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Understanding the Bull Market for Convertible Bonds

Here at the house that convertibles helped build, we believe that convertible securities should be a core allocation in investors’ portfolios across full and multiple market cycles. Day in, day out, rain or shine, you can expect at least one Calamos associate to be talking convertibles to someone somewhere.

But every few years—especially late in a cycle—nearly everyone (including issuers, advisors, investors, the media, other fund providers) gravitates to convertibles and their potential to reduce risk in a portfolio.

That’s the case today. Here’s why convertible bonds are in the spotlight now:

  • Convertibles are one of the year’s top-performing asset classes. convertibles top asset class through may 2018
  • U.S. convertible issuance—$30.7 billion through June 14—is at a decade-high. At this rate, issuance could approach $60 billion for the year. convertible issuance ytd decade high

    We made our case in a February blog post (see 4 Reasons Convertible Securities Issuance Is Taking Off in 2018), but see Barclay’s even longer list of issuers’ advantages in a report (subscribers only) published this week:

    • Higher interest rates and credit yields
    • The new tax policy that enhances the relative coupon savings and tax shield benefits of convertibles versus straight debt
    • Strength in equity valuations, making issuers more willing
    • Robust demand conditions leading to attractive terms for issuers
    • Healthy economic environment driving demand for growth and expansionary capital
    • Speed to market advantages
    • Highly flexible and accommodative asset class that enables issuers to fine-tune their exposure in terms of coupon rates, premiums, maturity, lower effective dilution via call spreads, and tailored structures.
  • The argument for using convertibles tactically is likely to continue, as rates continue to rise and markets remain volatile. (See this post for how Calamos convertible-using funds have performed in rising rate environments.)

What We’ve Learned about Convertibles

Our Founder, Chairman and Global CIO John P. Calamos, Sr. pioneered the use of convertible securities and led investor education in the asset class (see Convertible Securities: Structures, Valuation, Market Environment, and Asset Allocation, a PDF excerpted from one of John’s books). So, of course, we welcome all fresh attention to the asset class.

download convertible securities

Today it’s possible to access convertible securities multiple ways (e.g., mutual funds, closed-end funds, ETFs, even directly).

When we talk to advisors, we draw on our 40 years of experience of actively managing convertible portfolios. Here’s what we’ve learned: To achieve the long-term performance advantage possible—to participate in the majority of equity upside while building resilience against unforeseen downturns—requires active management capable of understanding the risks, evaluating each issuer’s capital structure and positioning an overall convertible portfolio. For an elaboration on what drives convertible bond performance, please see this recent post.

Advisors, please talk to your Calamos Investment Consultant at 888-571-2567 or email for more information about convertibles or about our convertible-using funds, including:

    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. 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.

    Convertible securities consist of the potential for a decline in value during periods of rising interest rates and the risk of the borrower to miss payment.

    Fund Risks

    Calamos Convertible Fund (CICVX): 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.

    Calamos Global Convertible Fund (CXGCX): 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 Market Neutral Income Fund (CMNIX): 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.

    Calamos Growth and Income Fund (CGIIX): 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.

    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.


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