CHI: Looking At Recession Exposure

2025-03-12 18:13:51 ET

Summary

• The Calamos Convertible Opportunities and Income Fund offers high income potential without sacrificing the upside of equities, better for fighting inflation than traditional bonds.
• Despite recent underperformance, the CHI closed-end fund's net asset value decline is less severe, suggesting a correction from a previously high premium.
• The fund appears to be rotating into traditional bonds, which could be a smart strategy, but it is still overweight convertibles.
• The fund's leverage and allocation to convertible bonds pose risks if a recession occurs.
• Currently trading at a premium, the fund is more expensive than its peers, making it difficult to recommend at this price.

The Calamos Convertible Opportunities and Income Fund ( CHI ) is a closed-end fund, or CEF, that might appeal to those investors who are seeking a way to earn a very high level of income from the assets that they already possess. As is the case with most Calamos funds, this one provides a way to accomplish that task without requiring its investors to sacrifice the upside potential of common equities. This is something that gives it a marked advantage over many income-focused funds due to the simple fact that many high-yielding income-focused funds invest primarily in fixed-income securities.

Fixed-income securities have not been an especially good place to invest over the past decade, especially when compared to common equities. As we can see here, domestic investment-grade bonds have only delivered a 14.67% total return over the past ten years. Domestic junk bonds were, admittedly, a bit better, but even they only delivered a 44.54% total return over the period. These figures both compare very poorly to the 216.29% total return that the S&P 500 Index ( SP500TR ) delivered over the same period:

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