Calamos likes tech; convertibles still a good bet

Calamos Asset Management CEO John Calamos in an undated photo.

BANGALORE (Reuters) - With cost-cutting becoming the mantra of the times, large technology firms that help companies keep a lid on expenses are good bets, the head of Calamos Asset Management (CLMS.O) said.

John Calamos, who oversees about $28 billion as chief executive of the firm he founded in 1977, said he also turned overweight energy stocks last quarter as a hedge against rising inflation risk but is still wary of financials.

"We are buying technology right now. We still own Apple and Google, those areas we think are very, very buyable even in this economy," Calamos said in an interview.

Apple (AAPL.O) and Google (GOOG.O) constitute nearly 9 percent of the flagship Calamos Growth Fund's (CVGRX.O) about $7.4 billion in assets.

Calamos said he was mindful of rising competition from software giant Microsoft (MSFT.O) but expected both Apple and Google to grow at quick clips in the future while maintaining their market share.

The Growth Fund, which lost about half of its value in 2008, is up about 30 percent in the first seven months of the year far outperforming peer groups' 15 percent gain over the same period, according to global fund tracking firm Lipper.

Calamos holds positions at outsourcing companies Cognizant Technologies (CTSH.O) and India's Infosys Technologies (INFY.O) (INFY.BO) in some of the firm's smaller funds.

Software companies also tend to offer stable revenue streams, strong balance sheets with lots of cash and products that offer solutions for cost reduction, he said.

The firm remains cautious on financials since Calamos believes their recent rally is more a function of government intervention rather any fundamental change.

HEAD FAKES

Calamos believes the market environment is similar to what he witnessed in the early stages of his investment management career.

"To me the markets really feel like it felt back in the late 70's or early 80's where most people want to know whether it's the next bull market or whether we are going down," Calamos said.

"We're going to have head fakes in both directions."

In this sort of environment, convertibles -- which are essentially corporate debt that can be switched into stocks at a later date -- tend to do well, Calamos said.

Calamos, who has been a long-time advocate of convertibles as part of an investment portfolio, developed a keen interest in these instruments during his time in the U.S. Air Force which included a stint as a B-52 bomber pilot.

"We think the valuation gap still provides a good play in convertibles in general and specifically in a volatile environment, convertibles tend to do well," Calamos said.

Issuance of convertibles has been increasing after almost closing down shop last year. Along with a surge in equity prices, spreads -- or the difference in yields between two debt securities of a similar maturity -- remained wide enough to make convertibles one of the cheapest financing options for corporates.

Calamos' Convertible Fund (CCVIX.O), with about $2.4 billion in assets, counts convertible bonds issued by data storage company EMC Corp (EMC.N) as the fund's top holdings, echoing the firm's belief in the technology sector.

A recent issue the firm participated in was convertibles issued by a subsidiary of Brazilian mining company Vale SA (VALE5.SA), Jeff Scudieri, Calamos' head of non-U.S. research and investments said.

The investment, which offers a high yield as well as the risk-reward of an equity instrument, also fits into how the firm is also trying to position itself in the energy, materials and mining sectors, Scudieri said.

Calamos acknowledges that the economy is probably in a period of slower growth but he remains constructive on the market and said he is fully invested while using convertibles to provide a cushion to potential risk.

"I got into the business just in the early 70's when the Dow was at 1000. it didn't break through 1000 again till 1982," Calamos said

"So you don't want to be sitting around for 12 years waiting for the next bull market."

(Reporting by Vikram S Subhedar and Nishant Kumar; Editing by Anil D'Silva)