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How to Mitigate the Effect of Volatility on Retirement Portfolios

Volatility can be the investor’s friend in the accumulation phase, and drawdowns can be the price of long-term appreciation.

In the withdrawal phase, however, large drawdowns can permanently impair the portfolio’s ability to generate income as shares are liquidated to deliver that income are removed. The challenge: reducing portfolio variance and drawdowns can be more critical than ever in the withdrawal phase even while your clients need growth potential from equities.

The following illustration shows how the adjustment of a traditional 60%/40% portfolio to include an equity long/short strategy may play a role. Higher risk-adjusted returns versus the market over a full market cycle can mitigate the market’s more extreme returns (high and low). And, lower overall volatility in an equity portfolio may lessen the prospects of emotional reactions during market pullbacks.

Calamos Volatility Opportunity Guide
Term 25 years
60% / 40% portfolio></div>

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All three investments were successful at sustaining income over the full period and had a positive ending term value.

However, lowering the portfolio’s volatility, including drawdowns, had a significant impact during the withdrawal phase. The risk metrics improved proportionately and the Sharpe ratio also improved.

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Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. Indexes are unmanaged, do not reflect fees or expenses and are not available for direct investment. Source: Data from Morningstar, Federal Reserve and Hedge Fund Research, Inc. (www.hedgefundresearch.com). Equity Long-Short index is based on the HFRI Equity Hedge Index. Sharpe ratio is calculated using 3 Mo. Treasury Bills. The 60/40 combination is based on the S&P 500 Index and Barclays Aggregate Bond Index. The 30/40/30 Portfolio is based on the S&P 500 Index, Barclays Aggregate Bond Index and the HFRI Equity Hedge Index. The 40/60 Portfolio is based on the Barclays Aggregate Bond Index and the HFRI Equity Hedge Index. *Withdrawals began at 5% and are increased each month by the T-Bill rate. Withdrawals are taken proportional each month from each investment based on initial allocation. ©2016 Van Etten Consulting, Inc. All Rights Reserved.

Portfolios are managed according to their respective strategies which may differ significantly in terms of security holdings, industry weightings, and asset allocation from those of the benchmark(s). Portfolio performance, characteristics and volatility may differ from the benchmark(s) shown. 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.

Some of the risks associated with investing in alternatives may include hedging risk, derivative risk, short sale risk, interest rate risk, credit risk, liquidity risk, non-U.S. government obligation risk and portfolio selection risk.

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.

Disclosure

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

Past performance is no guarantee of future results.

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.

The S&P 500 Index is considered generally representative of the U.S. stock market. Indexes are unmanaged, do not entail fees or expenses and are not available for direct investment.

MSCI World Index is a market capitalization weighted index composed of companies representative of the market structure of developed market countries in North America, Europe, and Asia/Pacific region.

BofA ML All U.S. Convertibles Index (VXA0) is comprised of approximately 700 issues of only convertible bonds and preferreds of all qualities.

The Barclays U.S. Aggregate Bond Index covers the U.S.- te, taxable bond m denominated, investment-grade, fixed-ra arket of SEC-registered securities. The index includes bonds from the Treasury, Government-Related, Corporate, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS sectors.

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry.

The MSCI EAFE Index is an arithmetic, market value-weighted average of the performance of securities listed on the stock exchanges of selected countries in Europe, the Far East and Australia.

The MSCI Emerging Markets Index represents large and mid cap companies in emerging markets countries.

The MSCI World ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries*-- excluding the United States.

The HFRI Equity Hedge Index consists of funds where portfolio managers maintain long and short positions in primarily equity and derivative securities.

The Nasdaq Index is the market-capitalization weighted index of the more than 3,000 common equities listed on the Nasdaq stock exchange.

The Russell 2000 Index measures U.S. small-cap stocks.

The VIX (CBOE volatility index) is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options.

Important Risk Information.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

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. More detailed information regarding these risks can be found in the Fund’s prospectus.

Some of the risks associated with investing in alternatives may include hedging risk, derivative risk, short sale risk, interest rate risk, credit risk, liquidity risk, non-U.S. government obligation risk and portfolio selection risk. Alternative investments may not be suitable for all investors.

The principal risks of investing in the Fund(s) include:

Convertible Fund: convertible securities risk, synthetic convertible instruments risk, foreign securities risk, equity securities risk, interest rate risk, credit risk, high yield risk and portfolio selection risk.

Dividend Growth Fund: declining equity values; losses from MLPs related to lack of portfolio diversification, changes in tax laws, lack of liquidity, declining equity values, and conflicts over control rights; incorrect selection or judgments on portfolio holdings by the investment advisor; increased transaction costs because of frequent turnover; losses from currency fluctuations; lack of liquidity or correlation to underlying securities in the options market; and potential illiquidity of securities purchased privately under Rule 144A.

Emerging Market Equity Fund: equity securities risk consisting of market prices declining in general, growth stock risk consisting of potential increased volatility due to securities trading at higher multiples, foreign securities risk, emerging markets risk, currency risk, geographic concentration risk, American depository receipts, mid-size company risk, small company risk, portfolio turnover risk and portfolio selection risk.

Evolving World Growth Fund: equity securities risk, growth stock risk, foreign securities risk, emerging markets risk, convertible securities risk and portfolio selection risk.

Global Equity Fund: equity securities risk, growth stock risk, value stock risk, foreign securities risk, emerging markets risk, small and mid-sized company risk and portfolio selection risk.

Global Growth and Income Fund: convertible securities risk, synthetic convertible instruments risk, foreign securities risk, emerging markets risk, equity securities risk, growth stock risk, interest rate risk, credit risk, high yield risk and portfolio selection risk.

Growth Fund: equity securities risk, growth stock risk, mid-sized company risk, foreign securities risk and portfolio selection risk.

Growth and Income Fund: convertible securities risk, synthetic convertible instruments risk, equity securities risk, growth stock risk, small and mid-sized company risk, interest rate risk, credit risk, high yield risk and portfolio selection risk.

High Income Fund: high yield risk, convertible securities risk, synthetic convertible instruments risk, interest rate risk, credit risk, liquidity risk and portfolio selection risk.

International Growth Fund: equity securities risk, growth stock risk, foreign securities risk, emerging markets risk, small and mid-sized company risk and portfolio selection risk.

Market Neutral Income Fund: convertible securities risk, 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 and portfolio selection risk.

Total Return Bond Fund: interest rate risk, credit risk, high yield risk, liquidity risk, mortgage-related and other asset-back securities risk, including extension risk and prepayment risk, U.S. Government security risk, foreign securities risk, non-U.S. Government obligation risk and portfolio selection risk.

Opportunistic Value Fund: equity securities risk, value stock risk, small and mid-sized company risk, foreign securities risk and portfolio selection risk.

Hedged Equity Income Fund: covered call writing, options, equity securities, correlation, mid-sized company, short sale, interest rate, credit, liquidity, portfolio selection, portfolio turnover, foreign securities, American depository receipts, and REITS.

Global Convertible Fund: 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 consisting of fluctuations inconsistent with a convertible security and the risk of components expiring worthless, foreign securities risk, emerging markets risk, equity securities risk, growth stock risk, interest rate risk, credit risk, high yield risk, forward foreign currency contract risk, portfolio selection risk, and liquidity risk.

Calamos Phineus Long/Short Fund: 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.

As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries.