CMNIX: Three Reasons to Be Excited about the Fund’s Prospects in 2023—Hear the Replay from Co-CIO Eli Pars’ Webcast
February 16, 2023
Co-CIO Eli Pars offered three reasons to be excited about the total return prospects for Calamos Market Neutral Income Fund (CMNIX) in 2023 in a recent call for investment professionals. Pars’ key points included the following:
- The opportunity set in CMNIX’s convertible arbitrage strategy is compelling.
- Convertible arbitrage returns are correlated with overnight rates because the rebates CMNIX receives on its short stock positions are directly tied to the fed funds rate. After being in a world of zero interest rates for so long, we’re now looking at earning a spread to a fed funds rate of 5% or 6%.
- Given these heightened return expectations with the rise in overnight interest rates, the CMNIX team has begun shifting some assets from hedged equity to convertible arbitrage.
- Although fund returns don’t necessarily go up tick-for-tick with rates, Pars expects a meaningful tailwind in 2023 and beyond.
- The bull case for convertible issuance is strong.
- As low-coupon nonconvertible debt issued after the Great Financial Crisis starts to come due, corporations will face a grim prospect—replacing coupons of 1% to 2% with coupons of 5% or 6%. Suddenly, the idea of issuing a 2% convertible bond looks more appealing.
- Although convertible issuance has been healthy since 2008, we have not seen investment-grade issuers return. The higher interest rate environment could bring them back, which would further spur issuance.
- As new deals come to market reflecting the new interest rate curve, we get the added benefit of higher coupons.
- CMNIX continues to provide a low-duration diversifier for a bond portfolio.
- If you want an investment that has historically delivered a relatively steady, bond-like return, but gotten there without a lot of duration, CMNIX is worth consideration, Pars pointed out.
- Pars explained that the standstill yield on CMNIX’s hedge equity strategy is starting to look interesting, and options-based strategies tend to work well in a sideways market, which the team anticipates in the near term. Another advantage of the hedged equity strategy is its liquidity, making it easy to ramp up and down.
To find out more about how CMNIX’s active strategy is in a strong position to capitalize on convertible arbitrage and new issue trends, listen to the full replay and Q&A with Eli Pars, CFA, here.
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 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.