that index during the past 10 years .
“ We ’ re trying to get a risk profile that ’ s 80 percent-ish of the S & P 500 by using those different asset classes which have different risk profiles from the S & P 500 ,” Hillenbrand says . “ We ’ re targeting lower risk , and we can get there in different ways depending on short-term and longterm views of the markets .”
Convertibles
Calamos Investments has been using convertible securities since John P . Calamos Sr . founded the Naperville , Ill . -based firm in the 1970s . The company bills itself as the largest manager of convertible securities in the U . S . and the second-largest in the world .
“ One of our first strategies was convertible arbitrage , and it has been part of our DNA to think about that asymmetric risk profile and prepare for future investment outcomes by mitigating potential downside risk while getting a little bit more return ,” Hillenbrand explains .
Convertible securities combine attributes of both equities and traditional fixed income . A convertible is a debt instrument that can be exchanged or converted into a specific number of shares of the issuer ’ s common stock . They can offer upside appreciation in rising equity markets by capturing a portion of the underlying issuer ’ s
Portfolio Statistics
Number Of Holdings 152 Median Mkt . Cap
$ 139 billion P / E Ratio 26.3x Std . Dev Fund / Benchmark * 15.76 / 18.08 Turnover Ratio 19 % Net Expense Ratio 0.81 %
* 5 Year . Portfolio stats as of 6 / 30 / 24 . Expense ratio figures are for the institutional share class . Sources : Calamos Investments and Morningstar .
Asset Allocation
Common Stock 74.5 % Convertibles 18.8 % Cash , Receivables / Payables 4.8 % Synthetic Convertibles 1.7 % Other 0.2 %
Asset allocation as of 6 / 30 / 24 . Sources : Calamos Investments and Morningstar . capital appreciation . On the flip side , they can enhance yield by providing consistent income while offering potential downside protection when equities tumble .
Convertibles typically generate higher income than their underlying equity . The income portion of the fund ’ s portfolio — produced mainly from convertibles and traditional fixed income — generated a recent distribution yield of 4.15 %.
“ Historically , we ’ ve used more convertible bonds versus traditional straight fixed income in this portfolio ,” Hillenbrand says about the Growth and Income Fund . “ Today , they ’ re both probably below average , in part because of the opportunities we ’ ve seen in large-cap equities .”
Big Tech
As of the end of June , the fund ’ s top six holdings were Microsoft , Nvidia , Apple , Alphabet , Amazon . com and Meta Platforms . In other words , six of the seven socalled Magnificent Seven stocks that have disproportionately outperformed the overall U . S . stock market since last year . ( Tesla , the seventh stock in this group , is a smaller position in the fund .)
This group of stocks began to stumble in this year ’ s third quarter as investors reevaluated their prospects given the concerns about the companies ’ valuations and doubts about whether the mania surrounding artificial intelligence was overhyped . Does that concern Hillenbrand ?
“ I ’ m always concerned about everything . That ’ s part of our ethos of trying to participate in the up while getting some protection on the down ,” he says , noting that he and his team incorporate valuations into the overall framework of portfolio construction .
He argues that the valuations of these leading megacap companies aren ’ t egregious . “ When we run them through our framework of great business models and competitive advantages and things like that , those stocks screen very well . That ’ s why we ’ ve owned them for quite some time .
“ So I think they ’ re great long-term companies , but they don ’ t always work in every time period ,” he continues . “ And when we find things that are better , we ’ ll pivot our portfolio appropriately .”
While Hillenbrand is comfortable investing in the equities of certain big-tech names , he uses convertibles to dampen
The income portion of the fund ’ s portfolio — produced mainly from convertibles and traditional fixed income — generated a recent distribution yield of 4.15 %.
the perceived risk in other equity holdings . He puts those risks into two separate buckets . First there are straight-up cyclical companies that he says are inherently risky , especially among mid- and smaller-cap names .
SK Hynix , Seagate and Western Digital are examples of companies that fit that bill , and they were added to the portfolio via their convertibles . “ There are different cycles regarding IT spending , and also different cycles within memory and storage ,” Hillenbrand explains . “ With higher-risk and higher-volatility names , [ convertible ] structures allow us to take on that risk when we think it ’ s appropriate , enabling us to grab some of the upside while mitigating some of the downside .”
The other risk bucket involves traditional higher-growth companies with higher-risk profiles . One example he cited is portfolio holding Axon Enterprise , a maker of law enforcement weapons , cameras and software that was formerly known as Taser International .
Investment Process Along with Hillenbrand , the fund ’ s fourmember portfolio management team includes Eli Pars , Jon Vacko and Joe Wysocki . Hillenbrand is the fund ’ s lead portfolio manager and primary decision-maker .
ADVISOR PHOTOGRAPH COURTESY OF CALAMOS INVESTMENTS SEPTEMBER 2024 | FINANCIAL ADVISOR MAGAZINE | 47