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You Make the Call: Use Short-Term Bonds for Ballast—Or Use CSTIX to Seek to Maximize Returns

Everyone focuses on the most aggressive parts of their portfolio, according to Calamos Co-CIO and Head of Fixed Income Strategies Matt Freund.

Equity investments that beat the S&P 500 are what attract the headlines but, Freund recently told the Wall Street Transcript, “the math is such that to get an extra 100 basis points in an equity portfolio, you have to work really hard to do it. You have to pick the right stocks, have skilled managers, your timing has to be right and you generally have to have a longer-term time horizon.”

Contrast that with the opportunity in today’s environment to use short-term bonds to add 100 basis points of alpha to the fixed income part of the portfolio, said Freund, Senior Co-Portfolio Manager, and Christian Brobst, Co-Portfolio Manager in the Q&A. An allocation to Calamos Short-Term Bond Fund (CSTIX)’s would have earned a 3.25% SEC yield (as of 8/31/22) compared to less than 2% being paid by high yield money market funds.

The CSTIX team believes in maximizing returns for every part of a client’s portfolio—an approach that Freund said distinguished the fund from others in the Morningstar Short-Term Bond category.

“A lot of our competitors are exceptionally high quality. They stay in Treasuries or near Treasury securities. They’re very liquid. And they really view that part of the portfolio as ballast. We do not,” said Freund. “If you can outperform in your conservative allocation, that drops to the bottom line the exact same way as outperforming in your more aggressive allocation.”

Freund and Brobst described the four-star CSTIX as a better idea for portfolios that are heavy with cash, waiting out the market volatility.

Calamos Short-Term Bond Fund (CSTIX)

Morningstar Overall RatingTM Among 550 Short-Term Bond funds. The Fund's risk-adjusted returns based on load-waived Class I Shares had 4 stars for 3 years out of 550 Short-Term Bond Funds, respectively, for the period ended 8/31/2022.

“We can add extra yield into cash-heavy portfolios from day one,” said Freund. “We think cash-heavy portfolios are making a mistake, because by the time money market rates catch up to short-term bonds, it is quite possible that the Fed is going the other way. And when that happens, money markets are going to reset lower and lower very quickly.”

The uniqueness of today’s environment enables investors to scale down duration risk if they’re concerned about the possibility for further rate volatility, while earning an attractive yield, added Brobst.

“The [Bloomberg US Aggregate Bond Index] has a 6.6- year duration right now,” he said. “The [Bloomberg US Government/Credit 1-3 Years Index], which is the benchmark that most short duration funds reference, has about a two-year duration. The interesting thing is that the yield differential between those two benchmarks is only 30 basis points as [August 31]…You can take four years of duration risk out of your portfolio right now. And the cost to do so is the lowest it has been in the last 20 years, essentially at 30 basis points,” he said.

Download the reprint for more on the team’s perspective and focus on, as Freund says, “being well paid for the risks.” Investment professionals, for more about CSTIX, contact your Calamos Investment Consultant at 800-582-6959 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.

The 30-day SEC yield is 3.25% as of 7/31/22.

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. 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.

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 Short-Term Bond Fund include: interest rate risk consisting of loss of value for income securities as interest rates rise, credit risk consisting of the risk of the borrower to miss payments, high yield risk, liquidity risk, mortgage-related and other asset-back securities risk, including extension risk and prepayment risk, US Government security risk, foreign securities risk, non-US Government obligation risk and portfolio selection risk. As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries.

Morningstar Short-Term Bond Category funds invest primarily in corporate and other investment-grade US fixed-income issues and typically have durations of 1.0 to 3.5 years. Short-term is defined as 25% to 75% of the three-year average effective duration of the MCBI.

Morningstar RatingsTM are based on risk-adjusted returns and are through 7/31/22 for the share class listed and will differ for other share classes. Morningstar ratings are based on a risk-adjusted return measure that accounts for variation in a fund's monthly historical performance (reflecting sales charges), placing more emphasis on downward variations and rewarding consistent performance. Within each asset class, the top 10%, the next 22.5%, 35%, 22.5%, and the bottom 10% receive 5, 4, 3, 2 or 1 star, respectively. Each fund is rated exclusively against US domiciled funds. The information contained herein is proprietary to Morningstar and/or its content providers; may not be copied or distributed; and is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Source: ©2022 Morningstar, Inc.

Morningstar Overall RatingTM Among 550 Short-Term Bond funds. The Fund's risk-adjusted returns based on load-waived Class I Shares had 4 stars for 3 years out of 550 Short-Term Bond Funds, respectively, for the period ended 7/31/2022.

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

Bloomberg US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US 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).

The Bloomberg US Government/Credit 1-3 Years Index includes all medium and larger issues of US government, investment-grade corporate, and investment grade international dollar-denominated bonds that have maturities of between 1 and 3 years and are publicly issued.

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