As a member of the portfolio management team for our convertible bond strategies, I view volatility as an ally, not an enemy. Volatility provides us the opportunity to readjust the risk/reward of portfolios to provide what we believe will be the best profile given where we are in an economic business cycle. Although some convertible bonds can act just like equities and some convertible bonds can act like corporate bonds, we generally choose to stay in the “sweet spot” of the convertible spectrum where we can maximize upside with equity markets, while simultaneously minimize downside.
We like to use the favorable attributes convertible bonds afford us. An increase in volatility often means an increase in uncertainty and with more uncertainty, ensuring an optimal risk/reward is paramount to long-term success—volatile markets give us the chance to maintain that favorable risk profile.
Markets move up and markets move down, but we have long cautioned investors to not let short-term events lead them away from their long-term strategies. We remind ourselves of that when we see volatility and heightened uncertainty. Sticking to a multifaceted, repeatable and continually improving investment process designed to maximize success and persevere over the long term has been key for us in volatile times. The convertible strategies’ investment process is focused on risk management, equity valuation, convertible bond structure, quantitative screening, credit analysis, a macro overlay and identifying long-term secular themes.
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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.
Jon Vacko, CFA
Senior Vice President, Senior Co-Portfolio Manager