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Calamos Evolving World Growth Fund ( CNWGX , quote ) is an emerging markets mutual fund ranked five star by Morningstar with an average annualized return of 22.51 % over three years.

CNWGX has the sixth lowest expense ratio (1.58%) out of the 16 emerging market funds ranked five star by Morningstar. In 2009 its annualized return was 55.92%, 20.19% in 2010, and -8.59% in 2011. During this time it outperformed the iShares MSCI Emerging Markets Index ( EEM , quote ) in 2010 and 2011. Since its inception in 2008, the fund's annualized return is 3.98% after taxes on distributions and sale of fund shares have been deducted.

CNWGX has $345 million in total net assets and its portfolio includes 72 holdings, which is within Calamos' typical range.

As of September 30, 2012, the top 10 holdings were:

John Calamos, Sr., CEO and Global Co-Chief Investment Officer at Calamos Investments LLC, says the investments for the fund are in companies based in emerging markets as well as in global companies that derive significant revenues from emerging markets. The fund's top 10 country weightings and their percentage of net assets as of September 30, 2012 are as follows:

CNWGX's investment process includes both bottom-up and top-down research. In regard to its bottom-up analysis, Calamos seeks out companies with compelling growth fundamentals, such as high return on invested capital, good cash flow and low debt-to-capital levels. For Calamos' top-down research, they consider secular growth themes as well as cyclical influences.

Calamos says secular themes are trends that extend beyond market and economic cycles. In his experience, companies that have positioned themselves to benefit from these themes often have better growth prospects, including a "wind in the sails" during periods of slower and more uneven economic growth.

Calamos sees a number of trends tied to emerging markets. One of them is that an increasing number of people in emerging markets move out of poverty into the middle class. As a result there are more consumers with purchasing power, providing opportunities for companies all over the world in sectors such as consumer staples, IT, and health care. Another emerging market trend is an expansion in global infrastructure, which provides new markets for commodity oriented companies, as well as in construction and machinery industries.

As of September 30, 2012, the portfolio turnover (12 months) was 49.7%. A stock will be sold if there are concerns about its growth prospects or if its valuation has reached its target. Given the market volatility, the fund's management pays close attention to valuation sensitivity.

Calamos expects volatility to remain high for the foreseeable future due to political uncertainty. He says "the flipside of volatility is opportunity," and that you have to look through short-term volatility to benefit from long-term opportunities.

In terms of the fund's risk management, companies located in countries that are moving toward a progressively higher level of economic freedom (such as private property rights, orderly markets and transparent regulations) are favored. Calamos says economic freedoms have historically been correlated with a higher level of wealth creation, as research by the Heritage Foundation has shown.

The fund's risk exposure is further controlled by not only investing directly in emerging markets. It also invests in global companies based in developed markets, including the U.S., that generate significant revenues from emerging markets. Risk is also managed by utilizing convertible securities. These securities are equity-sensitive and can provide the opportunity for upside equity participation with the potential downside protection of a fixed-income security. Calamos has utilized them to provide risk-managed equity participation for more than 30 years.

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