Thanks to broadening financial advisor support since the fund was launched as one of the first liquid alternatives in 1990, Calamos Market Neutral Income Fund (CMNIX) is now the largest alt in Morningstar’s $142 billion Alternative Funds category (Morningstar data as of 8/31/19). The fund has enjoyed an organic growth rate of 29% in assets under management over the trailing 12 months ended 8/31/19.
The assets under management of CMNIX, together with Calamos Phineus Long/Short Fund (CPLIX) and Calamos Hedged Equity Fund (CIHEX), in August helped Calamos climb to third on the list of the industry’s largest managers of liquid alts assets. Calamos has been consistently gaining market share as asset growth of many providers, including the leaders, has leveled off or declined.
Calamos’ progress in the alts category—having ranked #10 just two years ago (see post)—is the result of both a commitment to educate financial advisors on how alts can be used to manage risk in clients’ portfolios and investment performance results. An array of tactics, including industry presentations, face-to-face and telephone meetings, portfolio reviews, webcasts and blog posts, has been employed to demonstrate how alts work.
Liquid alternatives rose to popularity in the wake of the Great Financial Crisis after financial advisors sought new ways to diversify portfolios beyond long-only equity and fixed income. Multiple fund providers entered the space and products proliferated. Since 2016, however, the number of alternative funds has been on the decline and overall category assets have shrunk 13% over the trailing 12 months ended 8/31/19.
Calamos’ three alts are in categories—Market Neutral, Options-based and Long/Short Equity—that advisors have continued to embrace (for alternatives’ weekly flows and performance, see the Calamos Weekly Alternatives Snapshot).
The Market Neutral Income Fund has been the largest fund in its category since June 2016, a distinction that occasionally prompts advisors' questions about capacity.
The portfolio management team employs multiple levers to allocate and balance flows to its two principal investment strategies—convertible arbitrage and hedged equity. The convertible issuance market is healthy, with ample opportunities in and outside the U.S. At the same time, says Eli Pars, Co-CIO, Head of Alternative Strategies and Co-Head of Convertible Strategies and Senior Co-Portfolio Manager of the fund since 2013, the S&P options market is extraordinarily deep.
Financial advisors, we thank you for your continued interest in how Calamos alternatives can work for your clients. For more information, contact your Calamos Investment Consultant at 888-571-2567 or firstname.lastname@example.org.
Click here to view CMNIX's standardized performance.
Click here to view CPLIX's standardized performance.
Click here to view CIHEX's standardized performance.
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.
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. 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. The Fund(s) also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund's prospectus.
Alternative investments are not suitable for all investors.
The S&P 500 Index is generally considered representative of the U.S. stock market.
MSCI World Index is a market capitalization weighted index composed of companies representative of the market structure of 21 developed market countries in North America, Europe, and the Asia/Pacific region.
The principal risks of investing in the 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.
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.
Hedged Equity Risk: 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.
Alpha is a measurement of performance on a risk adjusted basis. A positive alpha shows that performance of a portfolio was higher than expected given the risk. A negative alpha shows that the performance was less than expected given the risk.
Convertible arbitrage involves purchasing a mispriced convertible bond (long position) and simultaneously short-selling a calculated number of shares of the stock. As the manager waits for the prices to converge, the portfolio is insulated from price movements of the underlying stock. Using this technique, a manager seeks to enhance income and to hedge (or reduce) equity market risk.
Hedged equity involves selling (or "writing") a call option against an equity the writer holds. When managers sell a call option, they earn a premium from the option sale. If the shares trade below the strike price, the option will expire worthless and they keep the premium from the option and retain the security. If the share price exceeds the strike price, the buyer will likely exercise the option and the seller must sell the shares at the strike price. To hedge the risk, managers could also purchase put options to protect against significant equity market declines.
The principal risks of investing in Calamos Phineus Long/Short Fund include: 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.
The principal risks of investing in the Calamos Hedged Equity Fund include: covered call writing risk, options risk (see definition below), equity securities risk, correlation risk, mid-sized company risk, interest rate risk, credit risk, liquidity risk, portfolio turnover risk, portfolio selection risk, foreign securities risk, American depository receipts, and REITs risks.
Options Risk—the Fund's ability to close out its position as a purchaser or seller of an over-the-counter or exchange-listed put or call option is dependent, in part, upon the liquidity of the options market. There are significant differences between the securities and options markets that could result in an imperfect correlation among these markets, causing a given transaction not to achieve its objectives. The Fund's ability to utilize options successfully will depend on the ability of the Fund's investment advisor to predict pertinent market movements, which cannot be assured.