition, emerging markets may present additional risk due to potential for greater economic and political
instability in less developed countries.
About the interview
John P. Calamos, Sr. was interviewed by Shannon Hay,
Director of Investment Communications
fall 2013 { pg 25 }
calamos
in the news
news
& notes
Calamos Investments®* is a diversified global investment firm offering
innovative investment strategies including equity, lower-volatility equity, fixed
income, convertible and alternative investments. The firm offers strategies
through separately managed portfolios, mutual funds, closed-end funds,
private funds and UCITS funds. Clients include major corporations, pension
funds, endowments, foundations, family offices and individuals, as well as
the consultants and financial advisors who serve them. Headquartered in
the Chicago metropolitan area, the firm also has offices in London and New
York. Recent Calamos media and event highlights include:
• Barron’s wrote an article featuring John P. Calamos, Sr. and Nick
Niziolek (Co-Portfolio Manager) in June, titled “Riding a Rising
Global Middle Class,” which highlighted the firm’s thoughts on
emerging market investing.
• Calamos collaborated with InvestmentNews several times this year.
The firm sponsored a webinar in July during which John P. Calamos,
Sr. presented on emerging markets, and in September, Gary Black
participated in a panel during the InvestmentNews Alternative
Investments Conference in Chicago.
• Portfolio Institutional featured comments by John P. Calamos, Sr. in
its “Friday View” section in July. The piece discussed asset allocation
utilizing convertible securities.
• In July, Gary Black took part in a panel of Chief Investment Officers
discussing opportunities for investors to utilize alternatives at the
Innovative Alternative Investment Strategies Conference in Denver.
The event was hosted by Financial Advisor and Private Wealth magazines.
• Investment & Pensions Europe (IPE) posted an online article by John P.
Calamos, Sr. discussing emerging markets in August.
• Gary Black spoke at the CFA Society of Chicago’s “Distinguished
Speaker Series” luncheon in August. His presentation focused on the
firm’s economic outlook and included a Q&A session following the
formal presentation.
• In late August, Calamos Investments sponsored and hosted
approximately nine thousand people for the annual Naperville Wine
Festival. The event takes place at CityGate Centre, Calamos’ corporate
campus, and profits benefit a local charity.
* C
alamos Investments LLC, referred to herein as Calamos Investments®, is a
financial services company offering such services through its subsidiaries: Calamos
Advisors LLC, Calamos Wealth Management LLC, Calamos Investments LLP and
Calamos Financial Services LLC.
• John P. Calamos, Sr. appeared on CNBC’s Closing Bell in October,
sharing his thoughts on the government shutdown, investment
opportunities and the economic outlook.
for more information visit www.calamos.com
{pg 26 } calamos global exchange
Opinions referenced are as of November 10, 2013 and are subject to change due to changes in the market, economic conditions or changes in the legal and/or
regulatory environment and may not necessarily come to pass. This discussion is intended to be informational only and is not exhaustive or conclusive. While Calamos
Wealth Management has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability
or completeness of third party information presented herein. Calamos and its representatives do not provide tax or legal advice. Each individual’s tax and financial
situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation. This information is provided for
informational purposes only and should not be considered tax or legal advice.
Past performance is no guarantee of future results. Morningstar Awards Nominee 2012. © Morningstar, Inc. All Rights Reserved. CVSIX Manager Team nominated for
2012 Morningstar Alternatives Fund Manager of the Year, for the Alternatives Category, in the United States. Morningstar, Inc. has chosen the Calamos Market Neutral
Income Fund manager team as one of three nominees for its 2012 Alternatives Fund Manager of the Year award in the U.S. This is the first year for the Morningstar
Alternatives Fund Manager of the Year award. Established in 1988, the Morningstar Fund Manager of the Year award recognizes portfolio managers who demonstrate
excellent investment skill and the courage to differ from the consensus to benefit investors. To qualify for the award, managers’ funds must have not only posted
impressive returns for the year, but the managers also must have a record of delivering outstanding long-term risk-adjusted performance and of aligning their interests
with shareholders’.
The Fund Manager of the Year award winners are chosen based on Morningstar’s proprietary research and in-depth qualitative evaluation by its fund analysts.
Nominated funds must be Morningstar Medalists—a fund that has garnered a Morningstar Analyst Rating of Gold, Silver, or Bronze. The new five-tiered Morningstar
Analyst Rating scale has three positive levels—Gold, Silver, and Bronze—in addition to Neutral and Negative ratings. Analysts arrive at a rating through an evaluation
of five key pillars they believe are crucial to predicting the future success of a fund, considering both numeric as well as qualitative factors: People, Process, Parent,
Performance, and Price. Morningstar analysts score these five pillars as Positive, Neutral, or Negative, which are then combined for the overall rating.
For more information about federal and state taxes, please consult the Internal Revenue Service and the appropriate state-level departments of revenue, respectively.
CWM and its representatives do not provide accounting, tax or legal advice. Each individual’s tax and financial situation is unique. You should consult your tax and/
or legal advisor for advice and information concerning your particular situation. This information is provided for informational purposes only and should not be
considered tax or legal advice.
Forward P/E Ratio is a bottom-up calculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM),
and is provided by FactSet Market Aggregates. Trailing P/E ratios are bottom-up values defined as month-end price divided by the last 12 months of available reported
earnings. Historical data can change as new information becomes available.
© 2013 Calamos Investments LLC. All Rights Reserved. Calamos® and Calamos Investments® are registered trademarks of Calamos Investments LLC.
Calamos Investments LLC
2020 Calamos Court | Naperville, IL 60563-2787
800.582.6959 | www.calamos.com | [email protected]
fall 2013 { pg 27 }
2020 Calamos Court
Naperville, Illinois 60563-2787
For additional information on our services, please call 800.582.6959.
GLBLEXCHBRO 1113