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5 Reasons to Consider Convertible Securities

John P. Calamos, Sr.

We see a strong case for convertible securities at this point of the market cycle.

  1. Convertible securities have tended to perform well during periods of rising interest rates. Against a backdrop of improving economic activity, the Federal Reserve has stated its intentions to raise short-term interest rates further. While we do not expect long-term rates to soar over these next quarters, due to overall U.S. economic conditions and accommodative monetary policy globally, we do believe investors should be prepared for a higher interest-rate environment. Because convertible securities have equity characteristics as well as fixed income attributes, they have proven more resilient than non-convertible fixed income securities when interest rates rise.
  2. Convertible securities can provide benefits in a period of uncertainty. In the U.S., partisan tension remains high, calling into question how quickly and to what extent fiscal policy reforms will be enacted. Further, global geopolitical tensions (including those related to Russia and North Korea) may unsettle market participants in the coming months. In turbulent equity markets, convertible securities can provide potential downside protection through their bond characteristics.
  3. Convertible securities can benefit in an environment of longer-term economic growth. We believe the U.S. is positioned for continued expansion, framed by a larger synchronized global growth story. Fiscal policy implementation has encountered hurdles, but tax reform and less burdensome regulation are not out of reach, which could provide a powerful catalyst to bolster business activity and economic growth.
  4. Convertible securities can provide risk-managed access to growth opportunities. While we see continued upside in equities, valuations in some areas of the market are elevated. Convertibles offer a way to invest in some of the fastest-growing companies, with downside protection.
  5. We expect a breadth of new opportunities to emerge. Convertible issuance is about capital market access, which in turn is supported by economic growth. Issuance has been solid through the first half of the year, led by the U.S. We expect continued healthy issuance as companies seek to raise capital for growth projects.

Active management remains essential for capturing the favorable tailwinds we see for the asset class. We are drawing on our extensive experience to identify securities that offer not only attractive opportunities for upside equity participation but also an appropriate level of potential downside protection.




    Past performance is no guarantee of future results. Opinions are as of the publication date, subject to change and may not come to pass. Information is for informational purposes only and shouldn’t be considered investment advice.

    Convertible securities entail interest rate risk and default risk.

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