Calamos Convertible Fund: Entering 2025 in an Upbeat Frame of Mind

Jon Vacko, CFA, and Joe Wysocki, CFA

Summary Points:

• Following a robust 2024, we expect the new convertible issuance market to remain strong as companies seek growth capital while containing borrowing costs.
• Active management is essential for maximizing the potential of convertibles; CICVX emphasizes securities with attractive structural risk-reward characteristics that combine healthy upside equity participation with important downside risk-mitigation features.
• We anticipate a continued broadening of market leadership in 2025, which sets up well for a well-diversified, small-and-mid-cap oriented convertible market.

As we reflect on 2024 and look ahead to 2025, we see compelling opportunities in the convertible market for our active approach. The past year proved strong for US risk assets as economic growth remained resilient and inflation moderated. Additionally, the Federal Reserve’s 100 basis point reduction in short-term interest rates signaled a welcome normalization of monetary policy, setting a constructive backdrop for markets moving forward.

The convertible market demonstrated remarkable vitality in 2024, with global new issuance of $119 billion. This robust volume reflects the long-standing importance of convertibles in the capital formation strategies of small- and mid-capitalization companies seeking growth capital. Moreover, the higher interest rate environment has heightened awareness of the cost-saving advantages convertibles can offer issuers across a broader spectrum of economic sectors, credit profiles, and market capitalizations. We believe these dynamics position the convertible market for continued strong new issuance in the coming year.

Calamos Convertible Fund (CICVX) is strategically positioned to capitalize on these new and existing opportunities. Our approach emphasizes securities with attractive structural risk-reward characteristics that offer the potential for upside equity participation while maintaining important downside risk-mitigation features. We believe this approach is well-suited for the current market environment, where opportunities may broaden beyond the mega-cap names that have dominated recent market performance.

Entering 2025, the technology and consumer discretionary sectors represent the fund’s largest allocations. We have found many companies within these sectors with strong execution capabilities, improving margins, and growing free cash flow. We’re particularly attracted to businesses that can thrive and grow their intrinsic value in various market conditions.

The fund maintains exposure to cyclical growth themes, including investments in companies that benefit from durable US consumer services demand or offer solutions to current business challenges such as higher labor, manufacturing, and interest costs. We’re also finding attractive opportunities in secular growth areas like artificial intelligence, productivity enhancement, and cybersecurity—themes we expect to remain relevant through 2025 and beyond.

As we look ahead, we anticipate fiscal policy will play an increasingly important role in shaping market returns. The post-election environment may bring new policy initiatives affecting many areas, including taxes, regulations, and global trade relationships. We believe the convertible market’s hybrid nature—combining equity-like upside potential with fixed-income risk mitigation characteristics—positions it well to navigate various policy outcomes.

Active management remains crucial, as each security offers unique risk-reward characteristics that can dynamically change. We maintain a selective approach with our team thoroughly evaluating each opportunity, considering both traditional metrics and evolving business models.

Whether investors seek to enhance their equity exposure with reduced downside risk or to diversify their fixed-income allocation with equity optionality, we believe convertible securities offer compelling opportunities. As we move into 2025, we see the potential for convertibles to deliver attractive risk-adjusted returns while providing important portfolio diversification benefits.