CHW - CHW: A Diversified Global Balanced CEF Generating Consistent Strong Yield

Summary

• Calamos Global Dynamic Income Fund’s portfolio is a closed-end fund composed of large-cap equity stocks, high-yielding non-investment grade bonds, investment grade bonds, convertibles, etc.
• Over the past 5 years, CHW’s major equity holdings delivered positive price growth, and most of them grew at a CAGR in excess of 6.5%.
• CHW employs an aggressive portfolio management strategy with a turnover ratio of 134%, implying securities are held for a short period.
• Successfully achieving CHW’s stated objective of generating high levels of current income has been followed by an equally high total return.

~ by Snehasish Chaudhuri, MBA (Finance).

Calamos Global Dynamic Income Fund ( CHW ) is a closed-end balanced mutual fund ("CEF") that invests in various types of securities of companies operating across diversified sectors. It is a fully diversified balanced fund, majority of whose investments are in developed markets all around the globe. The fund benchmarks itself against Merrill Lynch Global Broad Markets Index and the MSCI World Index. The fund also makes effective use of leverage and has a leverage ratio of 30 percent. CHW is currently trading at a discount of 7.16 percent to its NAV and has been generating a strong yield on a consistent basis. Total return is also quite high. If such a high yield is sustainable over the long run, there is no reason why investors will shy away from this fund.

Calamos Global Dynamic Income Fund Employs Active Trading Strategy

Calamos Global Dynamic Income Fund was launched by Calamos Investments LLC. in April, 2007 and was initially named as Calamos Global Diversified Income & Opportunities Fund. It is managed by Calamos Advisors LLC. The fund invests primarily in equity shares of large-cap companies, preferred stocks, investment grade & non-investment grade debt securities, convertible instruments, options and warrants. CHW employs an active trading strategy with an annualized portfolio turnover ratio of 134 percent. High turnover implies securities are held only for a short period, meaning CHW has an aggressive portfolio management strategy. CHW's stock is currently trading at $6.34, a decent discount to its NAV. The fund has more often traded at a discount to its net asset value, and the same is happening now.

Calamos Global Dynamic Income Fund's Equity Portfolio Performed Well

Calamos Global Dynamic Income Fund has a high asset base of $436.83 million, and has a relatively high expense ratio of 2.73 percent. More than 70 percent of its equity portfolio includes stocks from four sectors - financial, healthcare, industrial, and information & communication technology ("ICT"). My regular readers might be knowing that I expect these four sectors to generate higher-than average growth in the coming decade. In terms of geographic distribution of its assets, almost 49 percent of its equity portfolio belongs to the U.S. market. Another 47 percent is invested in equity markets of the United Kingdom, Canada, Switzerland, France, Netherlands, Denmark, Norway, Finland, Taiwan, China, India, Japan, South Korea, Hong Kong, and Indonesia.

Major investments in those four sectors included Taiwan Semiconductor Manufacturing Company Limited ( TSM ), Apple Inc. ( AAPL ), Microsoft Corporation ( MSFT ), Alphabet Inc. Class A ( GOOGL ), Amazon.com, Inc. ( AMZN ), ASML Holding N.V. ( ASML ), Accenture plc ( ACN ), Bank of America Corporation ( BAC ), JPMorgan Chase & Co. ( JPM ), Keyence Corporation ( KYCCF ), Morgan Stanley ( MS ), Airbus SE ( EADSF ), Schneider Electric S.E. ( SBGSF ), Alcon Inc. ( ALC ), Novo Nordisk A/S ( NVO ) and NVIDIA Corporation ( NVDA ). All these 16 stocks generated positive price growth during the past five years. Barring BAC, MS and EADSF, all stocks grew in excess of 37.3 percent, i.e., at a CAGR of 6.5 percent. Historically, CHW, too, generated high total returns over the long run. Between 2016 and 2021, average annual total return stood at around 19.2 percent , which is higher than the broader market.

Fixed Income Securities Portfolio of CHW Enabled it to Deliver a Stable Yield

58 percent of the entire fund is invested in equity stocks, equally spread between U.S. stock market and international equity markets. Almost 17 percent of Calamos Global Dynamic Income Fund is invested in bonds and another 22.5 percent in convertible securities. Most bonds have a maturity between 1 to 10 years. This hybrid fund invests heavily in higher yield corporate bonds that are rated non-investment grade and less than 20 percent of the bond portfolio is rated investment grade. However, the majority of non-investment grade securities are unrated, not necessarily representing low credit quality. In general, these unrated bonds are low-cap private placements that either don't have spending power to cover the rating fees or have failed to attract rating agency's interest. Almost half of its bonds fall in this non-rated category.

When it comes to the fixed income portfolio of Calamos Global Dynamic Income Fund, some of mentionable investments are bonds of Ford Motor Company ( F ) Glencore Funding LLC, Roche Holding AG ( RHHBY ), Cyber-Ark Software Limited, Enphase Energy, Inc. ( ENPH ), Aptiv PLC ( APTV ), and Singapore Airlines Limited ( SINGY ). Weighted coupon income earned on its fixed income portfolio was 3.47 percent, which also included 2.5% United States Treasury Notes. This has enabled CHW to be consistent in its pay-out, which is consistent with this fund's primary investment objective of generating a high level of current income. The fund has been paying monthly dividends for more than 15 years, and currently has a yield in excess of 12 percent. During the past four years, average yield stood as high as almost 11 percent.

Investment Thesis

Calamos Global Dynamic Income Fund has invested its asset base of $436.83 million in diversified instruments in the financial markets all around the globe. Its portfolio is composed of large-cap stocks, high-yielding non-investment grade bonds, investment grade bonds, convertibles, etc. It also has 30 percent leverage in its portfolio. In my opinion, it is a less risky fund, due its strongly diversified portfolio. Majority of non-investment grade bonds are not rated, instead of having low credit quality. Almost 70 percent of its assets are invested in equities from financial, healthcare, industrial, and ICT sectors, which are expected to generate higher-than average growth in the coming decade. Each of CHW's top 15 equity investments have delivered positive price growth, and most of them grew at a CAGR in excess of 6.5 percent.

Calamos Global Dynamic Income Fund has a very high expense ratio of 2.73 percent. The primary reason behind such a high expense ratio is its aggressive fund management strategy, with an annualized portfolio turnover ratio of 134 percent. Equity stocks are held only for a short period, and replaced by better stocks as soon as their objectives are accomplished. And the yield is strong enough even after adjusting for such high expenses. CHW is currently trading at a decent discount; and has been generating a strong yield on a consistent basis.

Generating high levels of current income has been Calamos Global Dynamic Income Fund's stated objective, and the fund has been successful in achieving that. A double-digit yield is followed by an equally high percentage of total return. Calamos Global Dynamic Income Fund is obviously a very good investment option for income-seeking investors, as I find no reason why this fund will not be able to sustain a high level of yield, though not necessarily a double-digit yield.

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