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Calamos: Convertible Issuance Up Dramatically

Miriam Sjoblom, CFA

Miriam Sjoblom: Even if convertibles recover to a point where they're not maybe as undervalued as they have been, is now a better time for long-term investors? How has the investing landscape changed for convertibles?

John Calamos: I don't know if it's changed. I've been doing convertible since the 1970s. I've always used them as a way to manage risk. If you look at convertibles over the last 12 months or the last five years, we talk about the last decade of investing and how the equity markets have negative returns--our convertible fund has positive returns.

So they've done well. You can go back to 1985. I don't think there's any difference there. I think we're seeing more issuance these days than we've seen in past years. That's good news. We're seeing issuance on the non-U.S. side, global side. So our global growth and income, which uses a lot of global convertibles, are of interest to us.

As a defensive equity strategy, I think many investors should use them almost like core. That's where you have the comfort level; core should be your comfort level. What that means is when markets go down, I want the defensive equity without making a market-timing decision. That's what I think is important with the convertible strategies.

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Sjoblom: You mentioned that more companies are issuing convertibles now. Can you talk a little bit about the reasons behind that?

Calamos: The good news is companies need capital, and typically they need capital to grow. The banks are closed, as we all know, but the capital markets are open. And with the capital markets being open, we're seeing issuance on the straight debt side, we're seeing issuance on the high-yield side, and we're issuance on the convertible side.

I think convertible issuance so far this year is probably pushing $50 billion. That's pretty dramatic. We've had a lot of redemptions and convertibles have been called, but it's good news. And about half of that has come from outside the United States.

So companies are accessing the capital markets, and that's good news for the overall economy and it's good news for the investors, because convertibles really offer the investor the way to participate in the equity market at less risk. They offer the company the lowest cost of capital, whether it's the lowest cost of debt or the lowest cost of equity.

So to me, convertibles have always been a win/win situation. You're on the same side of the table as the equity holders on the equity side. You want the company to do well, and you will participate, but if it doesn't, they need to pay off that debt.