CHY's Undervalued Convertible Fund: A Strategic Opportunity Amid Market Volatility

In an era marked by persistent high interest rates and economic uncertainty, the Calamos Convertible and High Income Fund (CHY) has emerged as a compelling case study in risk-adjusted returns. Recent developments, including a notable upgrade in its investment rating and a strategic shift in market positioning, underscore its potential to deliver value amid challenging conditions.

A Rating Upgrade Reflecting Resilience

CHY's recent designation as a "Buy" by Seeking Alpha marks a pivotal moment for the fund. This upgrade, attributed to its 10.6% yield and a price trading below net asset value (NAV), reflects a recalibration of investor sentiment. While major agencies like Moody's and S&P have not revised their credit ratings for CHY in 2025, according to Calamos, the fund's structural strengths-such as its diversified portfolio of convertible securities and high-yield corporate bonds-have bolstered confidence. According to Calamos, the fund's allocation to below-investment-grade debt (rated Ba or lower by Moody's and BB or lower by S&P) is managed with a disciplined approach to leverage and risk mitigation.

Navigating a High-Rate Environment

The fund's performance has not been immune to macroeconomic headwinds. High interest rates have compressed valuations for convertible securities, while inconsistent earnings from underlying holdings have heightened volatility, as a Seeking Alpha analysis notes. Yet, CHY's long-term track record-outperforming its benchmark and maintaining a competitive yield-demonstrates its ability to adapt. As noted by Yahoo Finance analysts, the fund's monthly distribution policy, which blends current income and return of capital, provides a buffer against market fluctuations.

Risk-Adjusted Returns: A Case for Strategic Allocation

CHY's appeal lies in its balance of income generation and capital preservation. Data from MarketBeat indicates a distribution yield of 10.62% as of September 2025, a figure that outpaces many traditional fixed-income alternatives. This yield, combined with a NAV discount (trading at a 7.2% discount as of October 2025, per a Yahoo Finance article), creates a compelling risk-reward profile. For investors seeking exposure to high-yield markets without full equity risk, CHY's hybrid strategy-blending convertible bonds with select high-yield corporate debt-offers a nuanced approach.

Investor Considerations

While the fund's recent upgrade is encouraging, prudence is warranted. Weiss Ratings' D+ investment rating (as of May 2003), noted by Weiss Ratings, highlights historical concerns about volatility, though this appears disconnected from 2025's improved fundamentals. Investors should monitor the fund's leverage levels and the performance of its high-yield holdings, particularly in a potential rate-cutting cycle.

Conclusion

CHY's recent "Buy" rating and its demonstrated resilience in a high-rate environment position it as a strategic option for income-focused investors. By leveraging its expertise in convertible securities and maintaining a disciplined risk framework, the fund offers a rare combination of yield and downside protection. As markets continue to grapple with uncertainty, CHY's undervalued status and adaptive strategy warrant closer scrutiny.