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The CMNIX Team on Volatility, Pricing and Positioning for Opportunity

In a turbulent period for the markets, Calamos is hosting a Calamos CIO Conference Call for financial advisors. Below are notes from a call with Eli Pars, CFA, Co-CIO, Head of Alternative Strategies and Co-Head of Convertible Strategies, Senior Co-Portfolio Manager, and David O'Donohue, Senior Vice President, Co-Portfolio Manager. 

To listen to the call in its entirety, go to

Even for a team that thrives on volatility—and for most asset classes in general—the VIX at 80 can be a challenge. Below, the team provides an update on how they’re navigating the challenge as well as recognizing opportunity for Calamos Market Neutral income Fund (CMNIX) and Calamos Hedged Equity Fund (CIHEX), two funds with “the same mentality but different risk budgets.”

Eli Pars, CFA David O'Donohue

"We never want to be underprotected for either CMNIX or CIHEX, and often we can—and like to be—overprotected, especially for Market Neutral.”

Eli Pars, CFA, Co-CIO, Head of Alternative Strategies and Co-Head of Convertible Strategies, Senior Co-Portfolio Manager and David O'Donohue, Senior Vice President, Co-Portfolio Manager

Summary of Key Views

  • When you have this much volatility across all asset classes day to day, with intra-day and intra-hour volatility and multiple market halts, it’s challenging. These are unique times. With a large diversified fund, there are many moving parts and dislocations that can make performance volatile. The team acknowledges it can’t control the volatility. Instead, its focus is on making sure that the portfolios are positioned properly and that the fundamentals are solid.
  • Significant effort and emphasis is on minimizing the downside and flattening out the left tail. We have done that successfully in past periods of higher volatility, but all volatility isn’t created the same.

    We generally love the VIX at 20 or 30, but 80 is challenging for almost all asset classes. We never want to be underprotected for either [CMNIX or CIHEX], and often we can—and like to be—overprotected, especially for Market Neutral. The depth and speed of this drawdown is unprecedented, and that makes it challenging and expensive to be really overprotected.
  • The environment is providing opportunity. The team has been selectively adding to the convertible arbitrage sleeve of CMNIX. While convert arb has held up fairly well, we have seen our book cheapen in recent weeks. This is not unusual in risk-off periods. We think there is significant value in the book and anticipate realizing this in coming months.
  • Market Neutral has ample liquidity, some of which is being selectively employed in converts. The focus is on good credits that have minimal direct exposure to the impact of the coronavirus. The team has seen more weakness this week in converts than had been seen in the first few weeks of the drawdown.

    While we have been adding to converts, there have been no major changes in positioning in recent weeks. However, if the convert market weakness persists, we may move money out of the hedged equity sleeve and into convert arb.
  • The team values its flexibility in adapting hedges to try and fit the market. With volatility this high, puts are expensive but the good news is that so are calls. Call volatility is as high as the team remembers—resulting in more income and hedge from selling calls than was available in past periods.

    The team may need to sell a few less or higher strikes or possibly buy some longer dated higher strike calls to try to capture sufficient upside if this crisis ends with a V-shaped recovery. This would be particularly true for the Hedged Equity fund.

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.

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.

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.

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.

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.

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.


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