CMNIX: Staying Steady Amid Volatility

Eli Pars, CFA

Key Points:

• We believe Calamos Market Neutral Income Fund has shown its value as a fixed-income alternative over interest-rate and market cycles, providing a return stream that aligns with what investors seek from bonds.
• Our strategy has little duration opportunity or risk, which has allowed the fund to deliver steady gains over short- and longer-term periods, while traditional bonds have yielded less predictable results.
• We took advantage of the quarter’s volatility by gamma trading the convertible arbitrage book and trading around the fund’s fairly heavy (i.e., defensive) hedge in its hedged equity sleeve.

It’s hard to believe that April 2 (“Liberation Day”) was the beginning of the current quarter. With all the volatility (up and down) since then, the quarter felt quite a bit longer than three months.

Markets bottomed pretty quickly in April and then scratched their way back to new highs by the end of the quarter.

Our approach has little exposure to interest rate opportunity or risk, which has served it well in a noisy bond market. During the second quarter, the fund regained some of the relative ground it ceded to traditional bonds (as measured by the Bloomberg US Aggregate Index) during the first quarter. Although the fund still trails the bond market a bit over the first half of 2025, our approach over time has delivered a better—and more consistent—historical return experience than traditional fixed income.

The Case for CMNIX: Outperforming Bonds over the Long Term

Data as of 06/30/25. 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.

All four sleeves of the fund (hedged equity, convertible arbitrage, special purpose acquisition company [SPAC] arbitrage, and merger arbitrage) posted positive performance over the first half of the year. Our convertible arbitrage book and hedged equity strategy had similar gross returns in the first half, although the ride in the hedged equity sleeve was a bit bumpier.

How We Are Positioned

We believe one of the fund’s key advantages is our flexibility to adjust our allocations on an ongoing basis, versus funds with more static rebalancing strategies. That said, although we were actively taking advantage of volatility—gamma trading the convertible arbitrage book and trading around a relatively heavy hedge in our hedged equity sleeve—our overall allocations were largely unchanged between the start and end of the quarter.

CMNIX Allocation

Numbers may not total 100% due to rounding.

Hedged Equity. This sleeve is positioned to provide upside participation in the equity market, while seeking to significantly limit downside exposure. The volatility of the first half of 2025 gave us opportunities to lock in an attractive spread between the calls we were writing and the put spreads we created; overall, our hedge remains toward the more defensive end of its long-term historical range, although slightly less defensive than at points in recent quarters.

Arbitrage. Convertible arbitrage is the core allocation of our arbitrage sleeve, with opportunistic allocations to other strategies, such as merger arbitrage and SPAC arbitrage. We remain constructive toward convertible arbitrage and will look to grow it opportunistically.

During the second quarter, convertible new issuance was robust, and a diverse mix of companies brought more than $47 billion to market globally—one of the highest quarterly levels in years. Given our expectation of continued global economic growth and increased clarity around policy in the US, we expect to see more companies access the convertible market to fund growth or refinance existing debt. Even if interest rates come down, we believe the current environment incentivizes issuers to contain borrowing costs by choosing convertibles over nonconvertible debt. And while not a lock by any means, we still believe in the possibility of a green swan burst of new convertible issuance in the coming years.

Global Convertible Issuance: On a Brisk Clip ($bil)

Source: ICE BofA Global Research. Data through June 30, 2025.

Merger arbitrage and SPAC arbitrage are highly idiosyncratic strategies, and our allocations to both have held steady over the quarter and since the start of the year. In coming months, we expect the Trump administration will focus more attention on lowering regulatory hurdles, which could lead to more opportunities in merger arbitrage.

Meanwhile, we have seen an uptick in SPAC new issuance, albeit off a very low base. Although we have been active in these deals, this activity hasn’t materially increased the fund’s overall level of SPAC exposure.

Conclusion

While the S&P 500 flirts with new highs, multiple potential sources of volatility could materialize in the coming months. Whether it is tariff deadlines, war in the Middle East, or the sale or ban of TikTok, plenty of things may stir the pot.

As we’ve noted, we believe a market with twists and turns plays to our strengths and the potential opportunity of Calamos Market Neutral Income Fund. We can’t predict what will happen in the markets, so we will continue to position the fund for as many outcomes as possible. This guiding principle has benefited us in the past, and we’re confident as we look to the future.