SMCI - CHY: Beneficial Portfolio Changes But Still Very Expensive

2024-05-27 06:44:31 ET

Summary

• The Calamos Convertible & High Income Fund offers income-focused investors the opportunity to receive high income without sacrificing equity upside potential.
• The fund currently boasts a 10.77% yield, which is attractive compared to other fixed-income closed-end funds.
• The fund's performance has been disappointing in the past six months, underperforming benchmark indices, but its track record over the past five years has been strong.
• The fund made a few proactive changes to its portfolio over the past six months, such as removing the struggling Rivian. These changes appear to be good so far.
• The fund trades at an enormous premium to net asset value, so value-oriented investors will be disappointed here.

The Calamos Convertible & High Income Fund ( CHY ) is a closed-end fund that income-focused investors can employ in an attempt to achieve their goals. As is the case with most Calamos funds, this one has an advantage over many other income-oriented funds due to the simple fact that investors do not need to completely sacrifice the upside potential of an equity investment in order to receive a high level of income. This is a very attractive characteristic right now, since many fixed-income securities are not beating inflation on an after-tax basis. In fact, as I explained in a recent article , many leveraged fixed-income closed-end funds are struggling to beat inflation after taxes. It is therefore necessary to look to equities if an investor wants to preserve the purchasing power of their wealth. The Calamos Convertible & High Income Fund is not an equity fund per se, but some of the securities in it do benefit when equity prices rise (as they usually do in response to inflation), so it should still work better than a straight fixed-income fund at protecting an investor’s purchasing power.

The Calamos Convertible & High Income Fund does not sacrifice yield for equity upside potential. As of the time of writing, the fund boasts a 10.77% yield, which is obviously very good in today’s environment. Despite the Federal Reserve’s interest rate hikes, yields of long-term holdings remain incredibly low as the ten-year U.S. Treasury is only at 4.467% and the S&P 500 Index ( SP500 ) has a trailing twelve-month yield of 1.35%. The fund’s yield is also attractive relative to many of its peers, as we can see here:

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