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Not Too Late: Convertibles Still Undervalued

Having seen the strong performance of convertible securities over the past 12 months, financial advisors may be hesitant to add convertibles to client portfolios. Has the convertibles train already left the station?

Quite the contrary. We’re actually seeing evidence that the convertible securities market is trading near the lower end of its historical valuation range relative to theoretical fair value, which is determined by adding the bond value and its option value. Convertibles can then trade at a premium or discount to that fair value.

Where are they now? The chart below shows that the convertible market is “undervalued” by 2.18% in terms of average discount to theoretical valuation.

convertibles are not trading rich

The changes in valuation over the course of a market cycle suggest that strong active management is essential to managing potential risks and building an optimal convertible securities portfolio.

Calamos has been actively managing convertible securities portfolios since 1970—before it was even considered its own asset class. With more than 40 years of experience, we know how to incorporate valuation into our investment process for convertible securities—a process that is built to determine the intrinsic value of a company, value securities within the company’s capital structure, and identify unexpected opportunity.

Financial advisors who would like to uncover hidden potential in the convertible securities market should talk to a Calamos Investment Consultant at 888-571-2567 or email

    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. 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 Risk: The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also, may have an effect on the convertible security’s investment value.

    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.

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