The tension in investment decision making is between the risk and its return. The important perspective is that in the reach for yield, the opportunities for missteps are countless. The long-term rates are unlikely to rise and there is an ongoing opportunity with the fixed income market. Lately, the Calamos product management and analytics team are being asked to consult on fixed income allocations that are heavily tilted towards the credit risk.
According to the Calamos Vice President and Team head, Shawn Park, “Many products generate meaningful yield but they must reach for it in lower quality credit, often overlapping with allocations specific to high yield and bank loans. There is also a heavy dose of securitized overlap.” Furthermore, he added that “While securitized products provide a yield advantage over investment grade quality, over diversifying in assets class is not recommended.” Besides, bank loan funds, which are also known as the floating rate funds have applied now due to the rising LIBOR. The park reminds advisors that are the types of funds arrived from volatility and potential for larger drawdowns. The bank loans are highly correlated to the credit spread cycle and the credit risk is the primary risk to the bank loans.
In addition to this, there are market trends that are based on the current market conditions and constitute the judgment. These factors include estimates, forecasts, and statements of financial market and opinions that are subject to change without notice. The views and the strategies described may not the suitable for all the investors. For the reference to specific securities, assets classes, and financial markets all are for illustrative purpose only. These are not resulted to be and should not be included as recommendations and suggestions. The main risks of investing in the market neutral income fund involve around the equity securities risks, which consist of market price declining in general and convertible securities. The risks consisting of the potential for a decline in value during the period of rising interest rates and the risk of the borrower to miss payment synthetic convertible instruments risk, covered call writing risk, short sale risk, credit risk, liquidity risk, and many others.
The current performance date which represents the past performance displays no guarantee of future results. The current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that the sales and the shares may be worth more or less than their original price when redeemed. The performance reflected at the NAV which does not include the fund’s maximum front-end sales but had been included in the fund’s return.
The Morningstar market neutral category reflects the investment attempt to eliminate the risks of the market by holding half of the assets in long positions in stocks and the remaining half in short positions. It represents the fund that invests primarily in floating rate bank loans instead of bonds. So, in exchange for their credit risk, they are offering high-interest payments that generally float above a common short-term benchmark. Thus, before investing into any bonds and shares, you need to carefully consider the fund’s investment objective risks, expenses, and charges.