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It’s About More Than Performance—How to Evaluate an Alternative Fund
April 2, 2018
“Whether our fund improved risk-adjusted returns on a historical basis or not, your analysis should include forward thinking—how is an allocation likely to perform in the environment we’re heading into? What is the RIA team’s expectations of fixed income going forward? How are they preparing for added volatility?”
And so began an analysis prepared by our Strategic Product Management & Analytics team for one of our Investment Consultants pursuing an opportunity.
From Calamos’ perspective, the performance edge provided by adding an allocation to Calamos Market Neutral Income Fund (CMNIX) is just the start of the story.
Elise Pondel, CFA, Product Manager, continued, “Adding either a 5%, 10% and 15% CMNIX allocation to the portfolio you asked us to analyze, could have:
- Lowered sensitivity to the fixed income market (as measured by a reduced beta, down capture ratio and correlation to the Bloomberg Barclays U.S. Aggregate Bond Index over the analysis period)
- Improved alpha generation through lower beta exposure
- Diversified strategy—CMNIX’s combination of covered call and convertible arbitrage strategies created a return stream similar to an intermediate term bond fund, without adding additional duration risk
- Diversified fixed income risks by helping support the portfolio during periods of widening spreads or rising rates
- Improved the consistency of the returns (provided a greater number of up months vs. down months)”
She then provided the detailed performance metrics that ultimately persuaded the advisor to add the five-star fund as recommended.
Not the Default Metric
Advisors, this is a real-life illustration of the importance of looking at performance plus when evaluating the role a liquid alt can play.
Returns have been the default metric for forever. More than two-thirds (67%) of respondents to a recent Ignites survey said “performance track record” is the most important factor to advisors when choosing between alternative funds. We disagree.
Our recommendation—and what our Investment Consultants are prepared to help with, supported by our Strategic Product Management & Analytics team—is to take a broader view.
Talk to your Calamos Investment Consultant about how CMNIX might make a difference in your portfolios. Call 888-571-2567 or email [email protected].
Calamos ranks sixth on the list of alternative fund managers by assets under management in the Morningstar Alternatives Category as of 12/31/17—up from its #10 position at 12/31/16.
Before investing carefully consider the fund’s investment objectives, risks, charges and expenses. Please see the prospectus and summary prospectus containing this and other information or call 1-800-582-6959. Read it carefully before investing.
Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. 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 2.25%. Had it been included, the Fund’s return would have been lower. For the most recent month-end fund performance information visit www.calamos.com. Prior to 2/28/17, the Fund had a maximum front-end sales charge of 4.75%.
* As of the prospectus dated 3/1/18, the total expense ratio for the Calamos Market Neutral Income Fund Class A shares is 1.28%, Class I shares is 1.02%.
Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. Opinions are subject to change due to changes in the market, economic conditions or changes in the legal and/or regulatory environment and may not necessarily come to pass. This information is provided for informational purposes only and should not be considered tax, legal, or investment advice. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.
Alternative investments are not suitable for all investors.
Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
The principal risks of investing in the Market Neutral Income Fund include: equity securities risk consisting of market prices declining in general, convertible securities risk consisting of the potential for a decline in value during periods of rising interest rates and the risk of the borrower to miss payments, synthetic convertible instruments risk, convertible hedging risk, covered call writing risk, options risk, short sale risk, interest rate risk, credit risk, high yield risk, liquidity risk, portfolio selection risk, and portfolio turnover risk.
Covered Call Writing: As the writer of a covered call option on a security, the fund foregoes, during the option’s life, the opportunity to profit from increases in the market value of the security, covering the call option above the sum of the premium and the exercise price of the call.
Convertible Securities Risk: The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also, may have an effect on the convertible security’s investment value.
Convertible Arbitrage Risk: If the market price of the underlying common stock increases above the conversion price on a convertible security, the price of the convertible security will increase. The fund’s increased liability on any outstanding short position would, in whole or in part, reduce this gain.
S&P 500 Index is generally considered representative of the U.S. stock market.
Citigroup 30-Day T-Bill Index is generally considered representative of the performance of short-term money market instruments. Morningstar Market Neutral Category represent funds that attempt to eliminate the risks of the market by holding 50% of assets in long positions in stocks and 50% of assets in short positions.
Bloomberg Barclays U.S. Government/Credit Index comprises long-term government and investment grade corporate debt securities and is generally considered representative of the performance of the broad U.S. bond market. Unlike convertible bonds, U.S. Treasury bills are backed by the full faith and credit of the U.S. government and offer a guarantee as to the timely repayment of principal and interest.
Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency).
Morningstar Market Neutral Category represent funds that attempt to eliminate the risks of the market by holding 50% of assets in long positions in stocks and 50% of assets in short positions.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE