It’s still May and some advisors are still weighing the merits of de-risking this month.
Last week’s post Don’t Go—Here’s How You Might Hedge the Equity Risk suggested Calamos Hedged Equity Fund (CIHEX) as a defensive equity move. Below we apply the same idea—don’t leave, hedge—to Calamos Market Neutral Income Fund (CMNIX). The 29-year-old CMNIX is positioned as an income alternative that seeks to use S&P 500 volatility to generate returns while managing risk.
“To achieve market neutrality, the fund takes a short position in a [convertible securities issuer’s] stock equal to the bond’s sensitivity to fluctuations in the stock price…If the stock price goes up, the fund loses money on its short positions but makes money on the convertible bonds, which appreciate in value. On the other hand, if the stock price goes down, the fund makes money on its short positions.”
A more stable, consistent, fixed income-like return stream has been the result over time.
Let’s assume the same scenario as we did in the previous post: The prospect of May to November poor market performance or volatility is giving your client pause. You believe it’s in his or her best interests to continue to benefit from equity exposure and, besides, you know the risks of market timing.
But this client has a different risk profile. Unlike the clients for whom CIHEX is designed, maintaining greater equity downside protection is more important to some than participating on the upside.
Your traditional positioning options include:
Here’s a look at how the traditional options performed in the last 10 May to October periods—and what CMNIX returned over the same time period.
For clients with long-term investment objectives, we don’t advocate portfolio moves triggered by the month of the year. But when the instinct is to “go away,” think of CMNIX as an alternative to getting completely out of the market.
Advisors, for more information about CMNIX, talk to your Calamos Investment Consultant at 888-571-2567 or firstname.lastname@example.org.
Calamos was #1 in flows to funds in the Morningstar Alternatives Category in 2018, and ranks fourth on the list of alternative fund managers by assets under management as of 3/31/19.
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.
Data as of 3/31/19.
Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load of 4.75%; had it been included the Fund’s return would have been lower. For the most recent month-end fund performance information visit www.Calamos.com.
†Morningstar ratings shown are for Class I shares and do not include any front-end sales load. Not all investors have access to or may invest in the share class shown. Other share classes with front-end or back-end sales charges may have different ratings than the ratings shown.
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.
Covered Call Writing: 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.
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 Hedging 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.
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.
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.
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). 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.
The FTSE 30 Day Treasury Bill Index is generally considered representative of the performance of short-term money market investments. The FTSE 30 Day Treasury Bill Index is provided to show how the Fund's performance compares with the returns of an index of securities similar to those in which the Fund invests.
Morningstar Market Neutral Category represent funds that attempt to eliminate the risks of the market by holding 50% of assets in long positions in stocks and 50% of assets in short positions.
The Bloomberg Barclays U.S. Government/Credit 1-3 Years Index includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities of between 1 and 3 years and are publicly issued.
A U.S. Treasury bill is a short-term debt obligation backed by the U.S. Treasury.
Unmanaged index returns assume reinvestment of any and all distributions and, unlike fund returns, do not reflect fees, expenses or sales charges. Investors cannot invest directly in an index.