Calamos Funds Bet On Tyco, Calpine, Amazon Convertibles
By YUKA HAYASHI
Of DOW JONES NEWSWIRES
NEW YORK -- Mutual-fund manager Nick Calamos has been a buyer of Amazon.com Inc. (AMZN), Tyco International Ltd. (TYC) and Calpine Corp. (CPN). And he is neither a vulture investor who preys on troubled companies nor out of his mind.
Calamos hasn't been buying the struggling shares of these companies. Instead, he has been picking up their convertible bonds, which can later be changed into equity if the stock of the issuing company reaches a certain level.
"We don't care what happens with the stock," said Calamos, senior portfolio manager at Calamos Asset Management. "We just need the company to stay solvent." The Naperville, Ill., asset-management firm, run by his uncle John Calamos, manages $9.7 billion in assets, including successful convertible-bond funds Calamos Convertible Growth & Income Fund and Calamos Convertible Fund.
Calamos funds have been active buyers of Tyco's convertible-bond issues because of their "very attractive" yields of 13% to 14% to put, Calamos said on a conference call with journalists. These securities carry a "put" clause that allows the buyers to sell them back to the issuer on promised dates in 2003.
The fund manager believes the conglomerate, which has recently attracted negative attention for its aggressive accounting practices, will stay solvent because of its ample salable assets, even though reduced access to capital will slow down its growth rate and acquisition spree.
"They are going to be cash good and we are willing to take 13% to 14% over the next 12 months or so," he said. Tyco shares lost roughly half their value since the beginning of the year before stabilizing in recent weeks amid concerns about its accounting.
Similarly, Calamos bought convertible securities issued by troubled Californian energy company Calpine that yield 18% to put. For Amazon.com, the firm is the largest holder of its convertible bonds, the manager said.
Rolling Into Telecom, Tech Stocks
These so-called "busted" convertibles, however, account for small portions of the firm's convertible investments. Their large holdings include what Calamos describes as "high-quality issues of mid- and large-cap value companies," such as Lucent Technologies Inc. (LU), Ford Motor Co. (F), Cendant Corp. (CD) and Royal Caribbean Cruises Ltd. (RCL).
Calamos' flagship Calamos Convertible Fund returned a negative 4.1% last year, ranking within the top one-third in its category, according to Morningstar Inc. Over the three-year period, the fund ranks within the top 8% with an annualized return of 11%.
And the likes of Tyco and Amazon don't have any place in the company's growth-oriented stock funds, which seek "high relative growth opportunities" in terms of revenue, earnings or return on capital, Calamos said.
The focus for those funds is pricing power, top-line growth and products involved in productivity enhancement.
The largest holding currently in the $1 billion Calamos Growth Fund is H&R Block Inc. (HRB), a prominent provider of tax-preparation services which Calamos believes will benefit from tax-law changes. John Nuveen Co. (JNC), an asset-management firm that has a leading position in municipal-bond investments, is another one of his recent favorites.
Gaming companies, such as GTech Holdings Corp. (GTK), Alliance Gaming Corp. (ALLY) and International Game Technology (IGT) represent a large percentage of the firm's portfolio, as do specialty retailers such as 1-800-Flowers.com Inc. (FLWS), eBay Inc. (EBAY), Office Depot Inc. (ODP) and Krispy Kreme Doughnuts Inc. (KKD).
But as the economy recovers, Calamos plans to move out of these defensive sectors and roll into cyclical areas that will benefit from increased corporate investment and merger-and-acquisition activity.
"Expect media, telecom and technology in general to increase in our portfolio," Calamos said.
Calamos Growth Fund was down 7.7% last year, beating more than 80% of its peers. It ranks within the top 1% for its three-year performance - an annualized 26%, according to Morningstar.
-By Yuka Hayashi, Dow Jones Newswires; 201-938-2129; yuka.hayashi@dowjones.com
Updated February 28, 2002 5:36 p.m. EST |
