Two Calamos closed-end funds—Calamos Convertible & High Income Fund (CHY) and Calamos Convertible Opportunities & Income Fund (CHI)—get a shout-out from Barron’s today as an “8% solution for inflation.”
Sometimes the best defense is the best offense, Barron’s writes, explaining its search for an income-producing investment that meets the 8% inflation rate reported yesterday. With a passing nod to I bonds (too limiting) and Treasury Inflation Protected Securities (recent disappointing performance), the article settles on closed-end funds “where the biggest yields are available, mainly because of their leverage.”
The article acknowledges leverage’s ability to boost returns while raising risk, adding “closed-end funds also have the possibility of buying assets at a discount, which may offer a margin of safety on the downside and the potential of appreciation if the discounts narrow.”
In the screen for funds that pay over 8% now and have returned at least that much over the past five years, four funds use convertible securities to some extent. “Convertibles have hybrid characteristics, capturing much of the return potential of stocks with some risk cushion from bonds,” Barron’s notes. (And see our most recent commentary about convertibles.)
CHY and CHI place second and third on the list, with among the highest returns and among the smallest discounts. Calamos specializes in convertibles, as the article acknowledges.
“As of 4/12/22, all three Calamos convertible-focused closed-end funds (CHI, CHY and Calamos Dynamic Convertible and Income Fund (CCD) were trading at premiums to NAV," commented Robert F. Bush, Jr., Calamos Senior Vice President and Director of Closed-End Fund Products. “Much of this is attributable to portfolio performance, as well as confidence that convertibles performed extremely well relative to both bonds and equities during periods of market volatility.”
Calamos CEFs have historically traded close to their respective NAVs, Bush adds. “Even during recent periods of market volatility due to geopolitical conflict and rising interest rates, our convertible funds have traded well,” he says.
Further, according to Bush, Calamos has managed the convertible CEFs “to optimize price returns to shareholders by offering significant distribution increases, which helped mitigate discounts while putting more returns in the pockets of shareholders.” Such was the case in February 2021, when Calamos increased the distribution levels in five CEFs, including all three convertible-focused funds.
Convertibles have historically offered comparable returns to equities, with roughly two-thirds the volatility, as shown in this risk/reward chart of global convertibles vs. global stocks.
The convertibles that Calamos invests in are highly liquid securities, adds Bush. They are typically not privates or illiquids, which can be more vulnerable to market declines. In addition, the portfolios are blended with multi-cap issuers, and “are not encumbered” by minimum investments in micro or small cap companies, he notes.
Below we show an excerpt of the Barron’s table, followed by standard performance data.
Two Calamos closed-end funds place on Barron’s April 13, 2022, list of seven
|Fund / Ticker||Yield||Discount||Return|
|Calamos Convertible & High Income / CHY||8.93%||-1.47%||14.21%|
|Calamos Convertible Opportunities & Income / CHI||8.99%||-2.01%||13.53%|
Barron’s, April 13, 2022. Note: Data as of April 8, 2022.
Investment professionals, for more information on CHY, CHI, CCD or any of our seven closed-end funds, contact your Calamos Investment Consultant at 888-571-2567 or email@example.com.
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