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What You Miss When You Look at CPLIX’s ‘Average’ Annualized Beta
August 9, 2018
“Market risk can’t be diversified away but it can be hedged,” Michael Grant, Calamos Co-CIO, Head of Global Long/Short Strategies and Senior Portfolio Manager of Calamos Phineus Long/Short Fund (CPLIX), likes to say.
Let’s look at one measure of hedging at work—beta.
CPLIX’s active beta and exposure management is unique among its peers in the Morningstar U.S. Funds Long-Short Equity group. Many peers keep a low and consistent beta, with the peer group average since CPLIX’s inception around 0.35. By contrast, CPLIX has a 0.76 beta against the S&P 500 since its inception.
But, CPLIX’s since inception beta doesn’t fully capture how the fund has been managed. This interactive chart shows the rolling one-year beta from May 1, 2002 (CPLIX inception) to June 30, 2018.
CPLIX’s active risk management has led to periods of taking on greater market risk and periods where market risk was minimized. In December 2017, for example, CPLIX had negative beta as the fund prepared for capital preservation and expected heightened market volatility in 2018. (See Why CPLIX Leaned Away at Just the Right Time).
The chart below isolates a two-year period, just before the Global Financial Crisis (GFC) in December 2007, through the market trough in early 2009, and ending in December 2009.
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’s investment adviser between 10/1/15 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.
Grant and team dramatically reduced market exposure to minimize risk (the fund had a -0.3 beta at the start of the period) and later dramatically increased exposure to embrace risk (1.6 beta at the end). Alpha was created in both scenarios.
While the S&P produced a cumulative return of -20% for the period, CPLIX returned a cumulative return of 42%. That’s a cumulative outperformance of almost 63%.
Advisors, for more information about CPLIX, talk to a Calamos Investment Consultant at 888-571-2567 or [email protected].
Calamos ranks fifth on the list of alternative fund managers by assets under management in the Morningstar Alternatives Category as of 6/30/18.
Data as of 6/30/18
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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.
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Alternative investments may not be suitable for all investors, and the risks of alternative investments vary based on the underlying strategies used. Many alternative investments are highly illiquid, meaning that you may not be able to sell your investment when you wish to.
Active management does not guarantee investment returns or eliminate the risk of loss.
Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
S&P 500 Index is a market weighted index and is widely regarded as the standard for measuring U.S. stock market performance.
HFRI Equity Hedge Index consists of funds where portfolio managers maintain long and short positions in primarily equity and derivative securities.
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. The MSCI World Index consists of the following 23 developed market country indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States.
Morningstar U.S. Funds Long/Short Category: Long-short portfolios hold sizable stakes in both long and short positions in equities and related derivatives. Some funds that fall into this category will shift their exposure to long and short positions depending on their macro outlook or the opportunities they uncover through bottom-up research. Some funds may simply hedge long stock positions through exchange-traded funds or derivatives. At least 75% of the assets are in equity securities or derivatives.