How Hedged Equity Can Help Retirees Sleep At Night
February 10, 2020
The nightmare for clients nearing retirement: That they diligently save their whole lives, build their nest egg to a point where they’ll be comfortable and then wham—the bottom falls out of the market, eroding their savings.
A 20% market drop reduces a $500,000 equity portfolio to $400,000. At that point, it’s a race against time to build that balance up again. The illustration below shows the time required to rebound, using three sets of assumptions: a 10% annual return, a 6% return and a 3% return.
Even assuming a 10% return, the now $400,000 portfolio needs more than two years to get back to whole. Assuming a 3% annual return, your 65-year-old retirees will be 72.5—and sleep-deprived—by the time they rebound.
Now consider the advantages of a hedged equity investment. While your clients may have relied upon the strength of the stock market to build their portfolio, your job now may be to demonstrate how de-risking works to their favor.
In this next illustration we show the quicker rebound of a hedged equity portfolio, one whose objective is to capture 60% of the market’s upside and just 40% of the downside. In a 20% correction, this portfolio declines 8%, from $500,000 to $460,000. Rebounding back to $500,000 takes less time.
And, of course, once fully rebounded, a hedged equity investment can return to growing. Below we model the excess that could be earned during the period when the all-equity investors are still climbing their way back.
All of the above is math, but not necessarily intuitive to your clients. For thoughts on de-risking or for information on Calamos Hedged Equity Fund (CIHEX), please reach out to your Calamos Investment Consultant at 888-571-2567 or caminfo@calamos.com. Financial advisor support and investment performance results that met advisors' expectations throughout 2019 helped Calamos climb to second on the list of the industry’s largest managers of liquid alts assets (Morningstar, 12/31/19).
Click here to view CIHEX's standardized performance.
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 1-866-363-9219. 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. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
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.
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.
Alternative investments are not suitable for all investors.
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Archived material may contain dated performance, risk and other information. Current performance may be lower or higher than the performance quoted in the archived material. For the most recent month-end fund performance information visit www.calamos.com. Archived material may contain dated opinions and estimates based on our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions at the time of publishing. We believed the information provided here was 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. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
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. Had it been included, the Fund’s return would have been lower.
Archived material may contain dated performance, risk and other information. Current performance may be lower or higher than the performance quoted in the archived material. For the most recent month-end fund performance information visit www.calamos.com. Archived material may contain dated opinions and estimates based on our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions at the time of publishing. We believed the information provided here was 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. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
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. Had it been included, the Fund’s return would have been lower.
Archived on February 09, 2021