Rising Interest Rates

Investor Strategies

in a Rising Rate Environment

Moderately higher interest rates could be good for the economy and many asset classes.

There are opportunities in all market environments.

See how Calamos has performed during rising rate environments.

Our Thinking

Rising rates raising concerns? Calamos can help.

We've often noted that when interest rates move, they can move quickly and with little notice. And we're seeing that happen now. The prospect of rising rates may be especially unpleasant for government bond investors, but it's important to remember that moderate long-term rates have been associated with better economic growth, and higher stock valuations.

Rising rates don't have to derail your income goals. Calamos Investments is dedicated to providing financial advisors and their clients with a range of asset allocation solutions, including strategies that may be less susceptible to rising interest rates. These include portfolios that utilize convertible securities and high yield corporate bonds, as well as market neutral income strategies.

It's not too late to mitigate the impact of increasing rates. We invite you to learn more about how different asset classes perform during rising rate environments, and how you can help insulate your portfolio from interest-rate vulnerability.

VIDEO: Opportunities in a Rising Rate Environment

Calamos believes investors should be encouraged by less Fed intervention, even if that means moderately higher rates, explains Scott Becker, Co-Head of Portfolio Specialists. He speaks to the opportunities we see in many asset classes, including corporate bonds, growth equities, select dividend growth stocks, convertible securities and alternatives.

Video recorded 7/10/2013. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of... [Read full disclosure »]
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Video recorded 7/10/2013. 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. The opinions and views of third parties do not represent the opinions or views of Calamos Investments LLC. Opinions referenced are as of the day recorded and are subject to change due to changes in the market, economic conditions or changes in the legal and/or regulatory environment and may not necessarily come to pass. This information is provided for informational purposes only and should not be considered tax, legal, or investment advice.

Equity securities are subject to "stock market risk" meaning that stock prices in general (or in particular, the prices of the types of securities in which a fund invests) may decline over short or extended periods of time.

Fixed income securities are subject to interest rate risk. If rates increase, the value of fixed income investments generally declines.

The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security's investment value.

Some of the risks associated with investing in alternatives may include hedging risk, derivative risk, short sale risk, interest rate risk, credit risk, liquidity risk, non-U.S. government obligation risk and portfolio selection risk. Alternative investments may not be suitable for all investors. There are special risks associated with selling securities short. A short position will lose value as the security's price increases. Theoretically, the loss on a short sale can be unlimited.

Calamos Investments LLC
2020 Calamos Court | Naperville, IL 60563-2787
800.582.6959 | www.calamos.com | caminfo@calamos.com

© 2013 Calamos Investments LLC. All Rights Reserved. Calamos® and Calamos Investments® are registered trademarks of Calamos Investments LLC.

Recovery Trumps Taper Talk, July 2013

Less Fed intervention and a more normal interest rate environment would benefit the economy and the equity markets, according to Global Co-Chief Investment Officers John P. Calamos, Sr. and Gary Black. They also discuss what types of investments could enhance an asset allocation in a rising rate environment. Read the commentary.

An excerpt from the Calamos Blog

We Believe Less Fed Intervention Would Be Good for the Economy

With 15 consecutive quarters of economic growth, a strengthening housing market and other improving data, investors are now increasingly focused on what happens when the QE (quantitative easing) party begins to wind down. I think markets are—as they often do—looking at things from a "glass half empty" perspective. The Fed will be most likely to back away from QE because the economy is showing sustained signs of improvement. It would be time for the crutches to come off the patient.

Yes, when the time comes, tightening the spigot will be complex given the magnitude of the easing. But that same magnitude also provides the Fed with considerable flexibility. QE isn't an "on-off" switch. Decision makers at the Fed are well aware of the task at hand and I believe that they will act deliberately.

If history is any guide, a reduction in QE will likely cause choppiness in the markets, but I believe that ultimately, less Fed intervention will benefit the economy, longer term. While decisive action in response to the Great Recession was understandable, the ongoing role of QE3 in the recovery is debatable.

As the chart below shows, the Fed's actions have contributed to a dramatic increase in money supply. The problem is that money hasn't moved through the economy at anything close to a commensurate rate, as illustrated by a decline in the velocity of money.

The amount of money in the U.S. economy has increased, but the money hasn't moved.

The amount of money in the U.S. economy has increased, but the money hasn't moved

Too much of the money from QE is sitting in the banks. Smaller businesses still struggle to get capital because there's little incentive for the banks to lend to them. So, how do we speed up that velocity? Moderately higher rates would provide the much-needed carrot. More normal rates (say, a yield of 4% rather than 2% for the 10-year Treasury) have historically been associated with higher P/Es. (For more on this, read the recent post from my Global Co-CIO, Gary Black.)

Of course, inflation is a concern. The worse-case scenario associated with an end to QE would be a repeat of the 1970s, when inflation came roaring back. But inflation seem seems well contained within the U.S. economy at this point. As we noted, the Fed doesn't have to take an all-or-nothing approach, and instead can moderate its course as it goes.

Inflation remains below 2% target

Inflation remains below 2% target

To look at it another way, think of the economy as a train. The Fed may think it's driving the train—and many investors may think so as well. But small business is the engine of job creation, and in turn, lasting economic health. Stoking the engine of small business is overdue.

Information contained herein is for informational purposes only. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable. The views and strategies described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.

Quantitate Easing is a government monetary policy used to increase the money supply by buying government securities or other securities from the market. Price-to-earnings is a ratio that represents the stock price of a company per dollar of earnings per share. Tail risk represents significantly adverse or favorable events that have a low probability of occurring. The Consumer Pricing Index is a measure that examines the weighted average of prices of a basket of consumer goods and services. M2 is a category within the money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds. Velocity of Money is the rate at which money is exchanged from one transaction to another, and how much a unit of currency is used in a given period of time.

Investor Strategies for Rising Rate Environments

For income-oriented investors, rising rates can be bad news because government bonds and investment grade corporate bonds are vulnerable to declining values in the face of rising rates. However, you have other choices for pursuing income, and many asset classes have performed well during periods of rising rates.

Alternative Strategies

The alternatives category is a broad group of strategies, designed to pursue a range of goals. Some alternative strategies are designed to pursue income that is less sensitive to rising rates. Once available almost exclusively to very high net worth investors, alternative strategies are increasingly accessible to mutual fund investors.

Alternative Investments: Diversification Strategies for a Rising-Rate Environment

Blending investments with different characteristics may help smooth the ups and downs associated with one type of asset class, or mitigate the impact of market volatility or economic factors, including rising interest rates. [Read More »]

Some of the risks associated with investing in alternatives may include hedging risk, derivative risk due to market fluctuations of the underlying stock, short sale risk, interest rate risk, credit risk, liquidity risk, non-U.S. government obligation risk and portfolio selection risk. Alternative investments may not be suitable for all investors. Some of the risks associated with investing in a long/short strategy include: equity securities risk consisting of market prices declining in general, short sale risk consisting of potential for unlimited losses, leverage risk and foreign securities risk.

Preparing Your Portfolio for Rising Rates

Calamos Market Neutral Income doesn't rely on traditional fixed-income securities for results. Instead, it utilizes strategies that have performed differently from fixed-income securities. In a rising rate environment, it's an approach to consider! [Read More »]

Equity and Convertible Opportunities

Rising rates may be no friend to government bonds, but equities have often performed well during periods of moderately higher rates. What's more, equity-sensitive convertible securities have structural features that may be well suited to rising rate environments.

John P. Calamos, Sr. on CNBC 6/21/13

In a live interview with Maria Bartiromo, John P. Calamos, Sr. explains that a moderately steeper yield curve has been accompanied by higher P/E valuations. He discusses why growth stocks may be especially attractive as the Fed pulls back from QE and the appeal of dividend growth stocks, which may provide income that's less susceptible to inflation.

Video recorded 6/21/2013. 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. [Read full disclosure »]
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Video recorded 6/21/2013. 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. The opinions and views of third parties do not represent the opinions or views of Calamos Investments LLC. Opinions referenced are as of the day recorded and are subject to change due to changes in the market, economic conditions or changes in the legal and/or regulatory environment and may not necessarily come to pass. This information is provided for informational purposes only and should not be considered tax, legal, or investment advice. Total Assets were $29.7 billion as of February 28, 2013. Total Assets includes assets under management as well as $983 million for which the company provides model portfolio design and oversight.

Total Assets were $27.9 billion as of May 31, 2013. Total Assets includes assets under management as well as $875 million for which the company provides model portfolio design and oversight.

Equity securities are subject to "stock market risk" meaning that stock prices in general (or in particular, the prices of the types of securities in which a fund invests) may decline over short or extended periods of time.

Growth securities typically trade at higher multiples of current earnings than other securities and, therefore, may be more sensitive to changes in current or expected earnings than other equity securities and may be more volatile.

Fixed income securities are subject to interest rate risk. If rates increase, the value of fixed income investments generally declines.

P/E (Price/Earnings) Ratio is the current stock price over trailing 12-month earnings per share.

Convertibles in Rising Rates

Convertible securities have fixed-income qualities and can be affected by rising interest rates, but they also can take on equity qualities because of the option to convert them into a predetermined number of issuer shares. When the 10-year Treasury yield rose more than 100 basis points, Convertible returns tended to more closely reflect equity returns than bond returns. [Read More »]

An excerpt from the Calamos Blog

P/Es have Risen in the Wake of Rate Increases

For those concerned about the potential negative impact of rising rates, here's some encouraging research on the relationship between P/E ratios and U.S. Treasury yields during the past 60 years. P/Es were actually higher when long-term Treasury yields were in the 4% to 6% range than when they were in the 2% to 4% range, given that long-term Treasury yields under 3% are usually associated with high tail risk uncertainty. So, while an increase in long rates from 2% to 3% or even 4% may unsettle the markets near term, it may portend better economic growth and less tail risk ahead, which historically has been good for both earnings and multiples after the initial shock.

SP 500 Trailing P/E Ratios and 10YR Treasury Bond
Past performance is no guarantee of future results.
Source: Empirical Research Partners Analysis via Federal Reserve Board

Price-to-earnings is a ratio that represents the stock price of a company per dollar of earnings per share. Tail risk represents significantly adverse or favorable events that have a low probability of occurring.

Multi-Asset Class Strategies: Closed End Funds

Many income oriented investors choose closed end funds that invest in government bonds or municipal bonds. We take a different approach, dynamically blending asset classes that have historically had less interest rate sensitivity. Our goal is to provide a competitive stream of distributions, as part of an enhanced fixed income or total return approach.

Retirement: the Income Challenge

Many older investors are staying in cash or cash equivalents, concerned about volatility and principal loss that has been prevalent over the past five years. Ironically, at a time when older investors need additional income, it has become more and more difficult to find. A multi-asset class strategy may be an important part of the solution. [Read More »]

Historical Results During Periods of Rising Rates

Some types of assets don't typically hold up during periods of rising interest rates, but several Calamos strategies have demonstrated notable outperformance in the face of rate increases. The charts below show how a number of our funds have performed when 10-Year Treasury bond yields have risen more than 100 basis points. Your financial advisor can help you decide which of these funds make the most sense for your goals.

The is no assurance the Funds will continue to achieve or maintain their investment objectives.

Calamos Market Neutral Income Fund (A Shares at NAV) Visit Fund Page »

Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund's maximum front-end sales load of 4.75% had it been included, the Fund's return would have been lower. For the most recent fund performance information visit www.Calamos.com.

The Fund's gross expense ratio is 1.18% as of the prospectus dated 3/1/2013.

Calamos Growth and Income Fund (A Shares at NAV) Visit Fund Page »

Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund's maximum front-end sales load of 4.75% had it been included, the Fund's return would have been lower. For the most recent fund performance information visit www.Calamos.com.

The Fund's gross expense ratio is 1.09% as of the prospectus dated 3/1/2013.

Calamos Global Growth and Income Fund (A Shares at NAV) Visit Fund Page »

Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund's maximum front-end sales load of 4.75% had it been included, the Fund's return would have been lower. For the most recent fund performance information visit www.Calamos.com.

The Fund's gross expense ratio is 1.33% as of the prospectus dated 3/1/2013.

Calamos High Income Fund (A Shares at NAV) Visit Fund Page »

Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund's maximum front-end sales load of 4.75% had it been included, the Fund's return would have been lower. For the most recent fund performance information visit www.Calamos.com.

The Fund's gross expense ratio is 1.20% as of the prospectus dated 3/1/2013.

Calamos Convertible Fund (A Shares at NAV) Visit Fund Page »

Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund's maximum front-end sales load of 4.75% had it been included, the Fund's return would have been lower. For the most recent fund performance information visit www.Calamos.com.

The Fund's gross expense ratio is 1.11% as of the prospectus dated 3/1/2013.

Calamos Market Neutral Income Fund 1-YEAR 3-YEAR 5-YEAR 10-YEAR Since Inception
A shares – at NAV (Inception–9/4/90) 3.53 6 3.53 3.47 6.84
A shares – Load adjusted -1.37 4.29 2.53 2.97 6.61
Barclays U.S. Government/Credit Index -0.62 3.88 5.29 4.43 6.78
Calamos Growth and Income Fund 1-YEAR 3-YEAR 5-YEAR 10-YEAR Since Inception
A shares – at NAV (Inception–9/22/88) 7.13 9.62 5.29 6.6 11.23
A shares – Load adjusted 2.05 7.85 4.27 6.08 11.01
S&P 500 20.6 18.45 7.01 7.3 9.88
Barclays U.S. Government/Credit Index-0.623.885.294.436.78
Calamos Global Growth and Income Fund 1-YEAR 3-YEAR 5-YEAR 10-YEAR Since Inception
A shares – at NAV (Inception–9/9/96) 6.827.023.647.078.27
A shares – Load adjusted 1.755.32.646.557.95
BofAML Global Convertible TR USD 12.819.225.276.66.33
MSCI World Index (USD) 19.2714.363.37.286.17
Calamos Convertible Fund 1-YEAR 3-YEAR 5-YEAR 10-YEAR Since Inception
A shares – at NAV (Inception–6/21/85)13.617.385.116.119.34
A shares – Load adjusted8.255.654.095.69.15
S&P 50020.618.457.017.39.88
Barclays U.S. Government/Credit Index-0.623.885.294.436.78
Barclays US AGG Index-0.693.515.194.527.39
Calamos High Income Fund 1-YEAR 3-YEAR 5-YEAR 10-YEAR Since Inception
A shares – at NAV (Inception–8/2/99)7.4486.976.776.77
A shares – Load adjusted2.356.265.936.256.4
US Corporate High Yield Bonds9.4910.7410.948.917.44
US Corporate IG Bonds1.365.737.35.186.45