Upbeat on Convertible Securities Heading into 2H 2025

Jon Vacko, CFA, and Joe Wysocki, CFA

Key Points:

• The convertible market posted strong performance over the quarter, capturing a substantial measure of the equity market’s upside, while demonstrating resilience during downward volatility.
• We are encouraged by the strong issuance trends of the quarter, with issuance from a diverse mix of companies energizing the market; we expect these favorable trends to continue.
• Our investment approach combines top-down insights around secular and cyclical themes with rigorous bottom-up research; the fund’s current areas of emphasis include technology, consumer discretionary, and industrials.
• We anticipate a hospitable investment backdrop in 2H 2025, albeit with persistent volatility. This environment sets up well for our active, risk-managed approach.

The second quarter witnessed a meaningful moderation in the policy volatility that characterized early 2025. Markets responded constructively to stabilization surrounding US tariffs. Although economic growth projections have moderated somewhat, pro-growth fiscal policies continue to advance. Additionally, the Federal Reserve has maintained flexibility to support economic conditions as needed, providing another layer of policy backstop.

The convertible market demonstrated remarkable resilience over this period, with strong performance driven by broad gains in the underlying equities of convertible issuers. The US convertible market, as measured by the ICE BofA All US Convertibles Index gained 8.9%, capturing a substantial portion of the equity market’s advance, as measured by the S&P 500 Index’s 10.9% return.

New issuance was particularly robust, with more than $47 billion coming to market globally, marking one of the strongest quarterly volumes seen in years. Particularly encouraging was the diverse mix of companies accessing the convertible market—those seeking cost-effective refinancing solutions and those pursuing capital for growth opportunities, which can serve as key drivers of future intrinsic value creation. We expect these favorable trends to continue and believe they will support healthy issuance volumes.

Our investment approach centers on identifying companies that we believe are well-positioned to benefit from secular and cyclical growth trends, emphasizing bottom-up security selection to find attractive structural risk-reward characteristics. Consistent with our goal of providing lower-volatility equity market participation, we target convertibles that offer meaningful upside equity participation as well as downside risk mitigation features. We believe our strategy of focusing on asymmetric payoff profiles is particularly well-suited for the current environment and has proven beneficial in navigating the volatile markets experienced thus far in 2025.

Calamos Convertible Fund’s (CICVX’s) largest allocation continues to be to the technology sector—an area where we selectively added exposure during the quarter. The fund’s portfolio also includes meaningful positions in the consumer and industrials sectors. We have maintained the fund’s emphasis on long-term secular themes that, in our view, continue to gain strength despite any short-term market volatility, including artificial intelligence, productivity enhancements, and cybersecurity. We also continue to identify attractive opportunities across cyclical growth themes, including companies offering solutions to ongoing business challenges such as elevated labor, manufacturing, and interest costs.

Although we view the combination of policy normalization, robust new issuance, and compelling secular growth themes as creating a potentially attractive investment backdrop, we also anticipate persistent market volatility. The hybrid structure of convertibles—combining equity-like growth potential with bond-like risk-mitigation characteristics—makes these securities well-suited to navigate evolving market conditions. However, active management remains essential, as each convertible security offers unique structural features that can evolve over time, making disciplined security selection and ongoing portfolio management critical to optimizing the asymmetric return profiles these instruments can provide.

We remain confident in our ability to deliver solid risk-adjusted returns through disciplined active management while providing important portfolio diversification benefits, particularly as continued market volatility creates both challenges and opportunities.