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How Calamos Liquid Alts Broke the Market’s Steepest Fall

Last week demonstrated the case for hedging equities as investor reaction to the global spread of the coronavirus produced the fastest stock market correction on record. The market declined 10% in six days from its all-time high on February 19.

the steepest fall ever feb 6 day correction

Such a fast and furious drop—along with any accompanying loss in portfolio value—unnerves investors. Here’s a look at how each of the Calamos liquid alternative funds broke the fall—demonstrating the value of their role in helping keep your clients invested during turbulent markets.

Fixed Income CMNIX: A Differentiated Equity Hedge

Calamos Market Neutral Income Fund (CMNIX) is a fixed income alternative whose goal is to provide stability to a portfolio during times of market shocks. The fund is one of the first liquid alts and the largest (Morningstar data as of 12/31/19). Read why Barron’s last week singled out CMNIX’s YTD performance as "a victory."

fixed income cmnix a differentiated equity hedge

Long/Short CPLIX Barely Participated in the Market Decline

A global long/short equity strategy, Calamos Phineus Long/Short Fund (CPLIX) uses a flexible, inclusive asset allocation approach that has delivered equity-like returns with a competitive risk profile over full market cycles. But Michael Grant, Calamos Co-CIO and Senior Co-Portfolio Manager, hasn’t liked this market for quite a while (see this January post The Non-consensus View of CPLIX’s Michael Grant, and Why He’s Positioned for ‘High Financial Risk’).

While Grant couldn't have foreseen the coronavirus, he anticipated the fragility of the market, based on valuations that may not have been substantiated by global earnings expectations. Accordingly, CPLIX’s equity exposure was net neutral when the market began to fall on February 20.

Also: Grant has repeatedly cautioned against the risk of the “long light” funds in the Morningstar Long-Short Equity category (see post). While CPLIX slipped just 0.35% from Feb. 20-28, the category average was down 6.94% and the S&P 500 down 12.7%. The relationship between the performance of the long/short category average and the S&P during periods of abrupt and high volatility suggests that the peer group offers only modest downside protection during such periods.

longshort cplix barely participated in market decline

A Shallower Decline for Hedged Equity CIHEX

Advisors turn to Calamos Hedged Equity Fund (CIHEX) to potentially de-risk an equity portfolio without trading away all of the equity upside potential. By blending a core long-equity portfolio with an actively managed option overlay, the goal is to capture 60% of the S&P’s upside while mitigating 40% of the downside. Year to date, the S&P was down 8.27% through February 28, and CIHEX down 3.62%, right in line with expectations.

a shallower decline for hedged equity cihex

Financial advisors, last week is proof that you can’t always count on having time to hedge. Please talk to your Calamos Investment Consultant about how our alternatives can work within your clients’ portfolios. You can reach him or her at 888-571-2567 or caminfo@calamos.com.

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.

Alternative investments may not be suitable for all investors.

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.

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.

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.

MNI average annual returns and expense ratio

PLS average annual returns and expense ratio

HEF average annual returns and expense ratio

Important Risk Information

The principal risks of investing in 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 involves buying convertible bonds and short selling their underlying equities to attempt to hedge against equity risk, while still providing the potential for upside returns.

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 Bloomberg Barclays U.S. Government/Credit Bond Index includes treasuries and agencies that represent the government portion of the index, and includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements to represent credit interests.

The FTSE 30-Day T-Bill Index is generally considered representative of the performance of short-term money market instruments.

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 S&P 500 Index is generally considered representative of the U.S. stock market.

Morningstar Long/Short Equity Category funds take a net long stock position, meaning the total market risk from the long positions is not completely offset by the market risk of the short positions. Total return, therefore, is a combination of the return from market exposure (beta) plus any value-added from stock-picking or market-timing (alpha).

The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.

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 of 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.

The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency).

Morningstar Options-based Category funds use options as a significant and consistent part of their overall investment strategy. Trading options may introduce asymmetric return properties to an equity investment portfolio. These investments 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, option writing funds may seek to generate a portion of their returns, either indirectly or directly, from the volatility risk premium associated with options trading strategies.

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