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Consistency: Why These 2 Alts Deserve to Be Part of a Core Allocation


Advisors have had a strong response to our Half Caff blend, which is the combination of our equity alternative (Calamos Phineus Long/Short Fund or CPLIX) with our income alternative (Calamos Market Neutral Income Fund or CMNIX).

First proposed in this January post, a hypothetical equity/income portfolio augmented with a 10%/10% CPLIX/CMNIX allocation continued to produce strong, risk-managed returns when compared to a 60% equity/40% income portfolio and to relevant benchmarks. See the post for 9/30/17 performance results.

In this post, we’ll offer additional tests of the two funds’ resiliency across different market cycles.

Twenty 50/40 Alternative Blend
 

CMNIX and Volatility

CMNIX performance in 2016 and year-to-date 2017 is a snapshot of the fund’s 27-year consistency.

Calamos Market Neutral Income Fund Rolling Three-Year Period Returns

This year and last couldn’t have been more different in terms of volatility. While 2016 wasn’t especially volatile overall, there were at least three volatile periods (the first six weeks of the year, immediately following the Brexit vote and immediately after the surprising result of the U.S. presidential election).

Volatility 2016 vs. YTD 2017

Compare that to the first 10 months of 2017, which has seen the second smallest drawdown of the S&P 500 since 1929.

The point: Volatility or no volatility over the last almost two years, CMNIX has performed as expected. The complementary strategies of convertible arbitrage and covered call writing have different responses to volatility, enabling the portfolio management team to produce a lower-risk profile and attractive returns. No matter what.

See these two posts to learn more about how CMNIX has worked with extreme volatility (Gamma Trading: Why Big Market Swings Can Be Good News) and low volatility (Managing Volatility-Aided Strategies in a Low Volatility Environment).

CPLIX and Growth vs. Value

Below we show the ping-pong between growth and value stocks, trends that typically persist for 18 to 36 months.

Growth vs. Value

But regardless of the style of equity investing that has been in favor over its 15 years, CPLIX has consistently posted top quartile historical performance.

A Compelling Long-Term Track Record


Data as of 9/30/17. Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund's maximum front-end sales load of 4.75%. Had it been included, the Fund's return would have been lower. For the most recent month-end fund performance information visit www.calamos.com.

The performance shown for periods prior to 4/6/16 is the performance of a predecessor investment vehicle (the "Predecessor Fund"). The Predecessor Fund was reorganized into the Fund on 4/6/16, the date upon which the Fund commenced operations. On 10/1/15 the parent company of Calamos Advisors, Purchased Phineus Partners LP, the prior investment adviser to the Predecessor Fund ("Phineus") and Calamos Advisors served as the Predecessor Fund using investment policies, objectives, guidelines and restrictions that were in all material respects equivalent to those of the Fund. Phineus and Calamos Advisors managed the Predecessor Fund in this manner either directly or indirectly by investing all of the Predecessor Fund's assets in a master fund structure. The Predecessor Fund performance information has been adjusted to reflect Class A and I shares expenses. However, the Predecessor Fund was not a registered mutual fund and thus was not subject to the same investment and tax restrictions as the Fund. If it had been, the Predecessor Fund's performance may have been lower.

Morningstar Long/Short Equity Category funds take a net long stock position, meaning the total market risk from the long positions is not completely offset by the market risk of the short positions. Total return, therefore, is a combination of the return from market exposure (beta) plus any value-added from stock picking or market-timing (alpha).

*The percentile and category rankings illustrated are created by Calamos Financial Services LLC. The percentile rank measures the Fund's total return among the Morningstar U.S. Funds Long/Short Category. The percentile rank shown for periods prior to 4/6/16 is the percentile rank of a predecessor investment vehicle (the "Predecessor Fund"). The Predecessor Fund was reoranized into the Fund on 4/6/16. The Fund is included in the Morningstar U.S. Fund Long/Short category as of 4/6/16. This is the fund's total-return percentile rank relative to all funds that have the same category for the same time period.

Senior Co-Portfolio Manager Michael Grant credits this to the fund’s flexible mandate, which enables it to allocate assets across all investment styles, market caps and geographic regions depending on the environment.

“You can be the best value manager in the world,” Grant says, “but if value is not performing, what are you going to tell your client?”

The point: CPLIX has had the flexibility to invest where the team thinks the opportunity is, contributing to its consistent results.

For more information on CMNIX, CPLIX or the Half Caff combination, talk to your Calamos Investment Consultant at 888-571-2567 or [email protected].

 

MNI Average Annual Returns

Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load of 2.25%. Had it been included, the Fund’s return would have been lower. For the most recent month-end fund performance information visit www.calamos.com.

PLS Average Annual Returns

Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load of 4.75%. Had it been included, the Fund’s return would have been lower. For the most recent month end performance information click on the performance tab.

The performance shown for periods prior to 4/6/16 is the performance of a predecessor investment vehicle (the “Predecessor Fund”). The Predecessor Fund was reorganized into the Fund on 4/6/16, the date upon which the Fund commenced operations. On 10/1/15 the parent company of Calamos Advisors, purchased Phineus Partners LP, the prior investment adviser to the Predecessor Fund (“Phineus”), and Calamos Advisors served as the Predecessor Fund’s investment adviser between 10/1/2015 until it was reorganized into the Fund. Phineus and Calamos Advisors managed the Predecessor Fund using investment policies, objectives, guidelines and restrictions that were in all material respects equivalent to those of the Fund. Phineus and Calamos Advisors managed the Predecessor Fund in this manner either directly or indirectly by investing all of the Predecessor Fund’s assets in a master fund structure. The Predecessor Fund performance information has been adjusted to reflect Class A and I shares expenses. However, the Predecessor Fund was not a registered mutual fund and thus was not subject to the same investment and tax restrictions as the Fund. If it had been, the Predecessor Fund’s performance may have been lower.

Before investing carefully consider the fund’s investment objectives, risks, charges and expenses. Please see the prospectus and summary prospectus containing this and other information or call 1-800-582-6959. Read it carefully before investing.

Some of the risks associated with investing in alternatives may include hedging risk–hedging activities can reduce investment performance through added costs; derivative risk–derivatives may experience greater price volatility than the underlying securities; short sale risk - investments may incur a loss without limit as a result of a short sale if the market value of the security increases; interest rate risk–loss of value for income securities as interest rates rise; credit risk–risk of the borrower to miss payments; liquidity risk–low trading volume may lead to increased volatility in certain securities; non-U.S. government obligation risk–non-U.S. government obligations may be subject to increased credit risk; portfolio selection risk – investment managers may select securities that fare worse than the overall market. Alternative investments may not be suitable for all investors.

Class I shares are offered primarily for direct investment by investors through certain tax-exempt retirement plans (including 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans and non-qualified deferred compensation plans) and by institutional clients, provided such plans or clients have assets of at least $1 million. Class I shares may also be offered to certain other entities or programs, including, but not limited to, investment companies, under certain circumstances.

An investment in the Fund(s) is subject to risks, and you could lose money on your investment in the Fund(s). There can be no assurance that the Fund(s) will achieve its investment objective. Your investment in the Fund(s) is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund(s) can increase during times of significant market volatility. The Fund(s) also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund’s prospectus.

The principal risks of investing in the Market Neutral Income Fund include: equity securities risk consisting of market prices declining in general, convertible securities risk consisting of the potential for a decline in value during periods of rising interest rates and the risk of the borrower to miss payments, synthetic convertible instruments risk, convertible hedging risk, covered call writing risk, options risk, short sale risk, interest rate risk, credit risk, high yield risk, liquidity risk, portfolio selection risk, and portfolio turnover risk.

The principal risks of investing in the Calamos Phineus Long/Short Fund include: equity securities risk consisting of market prices declining in general, short sale risk consisting of potential for unlimited losses, foreign securities risk, currency risk, geographic concentration risk, other investment companies (including ETFs) risk, derivatives risk, options risk, and leverage risk.

Citigroup 30-Day T-Bill Index is generally considered representative of the performance of short-term money market instruments.

Bloomberg Barclays U.S. Government/Credit Index comprises long-term government and investment grade corporate debt securities and is generally considered representative of the performance of the broad U.S. bond market. Unlike convertible bonds, U.S. Treasury bills are backed by the full faith and credit of the U.S. government and offer a guarantee as to the timely repayment of principal and interest.

Morningstar Market Neutral Category represent funds that attempt to eliminate the risks of the market by holding 50% of assets in long positions in stocks and 50% of assets in short positions.

S&P 500 Index is generally considered representative of the U.S. stock market.

S&P 500 Growth Index consists of growth companies in the S&P 500 Index, measured using three factors: sales growth, the ratio of earnings change to price and momentum.

S&P 500 Value Index consists of value companies in the S&P 500 Index, measured using three factors: sales growth, the ratio of earnings change to price and momentum.

MSCI World Index is a market capitalization weighted index composed of companies representative of the market structure of 21 developed market countries in North America, Europe, and the Asia/Pacific region. Unmanaged index returns assume reinvestment of any and all distributions and do not reflect fees, expenses or sales charges. Investors cannot invest directly in an index.

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