Volatility: An Ally, Not An Enemy
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.
For more information, see:
The Latest About Market Volatility
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Is inflation coming back? Are interest rates rising? Calamos Founder, Chairman and Global Chief Investment Officer John P. Calamos, Sr. on the value of using actively managed convertibles to pursue growth in this environment.
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Notwithstanding the markets' spectacular rebound last year—and mindful that this February stocks are back to trading at record highs—we’ll return to our original premise: There’s merit to seeking to minimize the depth and length of a drawdown.
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Multiple catalysts—including ongoing political and social issues, corporate earnings announcements, COVID-19 itself/vaccine delays, equity valuations and social media’s continued role in the markets—have the potential to create short-term market shocks this year.
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Investment professionals, join us for a January 2021 series of calls with members of the Calamos Investment Management Team providing outlooks on convertibles, liquid alternatives, U.S. and emerging markets equities, and fixed income.
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The market moved fast in both directions in 2020. The S&P 500 plunged into a bear market in a record 16 days and then recovered in a record 126 days. Through November 13, it's posted 11 all-time highs. Fortunately, there’s an alternative to hopping in and out of stocks, hoping to outfox the market.
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Investment professionals, do you wish you had done more in convertibles earlier this year? If so, it's not too late to consider now. Calamos Convertible Fund can be a core portion of your equity allocation, offering attractive risk/reward attributes to help navigate equity markets.
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