How Convertibles Can Help Break a Fall

Investors gravitate to growth stocks for their potential to produce substantial returns. And yet, growth stocks can be especially volatile, and that volatility can be enough to discourage some investors.

At Calamos, we use convertible bonds to offset the risk of high-flying growth stocks. Convertible instruments combine characteristics of stocks and traditional fixed-income securities, providing investors with unique opportunities for managing risk and enhancing returns.

Like stocks, convertibles typically offer upside appreciation in rising equity markets and are less sensitive to rising interest rates. Like bonds, convertibles provide income and potential downside protection in declining markets.

These charts, based on an actual technology stock, illustrate how a convertible bond can help break a fall. While its stock price dropped sharply (down over 70%), the convertible security (the yellow line in the second chart) largely retained its value. It lost only about 10 cents on the dollar over the same 18-month period.

the stock price was down over 70% but the convertible retained 90 cents on the dollar

Historically, many convertible bonds have participated in a greater portion of their underlying stocks’ upside performance than their downside. This dynamic can be appealing to an investor who desires equity participation and is willing to exchange maximum upside for a great deal of downside protection.

For more information, see:

Return to the Volatility Guide


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. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

Past performance is no guarantee of future results.

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.

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 1-866-363-9219. Read it carefully before investing.


Joseph Wysocki, CFA

Joseph Wysocki, CFA
Senior Vice President, Co-Portfolio Manager