2017 is the first post-crisis year that markets are enjoying the fundamentals of stable and synchronous global GDP. This is why the character of equity returns has become less volatile. Equities are taking their lead from the earnings cycle. As long as the year-over-year growth in sales and earnings is improving—which has been true since Q1 2017—market corrections are typically modest.
We see a strong case for convertible securities at this point in the market cycle along with our expectations going forward.
The Fed just gave us its wish list in a best-case scenario. But as the saying goes, if wishes were horses, beggars would ride. In short, Chair Yellen’s remarks, while detailed, are largely theoretical and dependent on many variables that may or may not happen. It would be wrong to assume that a bear market in bonds is a foregone conclusion.
As interest rates rise, it’s that time in the cycle when many advisors are turning to convertibles for shorter-term tactical overweights. Convertible bonds, which combine characteristics of stocks and traditional fixed-income securities, have historically outperformed fixed income during periods of rising interest rates.
During the first quarter, global issuance was a very healthy $24.3 billion, the strongest quarter in nearly two years. U.S. issuers led, bringing $13.0 billion to market, followed by Europe at $7.6 billion. Encouragingly, nearly all U.S. issuance was in the form of convertible bonds.
The proliferation of liquid alternative mutual funds happened in response to the 2008-2009 recession, which was followed by an extended period of unusually low interest rates.
“There are decades where nothing happens; and there are weeks when decades happen.” —Vladimir Lenin The reflation move since November has been aggressive but appears more right than wrong.
The Calamos Global Equity Team explains why they view India as one of the most compelling stories in the emerging markets.
It’s important to keep a long-term perspective and remember that the markets are tremendously resilient. Just a few months ago, markets were roiled immediately following the Brexit referendum, only to come back strong within just a few days. In regard to the economy, Donald Trump’s victory echoes Brexit, and speaks to a widespread desire for change. It is my hope that the Trump administration will focus on developing fiscal policies that incentivize entrepreneurship, private sector growth and taking responsible risks with capital.
In our alternative portfolios, we have the flexibility to use a range of sophisticated strategies—bullish, neutral and bearish hedges, convertible arbitrage and covered call writing, etc. Guiding principles include taking advantage of opportunities the market presents.