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Opportunity in the Convertible Market: Convertible Trifecta

adding convertible to your playbook webcast replay

First published: March 31, 2020

Convertible securities’ hybrid characteristics make them a compelling choice for strategic allocations that pursue lower-volatility equity exposure over full and multiple market cycles. We believe the current environment offers investors a particularly attractive backdrop for establishing an allocation in actively managed convertibles or adding to an established allocation.

With a track record in the convertible market that dates to the 1970s, our team has considerable experience sourcing opportunities through all phases of the market cycle. But at certain points of time, market conditions create an additionally attractive backdrop for our active long-term approach. As of the end of the first quarter (March 31, 2020) and despite recent retrenchment, equities are cheaper, credit spreads are wider, and convertible valuations are lower since the market decline related to the COVID-19 crisis began.

And, an important point to remember: these are the aggregates for the broad market. Active management can help navigate the varying risk/reward of individual securities.

convertible valuations

A reversal in any one of these factors could provide a tailwind to convertibles—but if all three reverse, convertibles may be poised for what Calamos has dubbed a “trifecta.”

Here’s a look at how a similar opportunity materialized into a trifecta in 2016.

how the convertible trifecta worked in 2016

The underlying equities of convertibles made a comeback in 2016, making the embedded option of convertibles more valuable—benefitting investment portfolios.

Now let’s look at today’s market dynamics.

how the convertible trifecta is setting up today

Convertibles represent a promising investment opportunity even if the trifecta doesn’t hit. If the markets vacillate back and forth, converts provide an effective way to stairstep through the volatility. If there’s a V-shaped recovery, converts stand to gain a significant amount of the upside.

after steep declines convertibles have posted solid returns

And, if the market experiences further decline, convertibles are poised to do what advisors need them to do—hold up relative to their underlying equities.

Advisors, for more information about opportunities we’re seeing in the convertible market, contact your Calamos Investment Consultant at 888-571-2567 or

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.

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.

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.

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

The ICE BofA All U.S. Convertibles Index (VXA0) comprises approximately 700 issues of only convertible bonds and preferreds of all qualities. Source ICE Data Indices, LLC, used with permission. ICE permits use of the ICE BofA indices and related data on an ‘as is’ basis, makes no warranties regarding same, does not guarantee the suitability, quality, accuracy, timeliness, and/or completeness of the ICE BofA Indices or data included in, related to, or derived therefrom, assumes no liability in connection with the use of the foregoing and does not sponsor, endorse or recommend Calamos Advisors LLC or any of its products or services.

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