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6 Ways to Use Convertibles to Potentially Manage U.S., Non-U.S. Equity Risk

Convertibles’ performance in 2020 made believers out of many investment professionals whose prior experience with the asset class had been limited.

The $550 billion convertible bond market played a vital role in providing access to capital to a broadening range of companies, and convertible securities helped shield investors on the downside while providing participation on the upside. Calamos Convertible Fund (CICVX), for example, drew down less than the S&P 500 (25.73% vs. 33.79%) and took less than half the time to recover from its maximum drawdown (67 days versus 140) (see this post).

Last year was exceptional by many standards, there’s no question about that. But Calamos advocates for convertibles’ inclusion in portfolios at all times because investing involves persistent, if not consistent risk. The 2020 risk of economic slowdowns related to the COVID-19 pandemic has largely given way to rising interest rates and inflation. Today, too, convertibles can provide a different outcome than all-equity investments (see how Calamos' convertible-using strategies perform in rising rate environments).

Assuming that you’re on board for using convertibles to manage risk in your clients’ portfolios, how do you like your exposure? Have it your way, with our six actively managed open-end funds that use convertibles to support a variety of asset allocation goals.

CICVX

Primary strategy: U.S. convertible securities

Calamos Convertible Fund (CICVX) is a U.S. convertible strategy that seeks lower volatility equity participation over full and multiple market cycles. Use the fund as an option to potentially enhance fixed income allocations with a strategy that has been less vulnerable to changing interest rates.

CXGCX

Primary strategy: Global convertible securities

Calamos Global Convertible Fund (CXGCX) pursues lower volatility participation in the global equity markets. Use the fund as a risk-managed choice for those who seek participation in the potential of global equities, but are concerned about downside risk.

how do you take your convertible exposure

CGIIX

Primary strategies: U.S. equity and convertible securities

Calamos Growth and Income Fund (CGIIX) is an equity-oriented multi-asset class strategy that seeks to generate total returns through capital gains and income with a lower volatility profile versus the S&P 500 by primarily investing in equities, convertibles, fixed income and options. Use the fund as a long-term core equity allocation that potentially offers lower volatility and attractive income.

CGCIX

Primary strategies: Global equity and convertible securities

Calamos Global Opportunities Fund (CGCIX) is a lower-volatility global equity strategy that invests primarily in global equity and convertible securities in an attempt to balance risk and reward while providing growth and income. Use the fund as a long-term core allocation to global equities with the potential for lower volatility over market cycles.

CNWIX

Primary strategy: Emerging markets equities

Use Calamos Evolving World Growth Fund (CNWIX) as a long-term core allocation to the growth potential of emerging markets. The fund’s opportunistic use of convertibles provides enhanced opportunities for managing risk and reward.

CMNIX

Primary strategies: Convertible arbitrage and hedged equity

Use Calamos Market Neutral Income Fund (CMNIX) to enhance fixed income allocations at a time when persistently low interest rates have created challenges for traditional fixed income strategies, and elevated equity volatility underscores the value of diversification.

Investment professionals, for more about Calamos’ expertise and six convertible-using open-end funds, talk to your Investment Consultant at 888-571-2567 or caminfo@calamos.com. They also can answer any questions you may have about Calamos’ convertible-using Closed-end Funds.

Click here to view CICVX's standardized performance.

Click here to view CXGCX’s standardized performance.

Click here to view CGIIX's standardized performance.

Click here to view CGCIX's standardized performance.

Click here to view CNWIX’s standardized performance.

Click here to view CMNIX's standardized performance.

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.

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. The opinions and views of third parties do not represent the opinions or views of Calamos Investments LLC.

The ICE BofA All U.S. Convertibles Index (VXA0) measures the return of all U.S. convertibles.

The MSCI ACWI Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets and emerging markets.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The index is calculated on a total return basis, which includes reinvestment of gross dividends before deduction of withholding taxes.

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

The Refinitiv Global Convertible Bond Index is designed to broadly represent the global convertible bond market.

The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.

The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency).

Annualized standard deviation is a statistical measure of the historical volatility of a mutual fund or portfolio, usually computed using 36 month returns.

Morningstar Convertibles Category funds are designed to offer some of the capital appreciation potential of stock portfolios while also supplying some of the safety and yield of bond portfolios. To do so, they focus on convertible bonds and convertible preferred stocks. Convertible bonds allow investors to convert the bonds into shares of stock, usually at a preset price. These securities thus act a bit like stocks and a bit like bonds.

The Morningstar World Allocation Category is comprised of funds that seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds and cash.

The Morningstar Allocation—70% to 85% Equity Category funds seek to provide both income and capital appreciation by investing in multiple asset classes, including stocks, bonds and cash. These portfolios are dominated by domestic holdings and have equity exposures between 70% and 85%.

The Morningstar Diversified Emerging Markets Category is comprised of funds with at least 50% of assets invested in emerging markets.

The Morningstar Relative Value Arbitrage Category is comprised of funds that seek out pricing discrepancies between pairs or combinations of securities regardless of asset class.

The principal risks of investing in the Calamos Convertible Fund include: 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, equity securities risk, interest rate risk, credit risk, high yield risk, portfolio selection risk and liquidity 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.

The principal risks of investing in the Calamos Global Convertible Fund include: 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. 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.

The principal risks of investing in the Calamos Global Opportunities Fund include: 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. 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.

The principal risks of investing in the Calamos Growth and Income Fund include: 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, equity securities risk, growth stock risk, small and mid-sized company risk, interest rate risk, credit risk, liquidity risk, high yield risk, forward foreign currency contract risk and portfolio selection risk.

The principal risks of investing in the Calamos Evolving World Growth Fund include: 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, 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, and portfolio selection 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.

The principal risks of investing in Calamos 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.

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