Focused on Capitalizing on—Not Capping—Equity Upside

Eli Pars, CFA

Summary Points:

• The rise in interest rates, paired with a benign equity volatility environment, provided a beneficial environment for CIHEX during 2023.
• The fund captured about 60% of 2023’s upside move in the S&P 500 Index with just over half the volatility (53%)*
• The 65/35 option trade we put into place earlier this year remains attractive, in our view.

Tailwinds Persist for Hedged Equity

As an equity alternative, Calamos Hedged Equity Fund employs an options-based strategy to seek upside participation in the equity market while limiting downside exposure. We believe our depth of options experience (a core capability of Calamos since its founding in the 1970s), our flexible approach, and our commitment to being favorably positioned for as many market outcomes as possible provide us with key potential advantages over static approaches over the long term and as market conditions change.

Last quarter, we wrote about one of the attractive trades available in the option market—more specifically, a trade structured to pursue 65% of the market’s upside and 35% of the market’s downside at its expiration in December 2024. This trade exists in part because today’s higher interest rate environment provides an attractive environment for us to sell calls, and these opportunities continue to be available to us. (If you’d like to learn more about the impact of higher rates on option pricing, check out Co-Portfolio Manager Dave O’Donohue’s video blog, “Higher Rates are an Opportunity for Hedged Equity Strategies.”)

A Flexible Approach Positioned CIHEX for the Equity Rally

The flexibility to take advantage of the trades we find most attractive is the core of our approach.

We believe the third quarter demonstrated the potential benefits of our approach in constructing CIHEX’s option hedge. As the S&P 500 Index gained more than 12% this quarter, CIHEX was positioned to capture 60% of the market’s upside, as it did during the first nine months of 2023.

However, strategies with static, rules-based approaches may have found this quarter to be less accommodating. For example, some strategies may have found that their upside participation was capped when the equity markets took off suddenly during the fourth quarter. Although our current 65/35 trade could be considered a rules-based strategy on its own, our ability to adjust it as market conditions warrant is what makes the difference. We believe this trade has rarely been as appealing as it has been recently.

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.

The fund’s gross expense ratio as of the prospectus dated 3/1/2023 is 0.92% 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.