First published: June 18, 2021
Today’s post draws its inspiration from the fine work by the people behind Reese’s peanut butter cups. Their first move was to combine two premium ingredients—chocolate and peanut butter—into an iconic cup. Then they followed one genius decision with another: to adjust the amount of chocolate and peanut butter used in a series of successive sweet products designed to appeal to individual tastes.
We can apply the same thinking to two of our storied funds.
Calamos Market Neutral Income Fund (CMNIX) and Calamos Convertible Fund (CICVX) have been standalone allocations in clients’ portfolios for 30 and 36 years, respectively. Both strategies use convertible securities, but to different ends.
CMNIX offers an alternative to traditional bond strategies. Convertible arbitrage is one of two complementary strategies (hedged equity being the other) used to generate returns not dependent on interest rates. In contrast, the objective of CICVX is upside participation in equity markets with less exposure to downside than an equity-only portfolio, over a full market cycle. While CICVX seeks to profit from individual convertible security selection, CMNIX doesn’t.
CMNIX and CICVX can work together in a blend, depending on the problem you’re trying to solve for. Lately, we’ve been talking to investment professionals about using these two in combination as a way to play defense and as a hedge against inflation (see related post).
The following ideas are provided by our in-house mixologist Elise Pondel, CFA, Calamos AVP, Product Management & Analytics.
The investment professional who’s 100% in CICVX, for example, might halve the allocation in favor of an allocation to CMNIX. Use this blend to:
Alternatively, Pondel says, dial a 100% CMNIX allocation down to 50% and a CICVX allocation up to 50% to:
For even more variety, her analysis also includes 75%/25% blends.
Below you’ll see the historical upside/downside capture results of using CMNIX and CICVX in combination. The blend you choose will be influenced both by your perspective on the economy and on your client’s risk profile.
Does any of the above appeal to your taste? Please contact your Calamos Investment Consultant at 888-571-2567 or email@example.com.
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.
The performance shown in this post is hypothetical in nature and does not represent the performance and/or investment risk characteristics of any specific client. While the performance listed for each respective Investment Professional is based on actual performance, the aggregate portfolio performance, allocations listed and account comparisons shown are hypothetical in nature, as no actual clients are invested in these blended strategies. Hypothetical performance results have many inherent limitations, including those described below:
There are distinct differences between hypothetical performance results and the actual results subsequently achieved by a particular investment portfolio. No representation is being made that an account will or is likely to achieve profits or losses similar to those shown, and any investment may result in loss of principal.
As with any hypothetical illustration there can be additional unforeseen factors that cannot be accounted for within the illustrations included herein.
Hypothetical performance and index returns presented assume reinvestment of any and all earnings/distributions.
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.
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 Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US 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).
The S&P 500 Index is generally considered representative of the U.S. stock market.