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Calamos: Convertibles Can Do Well in This Market

Miriam Sjoblom, CFA

Miriam Sjoblom: I'm Miriam Sjoblom, mutual fund analyst at Morningstar. I'm here today with John Calamos, who is the co-CIO and founder of Calamos Asset Management. He is also the portfolio manager of a number of their funds. That would include Calamos Growth, Calamos Convertible and a kind of a combination, Calamos Growth & Income, a convertible and stock fund.

So thanks for joining us today.

John Calamos: My pleasure to be here.

Sjoblom: Great. Well, your convertible expertise is really what got you started in this business; it stretches back decades. Your Convertible Fund was the first fund you opened, it was in 1985. So I think let's start with convertibles. It's been such an interesting period for convertibles that we're coming out of. 2008's financial crisis was very rough on convertibles.

This year, we're seeing a tremendous snap-back for convertibles so far. I just checked the Merrill Lynch Convertibles Index and it's up more than 40% so far this year. So at the time in 2008, I think your firm opened up your Convertible Fund, which has been closed for a number of years. You put up a commentary saying this represented unprecedented opportunities in your career.

Fast forward to today and given this rally, what is your view on the attractiveness of convertibles today?

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Calamos: Well, I think part of what we're seeing is the terrific valuation gap that was created at the end of a wake. Convertibles did not live up to their downside protection, so in a way, they said that they did bad--they did as bad as the equity market, as bad as a lot of things had done, when you have a market that literally Western Civilization seems to be collapsing around us.

We did get the pop back. Valuations are still undervalued, there's still a valuation gap, but convertible strategies are acting as they typically do in a recessionary period. They have defensive characteristics, we saw that happen.

Our Convertible Fund, for example, when the market tested the lows in the first week of March of this year, was pretty well flat during that period, so it had the defensive characteristics there. As the market came back, it came back with the market. That was very typical of what happened in 2000, in 1990, in 1987, and other periods.

Sjoblom: So we saw this extreme fourth quarter of 2008 where convertibles maybe weren't acting as many would have expected. But so far this year, back to normal?

Calamos: Back to normal; they have terrific defensive characteristics. The convertible strategy is the way we viewed it in our funds, our defensive equity strategies. They have those defensive characteristics. The more volatile the markets, the better the strategy works. Obviously, in a straight-up market, they lag the equity markets.

But I think we are in a period that volatility is here to stay for a while, for quite a while, as a matter of fact. And the more defensive type of strategies like convertibles can do well in this market environment.