2 Ways to Use Our Market Neutral Income Fund
February 21, 2019
First published: March 9, 2018
How do financial advisors use Calamos Market Neutral Income Fund (CMNIX)? That’s a frequently asked question.
The 29-year-old lower-expense* CMNIX has consistently generated income and preserved capital since 1990. Since its I Share inception in 2000, it’s provided consistent positive returns, with only two rolling three-year periods in negative territory. There’s much to commend CMNIX but where exactly does the fund belong in an asset allocation?
Financial advisors tend to use CMNIX in one of two ways—as either a fixed income alternative or a portfolio diversifier, according to Tim Brand CAIA®, CIMA®, Calamos Senior Vice President and Head of U.S. Intermediary Distribution.
Diversifier for Fixed Income
CMNIX can replace short to intermediate bonds in a fixed income portfolio, Brand explained. “Carve out a piece of a fixed income allocation where the volatility levels are close to short, intermediate and corporate bond,” he said.
As a proof point for your clients, the chart below demonstrates how the fund can diversify a fixed income allocation, particularly during periods of rising interest rates. Rising rates can be bad news because government bonds and investment grade corporate bonds are vulnerable to declining values in such an environment. CMNIX has historically represented an alternative means of generating returns and reducing sensitivity to rising interest rates.
Diversifier for the Entire Portfolio
CMNIX also can provide stability to the portfolio during times of market shocks (see related post). Here’s how the fund has historically outperformed the S&P 500 Index during all down markets since its I share inception in May 2000. By keeping drawdowns to a minimum, CMNIX has recovered sooner, allowing the full portfolio to get back to growing.
“What can get in the way of your clients meeting their investment objectives?” Brand asked the hundreds of advisors on the webcast. “Rates could rise, equity prices could fall and volatility could produce drawdowns…these are the reasons we believe now could be the perfect time to add CMNIX to your clients’ allocations,” he said.
Advisors, for more client-approved materials to support your conversations about CMNIX, see related posts, the fund profile or visit the Calamos blog for additional market neutral content.
For more ideas on the role it could play in the portfolios you're building, contact your Calamos Investment Consultant at 888-571-2567 or email firstname.lastname@example.org.
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 which can be obtained by calling 1-800-582-6959. Read it carefully before investing.
Data as of 12/31/18.
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. Prior to 2/28/17, the Fund had a maximum front-end sales charge of 4.75%.
* As of the prospectus dated 3/1/18, the total expense ratio for the Calamos Market Neutral Income Fund Class A shares is 1.28%, Class I shares is 1.02%.
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. Opinions are subject to change due to changes in the market, economic conditions or changes in the legal and/or regulatory environment and may not necessarily come to pass. This information is provided for informational purposes only and should not be considered tax, legal, or investment advice. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.
Alternative investments are not suitable for all investors.
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.
Covered Call Writing: As the writer of a covered call option on a security, the fund foregoes, during the option’s life, the opportunity to profit from increases in the market value of the security, covering the call option above the sum of the premium and the exercise price of the call.
Convertible Securities Risk: The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also, may have an effect on the convertible security’s investment value.
Convertible Arbitrage Risk: If the market price of the underlying common stock increases above the conversion price on a convertible security, the price of the convertible security will increase. The fund’s increased liability on any outstanding short position would, in whole or in part, reduce this gain.
S&P 500 Index is generally considered representative of the U.S. stock market.
Citigroup 30-Day T-Bill Index is generally considered representative of the performance of short-term money market instruments. 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.
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.
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