Global Convertible Market Update: Portfolio Manager Q&A

Diverse opportunities and structural features provide tailwinds to counter rising rates and equity volatility.

Since its founding more than 40 years ago, Calamos Investments has used convertible securities to help investors pursue a range of asset allocation goals, including lower-volatility equity market participation and to hedge against rising interest rates and inflation. To find out more about convertible securities and some of the exciting trends in the market, we spoke with Eli Pars, CFA, and Joe Wysocki, CFA, both senior co-portfolio managers at Calamos. Eli also serves as Co-CIO, Head of Alternative Strategies and Co-Head of Convertible Strategies.

How did Calamos come to be recognized as a premier manager of convertible securities?

Joe Wysocki: Our founder, Global Chief Investment Officer John P. Calamos, Sr., first began using convertible securities in the 1970s. Back then, the asset class wasn’t well known, but he saw an opportunity to use convertibles as a way to provide his clients with the “best of both worlds” that stocks and bonds offer.

Since then, convertibles have been a cornerstone of Calamos. John launched one of the first convertible funds in 1985 and established himself as a recognized authority on the asset class. Now, Calamos manages nearly $14 billion in convertible assets, including US and global funds. Since 2002, we’ve also used convertibles as cornerstones in our closed-end funds, which are multi-asset portfolios that seek to provide competitive distributions, as part of either an enhanced fixed income or total return approach.

Joe, what is a convertible bond?

JW: A convertible bond combines features of stocks and traditional fixed income securities. A convertible bond is technically a debt instrument because it pays interest and has a maturity date. Convertibles are most often issued as senior unsecured debt and are senior to equities in the capital structure.

But here’s where things get interesting: A convertible bond can be exchanged—or converted—into a specific number of shares of the issuer’s common stock. That means that a convertible’s performance is also linked to the performance of its underlying equity which can have meaningful upside potential. This is what differentiates convertibles from every other form of traditional fixed income.