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How Equity Alternatives Have Performed When Rates Rose

Among financial advisors it’s generally known that equities benefit when interest rates rise due to a strong economy (and see last week's post by Calamos Founder, Chairman and Global CIO John P. Calamos, Sr. about equities’ performance during periods of economic expansion and rising rates).

The chart below shows the performance of the S&P 500 as well as several Morningstar equity fund categories. The S&P averaged 17.54% over the last nine periods when interest rates rose 100 basis points or more in the last 20 years. Morningstar Large Growth, Large Blend and Large Value fund categories performed in line.

equity funds produce strong returns rising rates

But, one advisor asked us recently, how do equity alternatives do? Alternatives are a potential solution for advisors who want to shield their clients’ portfolios from downside risk. It’s reasonable to expect that such “protection” involves a trade-off in the form of diminished returns.

Or does it?

Calamos offers three types of equity alternatives, and below we review their performance.

Funds That Use Convertibles: CICVX, CGIIX and CMNIX

Here’s a look at how Calamos Convertible Fund (CICVX) has pursued equity upside while protecting against the downside over the last 20 years. In four of the nine periods, the fund outperformed the S&P. Its average return of 17.07% approaches the S&P return of 17.54% and exceeded the Convertibles category average of 6.43%.

cicvx during rising rate periods

Within the Morningstar Allocation—70% to 85% Equity Category, convertibles have proven to be an advantage for Calamos Growth and Income (CGIIX). The majority of funds in the category rely on traditional fixed income, which can be a drag on performance when rates are rising. Since 1998, CGIIX returned an average 19.66% during rising rate periods, more than both the S&P and its category average.

cgiix during rising rate periods

While Calamos Market Neutral Income Fund (CMNIX) is often used as a fixed income alternative, it can also be positioned in conservative equity portfolios given its low volatility and consistent performance. Its average return of 6.71% since 1998 trails the S&P but far outpaces the Market Neutral Category and fixed income benchmark.

cmnix in rising rate periods

Long/Short Equity: CPLIX

Calamos Phineus Long/Short Fund (CPLIX) is not your average long/short fund (see post). CPLIX takes a different approach to managing risk than its long/short peers. While its category returned an average 6.97% over the seven rising rate periods since 2003 and the S&P returned 15.42%, CPLIX bested both category and index with an average 25.12% return.

cplix during rising rate periods

Hedged Equity: CIHEX

The three-year-old Calamos Hedged Equity Income Fund (CIHEX) has a short track record. The chart below shows that CIHEX returned an average of 6.43% during two rising rate periods since 2016 versus its category return of 1.83% and the S&P average 10.24%.

cihex during rising rate periods

Advisors, would you like to learn more? Talk to a Calamos Investment Consultant at 888-571-2567 or email [email protected].




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 which can be obtained by calling 1-800-582-6959. Read it carefully before investing.

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. The opinions and views of third parties do not represent the opinions or views of Calamos Investments LLC. 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.

Important Risk Information. An investment in the Fund(s) is subject to risks, and you could lose money on your investment in the Fund(s). There can be no assurance that the Fund(s) will achieve its investment objective. Your investment in the Fund(s) is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund(s) can increase during times of significant market volatility. The Fund(s) also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund’s prospectus.

Data as of 9/30/18

average annual returns convertible fund 9-30-18

convertible expense 09-30-18

Data as of 9/30/18

average annual returns growth and income fund 9-30-18

growth and income expense 09-30-18

Data as of 9/30/18

average annual returns market neutral income fund 9-30-18

market neutral income expense 09-30-18

Data as of 9/30/18

average annual returns phineus long short fund 9-30-18

phineus long-short expense 09-30-18

Data as of 9/30/18

average annual returns hedged equity income fund 9-30-18

hedged equity income expense 09-30-18

The principal risks of investing in the Calamos Convertible Fund include: 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 consisting of fluctuations inconsistent with a convertible security and the risk of components expiring worthless, foreign securities risk, equity securities risk, interest rate risk, credit risk, high yield risk, portfolio selection risk and liquidity risk.

The principal risks of investing in the Calamos Growth and Income Fund include: 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 consisting of fluctuations inconsistent with a convertible security and the risk of components expiring worthless, equity securities risk, growth stock risk, small and midsized company risk, interest rate risk, credit risk, liquidity risk, high yield risk, forward foreign currency contract risk and portfolio selection risk.

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.

The principal risks of investing in the Calamos Phineus Long/Short Fund include: equity securities risk consisting of market prices declining in general, short sale risk consisting of potential for unlimited losses, foreign securities risk, currency risk, geographic concentration risk, other investment companies (including ETFs) risk, derivatives risk, options risk, and leverage risk.

The principal risks of investing in the Calamos Hedged Equity Income Fund include: covered call writing risk, options risk, equity securities risk, correlation risk, mid-sized company risk, interest rate risk, credit risk, liquidity risk, portfolio turnover risk, portfolio selection risk, foreign securities risk, American depository receipts, and REITs risks.

S&P 500 Index is generally considered representative of the U.S. stock market.

Morningstar Large Growth Category funds invest primarily in big U.S. companies that are projected to grow faster than other largecap stocks. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large-cap. Growth is defined based on fast growth (high growth rates for earnings, sales, book values and cash flow) and high valuations (high price ratios and low dividend yields). Most of these portfolios focus on companies in rapidly expanding industries.

Morningstar Large Blend Category funds are fairly representative of the overall U.S. stock market in size, growth rates, and price. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large-cap. The blend style is assigned to portfolios where neither growth nor value characteristics predominate. These portfolios tend to invest across the spectrum of U.S. industries, and owing to their broad exposure, the portfolios' returns are often similar to those of the S&P 500 Index.

Morningstar Large Value Category funds invest primarily in big U.S. companies that are less expensive or growing more slowly than other large-cap stocks. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap. Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow).

Morningstar Allocation—70% to 85% Equity Category funds seek to provide both income and capital appreciation by investing in multiple asset classes, including stocks, bonds and cash. These portfolios are dominated by domestic holdings and have equity exposures between 70% and 85%.

Morningstar Convertibles Category funds are designed to offer some of the capital appreciation potential of stock portfolios while also supplying some of the safety and yield of bond portfolios. To do so, they focus on convertible bonds and convertible preferred stocks. Convertible bonds allow investors to convert the bonds into shares of stock, usually at a preset price. These securities thus act a bit like stocks and a bit like bonds.

Morningstar Long/Short Equity Category funds take a net long stock position, meaning the total market risk from the long positions is not completely offset by the market risk of the short positions. Total return, therefore, is a combination of the return from market exposure (beta) plus any value-added from stock picking or market-timing (alpha).

Morningstar Market Neutral Category represents 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. 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 Options-based Category funds use options as a significant and consistent part of their overall investment strategy. Trading options may introduce asymmetric return properties to an equity investment portfolio. These investments may use a variety of strategies, including but not limited to: put writing, covered call writing, option spread, options-based hedged equity, and collar strategies. In addition, option writing funds may seek to generate a portion of their returns, either indirectly or directly, from the volatility risk premium associated with options trading strategies.

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