CMNIX: A Steady Hand in Volatile Markets

Jason Hill

Summary Points:

• Calamos Market Neutral Income Fund seeks to provide steady performance regardless of the direction of the equity market or interest rates, which we believe makes it an especially compelling alternative for investors today.
• In a quarter when equities fell significantly (one of the three worst quarters for the S&P 500 since the Covid selloff of 1Q 2020) and the bond market flip-flopped over the direction of interest rates, we believe the Fund’s positive absolute performance demonstrates the value of our steady hand.
• The Fund’s core strategies—convertible arbitrage and hedged equity—were both additive over the quarter, as were the Fund’s allocations to merger arbitrage and special purpose acquisition company (SPAC) arbitrage.

The first quarter of 2026 unfolded against a backdrop of notable equity market volatility, geopolitical tension, and a fixed-income market that continued to recalibrate around Federal Reserve policy. The S&P 500 declined 4.3% during the quarter as markets contended with renewed US-China trade friction, the war with Iran, and uncertainty about the pace and direction of future Fed rate cuts. Equity markets broadly moved lower, with growth and momentum names bearing the brunt of the selling pressure. The Bloomberg US Aggregate Bond Index was flat, reflecting a modest flight-to-quality and a continued decline in shorter-maturity yields.

Resilience in 1Q 2026—and a Consistent History of Outperformance Over Longer Periods

Data as of 3/31/2026. 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 2/27/2026 is 1.01% for Class I shares.

Hedged Equity Strategy. Consistent with our outlook entering the year, we maintained a heavier-than-average (i.e., more defensive) hedge given the combination of still-elevated implied volatility and an interest rate environment that made defensive positioning relatively inexpensive.

The quarter presented several opportunities to actively monetize volatility spikes. Most notably, the US and Israeli military strikes against Iran resulted in significant volatility across equity, energy, and derivatives markets during the period. Crude oil prices (as measured by West Texas Intermediate) surged from the high $60s to more than $100 per barrel during March, reflecting both the direct supply risk premium and broader investor anxiety around a widening conflict.

We took advantage of these episodes by selling near-the-money April calls and using the proceeds to finance multiples of end-of-March put spreads, effectively locking in asymmetric downside risk mitigation at little or no net cost. The current structure of our hedged equity book pays us to be hedged and patient, which we believe is the most favorable posture as we move into a period of continued policy and geopolitical uncertainty.

We continue to believe that the elevated level of implied volatility, relative to realized volatility, creates a persistent and attractive environment for our options-hedge framework. Interest rate levels continue to support wide spreads on calls written versus long puts, sustaining the structural advantage that has benefited this strategy.

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Convertible Arbitrage Strategy. The convertible arbitrage strategy performed most strongly during the quarter, benefiting from a primary market that picked up where 2025 left off. US convertible issuance of $27 billion for the quarter is off to a strong start and could challenge last year's record $118.8 billion, especially if geopolitical headwinds moderate. The 2026 issuance calendar reflects both the continuation of themes that drove 2025 supply, including technology, crypto-related companies, and high-growth capital-intensive issuers, and an emerging and notable new theme: power and utilities companies funding the infrastructure buildout required to support artificial intelligence data centers.

We believe this broadening of the issuer base is a constructive development for CMNIX’s convertible arbitrage strategy. The secondary market has continued to demonstrate healthy absorption of new supply, with existing issues largely holding firm despite the volume of new issuance. Convertible valuations remain modestly inside fair value on an absolute basis, and new deals continue to price at levels that we believe offer attractive entry points for our unlevered arbitrage approach.

As we have noted previously, our convertible arbitrage strategy operates without leverage, a differentiating characteristic in a space where many counterparts employ 2-to-1 or higher leverage ratios. We believe our ability to generate competitive returns without leverage speaks to the depth of the opportunity set and the quality of our execution.

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Merger Arbitrage Strategy. The regulatory landscape for deal activity has undergone a meaningful transformation, moving from a period of aggressive antitrust scrutiny under the prior administration to a more accommodative framework under the current one. This shift has reduced deal-break risk across a wide range of pending transactions and improved the opportunity set’s return profile on a risk-adjusted basis.

We see several tailwinds supporting merger arbitrage going forward: a more hospitable regulatory environment, an anticipated wave of private equity-sponsored buyout activity as financing markets remain accessible, and a growth-oriented domestic economic policy framework that encourages corporate investment and consolidation.  (For more on the macro tailwinds shaping the merger landscape, see our paper, “Unlocking the Opportunities of an Improved M&A Environment.”) Our team’s expertise in convertible and event-driven analysis provides a differentiated edge in situations where deal structure intersects with fixed income complexity.

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SPAC Arbitrage. SPAC issuance has continued at an elevated pace relative to recent years, though still well below the 2021 peak. We remain focused on structures with positive yield-to-expiration, where current short-term interest rates allow for attractive carry on cash held in trust. We continue to deploy this strategy opportunistically and do not anticipate significantly increasing the allocation in the near term unless we see a more compelling valuation environment or a further rise in issuance.

Outlook

Looking ahead, we expect the convertible issuance environment to remain robust, the regulatory backdrop for merger activity to be supportive, and volatility to continue providing opportunities within our hedged equity framework. We remain vigilant to downside risks, including geopolitical instability, policy uncertainty, and the potential for a recalibration in AI-related valuations, and believe the Fund's positioning reflects an appropriate balance of participation and protection.