Convertible Securities Carry Strong Momentum into 2026

Jon Vacko, CFA, and Joe Wysocki, CFA

Summary Points:

• Convertible securities were among the strongest performing asset classes in 2025 and are likely to benefit in 2026 from US economic fundamentals and pro-growth fiscal policies.
• Record 2025 issuance reflects convertibles’ compelling value proposition as cost-effective growth capital; we expect elevated issuance in 2026.
• With many small and mid-cap participants, the convertible market is favorably positioned as equity leadership broadens beyond mega-caps; M&A activity can provide another boost.
• Calamos Convertible Fund (CICVX) emphasizes AI-related opportunities across the data center value chain, as well as cybersecurity, defense, nuclear modernization, and space names.

The convertible market enters 2026 with considerable momentum, finishing 2025 as one of the strongest-performing asset classes across the capital markets. This reflects supportive fundamentals: US economic growth remains solid, underpinned by pro-growth fiscal policies and sustained corporate investment in transformative technologies such as AI where productivity gains can exert a powerful disinflationary force.

At the same time, the monetary policy landscape continues to evolve following the Federal Reserve’s series of rate cuts to close out 2025. While the central bank may pause early in the new year to assess the impact of prior easing, the overall trajectory remains biased toward further accommodation.

This combination of monetary and fiscal policies typically creates a favorable backdrop for risk assets. That said, risks remain, including the uncertain path of inflation; the potential for geopolitical tensions to reignite; and contentious US mid-term elections, which will be a focal point as the year progresses. With equities near all-time highs and credit spreads having tightened from elevated levels, any disruption could fuel periods of volatility throughout the year.

Convertible new issuance reached historic levels in 2025 with more than $166 billion brought to market. We expect issuance to remain elevated as convertibles continue to offer a compelling value proposition as a source of cost-effective growth capital for an expanding subset of companies.

The convertible market is heavily weighted toward small-cap and mid-cap issuers. Accordingly, we believe the market is well-positioned to benefit from a broadening of equity leadership, as small and mid-cap companies are poised to capitalize on expanding economic growth opportunities and typically enjoy an outsized tailwind from lower interest rates.

Calamos Convertible Fund (CICVX) is positioned to capitalize on strong secular trends while maintaining flexibility to benefit from cyclical tailwinds as opportunities broaden. The portfolio emphasizes ongoing advancements in AI, including companies that enable and benefit from this transformative shift. We see opportunities across the data center value chain—from construction and power delivery to connectivity within and across sites. The fund also maintains exposure to themes such as cybersecurity; US national interests, including nuclear modernization and critical materials; supply chain reshaping, defense contractors, and emerging opportunities in the space industry.

We also believe an increase in M&A activity could be an emerging theme in the year to come, as many convertible issuers represent attractive acquisition targets for larger companies looking to grow.

We anticipate that the broadening opportunity set will make active management crucial as differences in execution capabilities, competitive positioning, capital allocation, and innovation effectiveness will separate leaders from laggards in 2026. We believe this environment will reward strong company fundamentals and disciplined security selection. Our active approach focuses on selecting convertibles with attractive structural features, including hybrid structures that offer convexity (providing more exposure to equity market upside than downside), which is particularly appropriate as credit spreads have tightened.

2025 once again demonstrated the compelling attributes convertibles can bring to overall portfolio construction. The hybrid structure of convertible securities can provide equity participation during market advances, while risk-mitigation features can cushion volatility during corrections. Actively managing these risk-reward tradeoffs can be a powerful tool for compounding wealth across market cycles. Whether seeking enhanced equity exposure with reduced volatility or diversifying fixed-income allocations with equity optionality, convertibles remain a versatile tool for navigating markets while targeting attractive risk-adjusted returns.