The Case for Convertibles … When Many Things Could Happen

Jon Vacko, CFA, and Joe Wysocki, CFA

Summary Points:

• The first quarter demonstrated the benefits of convertible securities; as equity markets fell, convertibles provided access to growth while dampening downside volatility.
• We believe elevated volatility is likely to remain a feature of markets in the months ahead. Escalating Middle East tensions have widened the range of potential outcomes across capital markets. In an environment of elevated uncertainty, we maintain high conviction in Calamos Convertible Fund’s long-term, fundamentally driven approach.
• We believe the AI infrastructure buildout is a durable secular theme, but selectivity will increasingly matter given the structural disruptions associated with AI. We have identified many convertibles that provide us with the opportunity to participate in the AI growth theme, with potentially less downside volatility.
• Convertible issuance got off to a strong start in 2026. Although issuance slowed in March as geopolitical volatility increased, we expect activity to reaccelerate as conditions stabilize or as higher rates reinforce the cost advantages of convertible financing.

The convertible market enters the second quarter navigating a complex investment landscape. Conflict in the Middle East, private equity valuation pressures, and the accelerating disruption that AI is introducing to software and knowledge-based businesses each present their own set of risks. The Middle East conflict has the broadest implications, with the potential to influence the path of inflation, economic growth, and monetary and fiscal policies. Even if current geopolitical tensions subside quickly, fall midterm elections are approaching and carry significant fiscal policy implications.

Because convertibles combine attributes of stocks and fixed-income securities, we believe they can continue to provide attractive strategic benefits in an environment characterized by hard-to-predict and rapidly moving geopolitical and macro crosscurrents. However, disciplined monitoring, portfolio flexibility and active management focused on fundamentals will be essential for navigating this environment.

Our overall focus remains on identifying resilient thematic growth trends, bottom-up company selection, and active rebalancing of security-specific risk/reward tradeoffs across the portfolio. We maintain our preference for convertible structures that provide favorable asymmetric payoff profiles—that is, offering attractive levels of upside equity participation with less exposure to downside moves. We continue to emphasize companies with improving margins and free cash flow, accelerating returns on invested capital, and attractive equity valuations.

Information technology and industrials are CICVX’s two largest sector allocations and represent the fund’s most significant relative overweights. Within these sectors, we are investing in companies at the forefront of AI data center construction and power delivery, as well as the connectivity infrastructure that supports them. This is a structural, multiyear investment cycle we believe has the durability to persist through near-term market volatility. From a bottom-up standpoint, we see less compelling risk/reward profiles in areas such as financials, which remains our largest relative underweight, and consumer discretionary, where we trimmed exposure during the quarter.

Convertible new issuance got off to one of its strongest starts in recent memory, although the pace slowed in March as geopolitical uncertainty rose. For the quarter, global issuance totaled $53 billion, led by US companies, which issued $27.0 billion. The underlying demand for convertible financing remains intact. We expect issuance to reaccelerate as market conditions stabilize and believe a sustained higher-rate environment will further incentivize issuers to tap the convertible market as a cost-effective refinancing vehicle, continuing to expand the opportunity set.

In Closing

As always, we believe the flipside of volatility is opportunity. CICVX’s approach to convertibles is designed to help investors navigate volatility, combining equity participation with fixed income resilience to deliver attractive risk/reward across market cycles.