CHI CEF: 60/40 portfolio with leverage via convertibles

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Convertible Opportunities and Income Funds (NASDAQ:CHI) is a Calamos family closed-end fund. The vehicle follows an approximate 60/40 portfolio allocation, with the equity tranche being realized through convertible securities. The fund has a leverage ratio of 40%, which adds volatility and amplifies the upside of recovering markets. The CEF is very well managed, with a distribution policy that has allowed it to use crystallized capital gains this year rather than using return of capital. According to fund documentation:

The fund is an enhanced fixed income offering that seeks total return through a combination of capital appreciation and current income by investing in a combination of convertible and high yield bonds. It offers an alternative to funds investing exclusively in higher quality fixed income instruments and seeks to be less interest rate sensitive by investing in shorter duration asset classes.

Currently, the fund has a 63% allocation to convertibles, with the remainder held in bonds (high yield overweight). Compared to its CCD counterpart which contains a larger equity slice, CHI offers less upside potential in rising markets, but has also seen less market value loss in 2022. CHI is much more volatile and retains much higher upside potential in rising markets than a “traditional” 60/40 portfolio, especially given its leveraged optionality in the underlying convertibles and overweight positioning in high yield bonds.

The market likes this fund, with a premium/discount to the net asset value fluctuating around the 0% mark. The variations are quite stunning in the premium, however, with the fund trading at a 12% premium earlier in the year when the market rallied in July/August. Market participants understand the upside potential obtained through the leverage effect of this fund.

The biggest risk factor for this fund is the stock delta, so as the broader market sells off, expect CHI to do the same. The fund has a lower technology allocation than CCD, making it more balanced in our portfolio. The remainder of 2022 will be challenging for CHI, but the fund retains a significant advantage once the market bottoms out.


The fund has a 63% allocation in convertibles, with the rest dispersed in pure bonds:


Portfolio Assets (Funds)

We can see that the largest tranche is corporate bonds, with small allocations to leveraged loans (“bank loans”) and government securities.

The main names are convertible securities:

main holdings

Top Holdings (Funds)

We can see that the CEF has a composition on the convertible side quite similar to the Calamos Dynamic Convertible and Income Fund, which we have covered here. In this article, we took the 2024 Tesla 2% bond and showed a discerning reader why the stock now behaves like a pure stock position. We are not going to rehash the subject, with the link to the previous article provided above. Ultimately, given the near 0% coupon characteristics for most portfolio securities, they are, from a market risk perspective, quite similar to equity positions today. This means that the equity delta is the risk factor that moves pricing the most.

Compared to the CCD portfolio, we can see that CHI is less focused on the technology sector:

to slice

Sector slicing (Funds)

We have seen in the other covered convertible funds that technology represented almost 30% of the portfolios. Not here.

On the fixed income side, the portfolio is overweight in high yield securities:


Ratings (Funds)

This is to be expected given the return need of the respective portfolio. In this respect, the fund is a little different from a pure 60/40 portfolio given its overweight positioning in high yield.


The fund is down more than -25% since the start of the year:

what is the return

Year-to-date total return (seeking alpha)

We can see that Calamos’ other offering, namely CCD, which is more geared towards pure convertibles, is down more than expected. The Source Capital (SOR) CEF which we have covered here, and the iShares Core Growth Allocation ETF (AOR) which we have covered here, are the other points of comparison presented. SOR, which benefits from active management and a lack of leverage, is the best performer, with Calamos funds at the bottom of the cohort. Here we have CCD as a pure convertible fund for us to compare.

Over a 5-year period, the total return chart paints a compelling picture:


5-Year Total Return (Alpha Research)

Until Covid, all funds had a similar performance, with CCD, the one overweight in equities, outperforming. After Covid and zero rates, CCD and CHI outperformed due to their technology compartmentalization and leverage. CCD clearly outperformed, as expected, given its convertible/equity weighting.

Premium/Rebate to NAV

CHI generally trades around its net asset value:

who is a star

Premium/Rebate to NAV (Morningstar)

We can see a fairly narrow range for the fund’s discount/premium over the years.

In 2022, CHI presented a significant beta for risk/non-risk environments:

Data by YCharts

The fund rallied at an unwarranted premium to net asset value during the July/August rally, but has since retraced its position.


Like the rest of the Calamos funds, the CEF is well managed. The fund did not distribute via one-off payments the significant gains crystallized in 2020/2021, and managed to fully cover its dividend in 2022:

what is the dividend

Distributions (Funds)

We like to see this type of behavior in a CEF. Ultimately, a true buy-and-hold investor should expect a consistent return profile, not high peaks and deep valleys.


CHI is a Calamos family convertible fund. The CEF has an approximate 60/40 structure, with 63% of the fund in convertibles and the rest in straight bonds. We consider the convertible tranche to be “equity like” due to many zero-coupon securities where the market vector is pure equity delta. On the bond side, the fund is overweight in high yield, so riskier than a true 60/40 mix. The vehicle has a leverage ratio of 40% more, which allows it to capture the upside of rising markets, but makes it much more volatile than a traditional 60/40 portfolio. The fund is well managed, with the distribution fully covered by past crystallized gains. Over the long term, CHI has a more “moderate” return profile compared to some of its pure converted peers, but at the same time is less downside in 2022. Expect volatility from this CEF, but also a substantial rise when the market turns. The investment community is aware of this return profile, with the fund surging to an astonishing 12% premium to net asset value during the July/August bear market rally.