Calamos Closed-End Funds: Seizing Undervalued Opportunities with Sustainable Return of Capital

Investors seeking compelling income opportunities in today's volatile markets need look no further than Calamos Closed-End Funds (CEFs). As June 2025 distributions are announced, a select few funds stand out as undervalued gems with sustainable return of capital (ROC) components. These funds combine discounts to net asset value (NAV), proven performance, and distributions structured to endure—making them prime candidates for aggressive income investors.

The Undervalued Advantage: Discounts and Sustainable Distributions

Closed-end funds often trade at discounts to NAV, creating opportunities to buy shares at a bargain. Calamos's June 2025 distributions reveal two critical factors for sustainable income: NAV resilience and dividend composition. Funds with distributions partially funded by ROC must have NAVs growing or holding steady to justify the payout. Let's dissect the top contenders:

1. Calamos Convertible Opportunities and Income Fund (CHI)

• Distribution: $0.095/month (100% ROC).
• NAV vs. Market: $11.85 NAV vs. $10.20 market price (-14.4% discount).
• Performance: 16.18% one-year NAV return.

CHI's 14.4% discount creates a margin of safety, while its NAV growth offsets the ROC. Despite the high ROC percentage (87.5% of YTD distributions), the fund's convertible bond focus has delivered solid NAV appreciation. Investors can capitalize on the discount and the fund's ability to sustain payouts through asset appreciation.

2. Calamos Convertible and High Income Fund (CHY)

• Distribution: $0.10/month (100% ROC).
• NAV vs. Market: $11.42 NAV vs. $10.78 market price (-5.6% discount).
• Performance: 5.94% one-year NAV return.

CHY trades at a smaller discount but offers a higher yield (10.51% annualized). While its NAV growth is modest compared to CHI, its convertible bond portfolio aligns with sectors showing resilience in this market cycle. The fund's ROC is sustainable as long as NAV remains stable or grows—currently achievable given its diversified holdings.

3. Calamos Strategic Total Return Fund (CSQ)

• Distribution: $0.1025/month (100% ROC).
• NAV: $17.62 (market price not disclosed, but historical data suggests a discount).
• Performance: 16.04% five-year NAV return.

CSQ's five-year NAV performance is a standout, validating its ability to sustain a 100% ROC payout. Even without knowing the exact market price, its long-term NAV growth implies a discount likely exists. This fund's managed distribution policy ensures steady income while leveraging its dynamic asset allocation to fuel NAV expansion.

Why These Funds Offer Sustainable Income

The key to sustainable ROC lies in NAV stability or growth. For instance:
- CHI and CHY benefit from convertible bonds' dual equity/bond characteristics, which shield NAVs from extreme volatility.
- CSQ's multi-asset strategy (equities, fixed income, alternatives) diversifies risks, supporting steady NAV appreciation.

Even high ROC allocations become sustainable when paired with robust NAVs. For example, CHI's YTD distributions (87.5% ROC) are offset by its 16% one-year NAV return—proving the fund can “afford” the ROC without eroding principal over time.

Actionable Investment Strategy

1. Leverage Discounts: Buy shares of CHI, CHY, or CSQ at current discounts, locking in above-average yields (6.98%–11.37% annualized).
2. Use the DRIP: Reinvest distributions to compound returns. If shares trade at a discount, reinvestment occurs at 95% of the market price, enhancing returns.
3. Monitor NAV Trends: Ensure NAVs continue growing or stabilizing—signaling sustainable payouts.

Final Take

Calamos's undervalued CEFs offer a rare combination: discounted pricing, dividends with ROC support, and proven NAV resilience. Investors ignoring these opportunities risk missing out on a chance to lock in high yields while benefiting from potential NAV recovery. Act now—before discounts narrow or NAVs retreat.

Investors should consult their tax advisor regarding distribution composition and file 1099-DIV for tax reporting.