Investment professionals are back at it again and this time with even more gusto—$851 million flowed into Morningstar’s Options-based category last week. The flows far exceeded flows into other liquid alternative categories, seven of which experienced net outflows, as reported in our Weekly Alternatives Snapshot.
As shown below, the week of October 7 was the year’s best week for the category, which had seen strong flows in early March and July (also see this post).
The popularity of hedging strategies at this point so close to the Nov. 3 general election, and given the uncertainty related to COVID-19 and its economic repercussions, comes as no surprise. Good idea—now let’s be sure you’re thinking through the execution.
Morningstar Overall RatingTM Among 85 Options Trading funds. The Fund's risk-adjusted returns based on load-waived Class I Shares had 4 stars for 3 years and 4 stars for 5 years out of 85 and 55 Options Trading Funds, respectively, for the period ended 8/31/2021.
Are you hedging against equity upside or are you hedging against equity downside? “It’s not meant to be a trick question,” insists one of our Calamos Investment Consultants. “But we ask because it helps focus on what’s more important.”
Assuming that the objective of a hedged equity strategy is to lose less in a market drawdown, we call your attention to the historical performance of Calamos Hedged Equity Fund (CIHEX).
In the 11 times the S&P 500 has drawn down more than 5% since the fund’s 2014 inception, the S&P declined an average -11.66% while CIHEX declined less than half of that. Compare its -5.52% to the Morningstar category average drawdown of -6.84%.
In the four cases when the drawdown was a correction of 10% or more, here, too, CIHEX outperformed. Compare its -9.04% average decline to the S&P’s loss of -19.05% and the category average decline of -12.43%.
As suggested by its outperformance, the advantage of actively managed CIHEX is the portfolio management team’s flexibility to make the most of market dislocations.
While others in the Options-based category rely on passive, mechanistic strategies, there is nothing “set it and forget it” about CIHEX. Dynamic management—including taking advantage of sliding windows of opportunity—is how the team produces alpha, driving consistent calendar returns.
See this post for more of how the team sizes up these irregular, volatile times. For more information about the advantages of using CIHEX to hedge equity exposure now, reach out to your Calamos Investment Consultant at 888-571-2567 or firstname.lastname@example.org.
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.
Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. Please refer to Important Risk Information. 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. You can obtain performance data current to the most recent month-end by visiting www.calamos.com.
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.
The principal risks of investing in the Calamos Hedged Equity Fund include: covered call writing risk, options risk, 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.
The S&P 500 Index is generally considered representative of the U.S. stock market.
Morningstar Options-based Category funds may use a variety of strategies, including but not limited to: put writing, covered call writing, option spread, options-based hedged equity, and collar strategies. In addition, options-based funds may seek to generate a portion of their returns, either indirectly or directly, from the volatility risk premium associated with options trading strategies.
Morningstar Ratings™ are based on risk-adjusted returns and are through [As Of_6/31/20] for Class I shares and will differ for other share classes. Morningstar ratings are based on a risk-adjusted return measure that accounts for variation in a fund’s monthly historical performance (reflecting sales charges), placing more emphasis on downward variations and rewarding consistent performance. Within each asset class, the top 10%, the next 22.5%, 35%, 22.5%, and the bottom 10% receive 5, 4, 3, 2 or 1 star, respectively. Each fund is rated exclusively against U.S. domiciled funds. The information contained herein is proprietary to Morningstar and/or its content providers; may not be copied or distributed; and is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Source: ©2020 Morningstar, Inc.