On the latest episode of ETF360, VettaFi Head of Research Todd Rosenbluth interviewed Calamos Head of ETFs Matt Kaufman. They discussed the Calamos Convertible Equity Alternative ETF (CVRT). Speaking about convertibles, Rosenbluth said, “We’ve seen a bit of a pickup in both interest and performance in 2023.”
The Convertible Renaissance
Convertibles could be having a renaissance, according to Kaufman. Essentially, convertible bonds have an option to convert into shares of a company’s common stock at a certain price point in the future. “A lot of advisors find convertibles attractive because they offer investors upside growth potential along with the risk management and income potential of a traditional bond,” said Kaufman.
With rates having risen more than 500 basis points, borrowing costs are up for everyone – including companies looking to raise capital or refinance debt. Accordingly, he sees this as increasing the appetite for convertible bonds.
A Background on Calamos
“For those who are new to Calamos, active management is in our DNA, specifically in how it relates to convertibles and liquid alternative strategies,” explained Kaufman. The firm was established in 1977 and is the largest convertible manager in the United States and one of the top alternatives managers. “We made a strategic move to bring our expertise to the active ETF space this year.” The SEC rule change in 2019 opened the door for the tax efficient investment strategies in an ETF wrapper, he noted.
How CVRT Is Filling a Convertible Gap
The ETF is, in some ways, a response to an environment that could see prolonged high rates. “As rates were rising, we saw a lot of companies wait and see if rates would ever come down. As they’ve stayed higher for longer, it’s almost built up this maturity wall.”
CVRT looks at the equity-sensitive bond segment. Although convertibles are hybrid instruments, some look more like stocks and others more like bonds. Evidently, Kaufman sees many of the available convertible options to investors skewing toward the fixed income side. Accordingly, many of the products in the space behave like bonds. “We built the ETF we thought was missing in the convertible space and in the ETF space today, Kaufman said
Equity-sensitive convertibles have delivered, “a really great risk/reward profile relative to small- and midcap growth stocks,” he added
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