CIHEX: Turning Volatility into Longer-Term Opportunity

Jason Hill

Summary Points:

• Calamos Hedged Equity Fund (CIHEX) seeks to participate in equity market appreciation while limiting exposure to drawdowns.
• CIHEX’s current hedge structure is designed to deliver 60%–65% of the market’s upside and 35%–40% of its downside through its full life, providing a compelling risk/reward profile.
• Our goal is to dampen volatility, making it easier for investors to stay in the market over the long term and 1Q 2026 performance aligned with this goal.
• The interest rate and volatility environment in the first quarter created an opportunistic window to extend our hedge structure further out in time, and we rolled our base trade to June 2027.
• At the margin, we engaged in opportunistic option spread trading and selective put selling, neither of which materially altered our core participation profile.

Navigating a Quarter with No Shortage of Volatility Catalysts

During the first quarter, volatility re-emerged with force after a subdued 2025. US and Israeli military strikes against Iranian nuclear and military infrastructure evolved rapidly into an active and ongoing regional conflict, driving sustained pressure on implied volatility, energy markets, and global risk assets. Threats to close the Strait of Hormuz, escalating missile exchanges, and uncertainty around potential diplomatic resolution compounded market anxiety throughout the quarter.

Beyond the geopolitical shock, markets continued to grapple with familiar headwinds, including ongoing uncertainty around Federal Reserve policy, questions about the durability of AI-driven capital expenditures, evolving trade and tariff dynamics, and an S&P 500 that entered the year at historically elevated valuations with significant index concentration. In this difficult and rapidly shifting environment, the S&P 500 declined approximately 4% for the quarter. While CIHEX was not immune to the drawdown, it demonstrated resilience and retreated just 2%.

1Q Performance in Perspective

Although the fund delivered on its core value proposition and held up better than the equity market, CIHEX’s downside participation during the quarter modestly exceeded our long-run target range. Our hedge structure seeks to deliver 60%–65% upside participation and 35%–40% downside participation measured over a full multi-year horizon.

Importantly, this hedge structure is built and evaluated over a multi-year horizon, not any single quarter. Measuring participation at any single point within that window, particularly during a quarter marked by sharp, sudden volatility, will reflect where we are in the life of the trade rather than its ultimate payoff profile.

By contrast, some competitors in the hedged equity space experienced downside participation approaching the full decline of the S&P 500 during the quarter, an outcome that, in our view, calls into question the effectiveness of their hedge structures.

Extending the Core Trade: Flexibility in Action

We believe that CIHEX’s flexibility is one of its most important advantages. We focus on constructing our most effective asymmetric hedge structure based on what the market offers.   During the quarter, implied volatility levels and prevailing interest rates gave us the opportunity to extend CIHEX’s base hedge structure to June 2027.

This extension of our hedge enabled us to capture a more attractive payoff profile at the same or lower cost than what we’d pay to set up a shorter-duration core trade. That said, if the rate and volatility environment shifts to make shorter-duration structures more attractive, we’ll adjust the fund’s hedge accordingly.

At the margin, we engaged in opportunistic option spread trading and selectively sold puts as market conditions allowed. These activities are designed to modestly enhance the fund's return profile without meaningfully altering the core participation range. Our base trade remains the foundation; the marginal activity operates around the edges and does not change our current 60%–65% upside and 35%–40% downside framework.

Looking Ahead

Our hedge framework does not require us to predict when or why volatility will arrive. It requires us to be positioned appropriately when it does. As we move into the second quarter of 2026, geopolitical risk remains high, policy uncertainty persists, and markets are digesting the implications of a significantly higher volatility regime relative to last year. We believe CIHEX's flexible approach and hedge structure position the fund to navigate continued uncertainty, making it easier for investors to stay in the market for the long term.

Total Return %

Data as of 3/31/25. Source: Morningstar. Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. Please refer to Important Risk Information. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load of 4.75%. Had it been included, the Fund’s return would have been lower. Returns of more than 12 months are annualized. The fund’s gross expense ratio as of the prospectus dated 2/27/2026 is 0.90% for Class I shares.

Average annual total return measures net investment income and capital gain or loss from portfolio investments as an annualized average. All performance shown assumes reinvestment of dividends and capital gains distributions.