Defining Great Companies: A Conversation with the Calamos Sustainable Equities Team

With experience that dates to the 1990s, the Calamos Sustainable Equity Team brings pioneering expertise to Calamos Antetokounmpo Global Sustainable Equities ETF (SROI),  an ETF designed to serve as a core allocation to quality growth companies. The team recently took questions about what they look for and why they believe their approach gives a more complete picture of a company’s ability to build shareholder value.

Q: What types of companies make great investments?

A: Our philosophy has always been to invest in quality companies, with our definition of quality consisting of two dimensions. First, a company must have quality financial fundamentals, such strong ROIC (return on invested capital), margins, and cash flows. But we believe it’s important to look deeper, which is why we also require the companies we invest in to have quality non-financial fundamentals.

Q: How does sustainability fit into this? 

A: Sustainability factors—such as governance, ecological impact, and improving human development—are examples of non-financial criteria. They give us another vantage point for understanding the opportunities and the risks that companies may have. We believe that having more information and using that information to make investment decisions is a better way to invest for the long term.

Around the world, there’s a growing interest in building a more sustainable world and improving conditions for humankind. We believe that companies that are providing innovations that are aligned with these priorities are positioned to capture tailwinds, in terms of increasing profitability and market share and avoiding risks. SROI and the other portfolios our team manages invest in companies that develop goods and services that offer other businesses the opportunity to lower their bottom line or produce new in-demand technologies or services. This includes a wide variety of companies—from those at the forefront of the circular economy to a chip manufacturer that’s capitalizing on global demand for electric vehicles.

Q: Give us an example of a company that checks all the boxes for you.

A: One company that we’re really excited about is Darling Ingredients, headquartered in Texas. Many of its innovations focus on recovering and collecting cooking oil and animal fats and repurposing them into feed and fuel ingredients. Darling also has formed a joint venture with Valero, establishing Diamond Green Disel, the largest producer of renewable diesel in North America. From a traditional financial perspective, Darling offers dominant market share, vertical integration and increasing margins.  On top of this, we see a company that’s been an early participant in the circular economy, providing sustainable food solutions and monetizing materials that would otherwise be wasted.

Q: Walk us through a key theme that you see driving opportunity and how SROI participates.

A: There are tremendous opportunities in the energy transition. Drive across the country and you’ll see firsthand the increased use of wind and solar to power America’s farms and cities. Quanta Services, also headquartered in Texas, fits right into this. Quanta is a specialty contractor focused on the design, installation and maintenance of energy infrastructure. It’s a leader in electric power and is at the forefront of delivering more resilient power grids. We’re seeing terrific organic growth as well as some key strategic acquisitions. We also love the way the company invests in human capital—earning numerous awards for worker satisfaction and safety.

Q: A tremendous amount of investor focus has been given to the “Magnificent Seven” mega caps. What are your thoughts on these sorts of companies?

A: Not all of the Magnificent 7 meet the criteria to fit into our universe, but as quality growth investors, we’ve found a lot to like in several of these companies. For example, Alphabet is dominant because it can execute, innovate, and manage risks. It has strong financial characteristics and capable management teams. Alphabet holds a dominant position in search and advertising, is consistently seeking new approaches and new markets, and is also a leader in reducing its environmental impacts.

Q: Let’s take on the 1000-pound gorilla in the room—politics. How do politics influence your investment approach?

A: That’s an easy one—they don’t. We’re fiduciaries of our investors’ capital and we don’t bring our politics into our investment decisions. Our focus is on creating a portfolio of companies with above-average growth potential and less exposure to the risks that can derail and distract businesses from building shareholder value. 

 

 

This article has been edited for brevity and republished with permission from Calamos Investments. To see the full article along with its disclaimers, please visit the Calamos Investment Team Voices blog.


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