CMNIX: A Flexible Approach Yields Historically Consistent Results

Jason Hill

Summary Points:

• During a year characterized by policy uncertainty and dynamic market conditions, Calamos Market Neutral Income Fund (CMNIX) gained just over 7%, with substantially lower volatility compared to traditional bonds.*
• The fund rose 1.5% in the fourth quarter, ahead of the Bloomberg US Aggregate Bond Index’s 1.10% return.
• For the year, the hedged equity strategy contributed most, followed closely by convertible arbitrage. For the quarter, both strategies advanced, with convertible arbitrage slightly ahead.
• Opportunistic allocations to merger arbitrage and special purpose acquisition company arbitrage also contributed to year-to-date results.
• We believe the fund‘s historical consistency, including posting positive returns in 25 of the past 26 months, demonstrates the reliability investors seek from CMNIX as a bond alternative.

2025 Validated Our Investment Thesis

We believe 2025 validated CMNIX‘s investment approach—a time-tested process designed for consistency and built around complementary investment strategies with little exposure to interest rate opportunity or risk. While markets navigated Fed policy pivots, geopolitical tensions, and AI-driven market dynamics, CMNIX delivered a return that matched or exceeded traditional fixed income benchmarks. Moreover, the fund has outperformed bonds across extended time horizons.

Historical Performance Makes CMNIX’s Case as a Bond Alternative

Data as of 12/31/25. 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. All performance shown assumes reinvestment of dividends and capital gains distributions. The fund’s gross expense ratio as of the prospectus dated 2/28/2025 is 0.97% for Class I shares.

Hedged Equity Strategy

Our hedged equity book continued to advance in the fourth quarter, capping a strong full year's performance. We were pleased that the strategy captured meaningful upside in a year of robust equity market gains while maintaining substantial defensive hedging. In the fourth quarter, we maintained a defensive posture, rolling strikes higher and extending downside risk mitigation into early 2026 as year-end approached. As we enter 2026, we anticipate modestly reducing our hedge—partially driven by the need to roll deep in-the-money short calls. That said, we intend to maintain a defensive orientation given potentially elevated valuations and ongoing uncertainty.

Convertible Arbitrage Strategy

During the fourth quarter, the convertible arbitrage book continued to gain ground at a healthy pace, finishing a bit ahead of the hedged equity sleeve. For the year overall, hedged equity slightly outperformed convertible arbitrage. We believe the results we achieved in the convertible arbitrage book were particularly compelling given that our strategy operates without leverage. In an environment where many convertible arbitrage managers employ 2-to-1 or higher leverage ratios, we believe our unlevered returns demonstrate the strength of our opportunity set and execution.

The convertible arbitrage strategy benefited throughout 2025 from a historic issuance environment. Nearly $120 billion in US convertible issuance shattered previous annual records and fundamentally revitalized the convertible universe by bringing fresh deals at attractive valuations, providing robust secondary market liquidity, and expanding diversification opportunities.

Merger Arbitrage and SPAC Arbitrage

Our merger arbitrage allocation contributed steadily throughout the year, benefiting from our flexible, multi-instrument approach. Rather than limiting ourselves to equity positions, we strategically utilize convertible bonds and options to construct positions with more favorable risk-reward profiles. Convertible bonds provide downside protection through their bond floor while maintaining upside participation, while options allow us to create asymmetric payoff structures tailored to specific deal characteristics and regulatory timelines.

Special purpose acquisition company (SPAC) arbitrage also provided steady, low-volatility returns through our disciplined approach of purchasing SPACs at or near trust value and exiting before deals become equity-sensitive.

Portfolio Positioning

Our allocation framework was largely unchanged between the start and end of the year. We increased convertible arbitrage slightly to deploy capital into what proved to be the strongest US convertible issuance year on record. Due to market conditions, we were able to maintain a historically heavy hedge in the hedged equity strategy, thereby preserving the defensive characteristics that we believe investors expect from CMNIX.

The Historic Convertible Issuance Environment

The US convertible bond market’s 2025 performance deserves special attention, as the nearly $120 billion in issuance represents not just a record year but a potential inflection point for the asset class. The previous record was set in 2020 during the Covid-era capital markets boom, while 2025’s occurred in a normalized rate environment with a functioning economy. Several factors converged to create ideal conditions:

1. Issuer economics: Even with higher borrowing costs than the 2020‒2021 period, convertibles remained attractive for growth companies. The convertible’s equity conversion feature allows an issuer to reduce coupon costs materially below those of straight debt, while the debt structure provides investors with less exposure to equity downside in volatile markets.
2. Crypto/Bitcoin treasury companies: Technology firms adopting Bitcoin treasury strategies (led by companies like Strategy Inc., formerly MicroStrategy) issued substantial convertible debt to fund purchases. This represents a new category of convertible issuer that didn‘t exist in previous cycles.
3. Refinancing wave: Many companies that issued convertibles in 2020 and 2021 faced upcoming maturities. The 2025 market provided opportunities to refinance at terms that, although less favorable than those of the zero-interest-rate era, remained attractive given the alternatives.
4. Robust investor demand: The convertible market demonstrated impressive capacity to absorb this supply without materially widening spreads or compromising secondary market liquidity—evidence of strong structural demand.
5. Sector concentration: Technology (both established and emerging), consumer discretionary, and healthcare sectors drove issuance, reflecting where growth capital needs and convertible economics align most favorably.

The composition of this issuance remained consistent throughout the year: crypto-related companies represented approximately 25%–30% of the market; core technology another 30%–35%; with consumer discretionary, healthcare, and other sectors comprising the remainder.

Equally important, the secondary convertible market demonstrated remarkable health, easily absorbing this heavy new supply without pressure on existing paper. This ability to digest substantial new issuance while maintaining market stability signals a robust, liquid convertible ecosystem—precisely the conditions that support our core strategy.

Looking ahead to 2026, we anticipate healthy convertible issuance to persist. Given our expectation of continued global economic growth and increased clarity around US policy, we expect more companies will access the convertible market to fund growth or refinance existing debt. Even if interest rates continue to decline, we believe the current environment incentivizes issuers to contain borrowing costs by opting for convertibles over nonconvertible debt. And while not a lock by any means, we’re not ruling out a “green swan” burst of new convertible issuance in the coming years. Even more moderate US annual issuance to $70-$90 billion would represent a healthy market with ample opportunities for our strategy.

Conclusion and 2026 Outlook

The past year reinforced our conviction that CMNIX can fulfill a critical role in modern portfolios: generating bond-like returns with reduced interest-rate sensitivity and lower historical volatility while maintaining the flexibility to capitalize on dynamic market opportunities.

As we enter 2026, we see both opportunities and reasons for caution. On the opportunity side, the convertible market remains healthy with continued robust issuance expected, merger arbitrage may benefit from a more constructive regulatory environment, and economic growth appears likely to continue. On the cautionary side, equity valuations remain elevated, questions persist about the sustainability of AI-related capital spending, geopolitical tensions continue, and the Fed policy trajectory remains uncertain.

We believe the beauty of CMNIX‘s alternative approach is that it doesn’t require us to make binary forecasts about 2026. Whether markets continue to rise, consolidate gains, or face corrections, our approach enables us to participate, manage risk, and adapt.

Most importantly, the fund‘s 25-out-of-26-month positive return streak demonstrates the consistency that investors value most from their fixed income allocations. In an era of continued uncertainty, CMNIX has proven to be the portfolio component that has reliably delivered. We remain committed to maintaining this track record as we navigate whatever opportunities and challenges 2026 may bring.