I am in the camp that gets excited about volatile times. Increased volatility creates additional opportunities. Also, since we are on the hedged side of the business, we are in a unique spot to be able to capitalize off market swings.
Market movement creates opportunities for us to adjust our hedges, but also to alter or exit many of our trades and enter into new trades that didn’t exist previously. And, as volatility increases we find that asset class correlations break down.
In ordinary uneventful times there is high correlation among securities of the same or similar issuers across asset classes. While equities, convertibles, high yield and options are traded by largely different players and desks, and ultimately held by different end investors, they are highly correlated. Convert guys know what price the high yield bonds trade at and at what volatility the options trade. Those desks in turn should be focused on convert and equity valuations.
Normally, markets are fairly efficient and quick to adjust when other asset classes move. When volatility increases, though, markets move fast and each player has a tendency to focus more on their market and less on the other markets.
We can take advantage of these dislocations to create arbitrage situations or to adjust positions. Additionally, we can take them as a warning sign that other markets are pricing in risks that our market hasn’t yet.
The first thing I do when markets are moving fast is make sure we are positioned well and prepared. After that, I look for opportunity:
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As inspired by the chronic overreactor Frank Costanza of Seinfeld fame, our latest chartbook offers some perspective for those concerned about the confluence of factors (e.g., inflation, rates, recession) that have challenged investor resolve this year. Our message is unchanged: history shows that the best strategy is to stay invested.
In Calamos Market Neutral Income Fund's 31 years, all but three have ended with positive returns. Intra-year drawdowns, however, have occurred every year. In fact, there have been six years—19% of the time—when the drawdown exceeded 5% and the year finished positive.
It’s possible to keep moving forward in this market—four brutal months for equities this year, and Calamos Phineus Long/Short Fund (CPLIX) ended each one with a positive return.
The structural benefits of convertible securities helped convertible funds outperform both the S&P 500 and the Bloomberg US Aggregate Bond Index in the high inflationary period between 1979 and 1981.
Every quarter and every year isn't as easy as last year was. After the tumult of the first quarter of 2022, no one can be certain what to expect next. Even so, the message is the same for those with long-term investment objectives: history shows that the best strategy is to stay invested.
Acknowledging outstanding investment performance across a breadth of investment strategies, the Refinitiv Lipper Fund Awards recognize Calamos Investments as the US 2022 Best Overall Small Fund Family Over Three Years.
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.
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. 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. More detailed information regarding these risks can be found in the Fund’s prospectus.
Some of the risks associated with investing in alternatives may include hedging risk, derivative risk, short sale risk, interest rate risk, credit risk, liquidity risk, non-U.S. government obligation risk and portfolio selection risk. Alternative investments may not be suitable for all investors.
The principal risks of investing in the Fund(s) include:
Convertible Fund: convertible securities risk, synthetic convertible instruments risk, foreign securities risk, equity securities risk, interest rate risk, credit risk, high yield risk and portfolio selection risk.
Market Neutral Income Fund: convertible securities risk, 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 and portfolio selection risk.
Hedged Equity Income Fund: covered call writing, options, equity securities, correlation, mid-sized company, short sale, interest rate, credit, liquidity, portfolio selection, portfolio turnover, foreign securities, American depository receipts, and REITS.
As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries.
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.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Senior Vice President, Co-Portfolio Manager