Picking Our Spots in a Record Convertible Market

Jon Vacko, CFA, and Joe Wysocki, CFA

Summary Points:

• We’re finding many opportunities to invest in exciting growth companies with quality fundamentals and less exposure to downside.
• We believe that convertibles can be extremely compelling in an environment characterized by transformative secular trends and economic expansion, but also fast-moving, volatile market conditions.
• We believe active management is the key to unlocking the benefits of the asset class: our focus remains on selecting securities with favorable risk-reward asymmetry and on continuously rebalancing our positions to capitalize on short-term volatility.

Equity markets delivered solid gains in the second quarter, with convertible securities participating meaningfully in the advance. Convertible returns have been strong this year, a result that we believe reflects both the quality of the opportunity set and the benefits of our active management, which has positioned the fund well to navigate a complex and rapidly evolving environment.

Active Management Maximizes a Compelling Opportunity Set

Data of 6/30/2026. 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. The fund’s gross expense ratio as of the prospectus dated 2/27/2026 is as follows: I Shares 0.89%.

The geopolitical backdrop remains unsettled, but there are reasons for measured optimism. Although the Middle East conflict wears on, both sides continue to search for an acceptable resolution. A successful de-escalation could lower the geopolitical risk premium, ease oil prices, and provide a meaningful tailwind for consumers and the economy overall. Beneath the geopolitical noise, broader market conditions are constructive: economic growth is solid, overall credit quality is sound, bankruptcy risk is low, and access to capital remains plentiful across IPOs, equity, and debt markets.

Within Calamos Convertible Fund (CICVX), our overall focus remains on thematic convictions, bottom-up company selection, and active management of security-specific risk-reward tradeoffs across the portfolio. Our portfolio construction reflects both the durability of the AI theme and our readiness to capture a wider opportunity set should conditions warrant.

Information technology and industrials remain the fund’s largest sector overweights, reflecting our view that the AI infrastructure buildout is a structural, multiyear investment cycle. The buildout spans data center construction, power delivery, and connectivity infrastructure. While the debate around AI durability persists, the fundamentals for beneficiaries of the capex infrastructure trend remain exceptional, and the convertible market offers ample opportunities to participate in this theme with favorable asymmetric payoff profiles.

Additionally, if geopolitical tensions ease, inflation cools, and economic growth accelerates, we see a potential case for a broadening of market leadership with cyclical companies benefiting from an improved backdrop. New issuance volume has been remarkable, with $137.5 billion coming to market in the first half of the year, well on pace to shatter last year’s record total. As we detailed in our recent post, “Leaders of Today, Leaders of Tomorrow: Convertible Opportunity in Focus,” convertibles have historically served as growth capital for growth companies, and the AI buildout provides an ideal backdrop for that dynamic to continue. The recent entry of Alphabet into the convertible market reinforces our view that the asset class offers a unique opportunity to invest in the leaders of today and tomorrow in risk-managed structures.

Looking toward the back half of the year, we expect volatility to remain a feature of markets. While midterm elections, geopolitical developments, the ongoing debate over AI’s durability, and Fed policy uncertainty are among the more foreseeable sources of volatility, we expect markets to remain sensitive to a range of developments.

We maintain the fund’s emphasis on companies with improving margins and free cash flow, accelerating returns on invested capital, and attractive equity valuations. Owning these companies through convertible structures allows us to pursue that growth with the added benefit of downside mitigation, a combination we believe is particularly valuable when the range of potential outcomes remains wide.