Calamos Convertible & High Income Fund (CHY)

The Calamos Convertible & High Income Fund (ticker CHY on the NASDAQ) is a closed-end investment fund that buys and holds a fixed number of shares, distributing the income and gains from its portfolio to shareholders. The fund focuses on convertible securities—bonds that can be converted into stock—and other high-yielding debt instruments, targeting investors who want regular cash distributions.

What the fund does and who runs it

Calamos Investments, based in Chicago, launched the Convertible & High Income Fund in 2005 as a vehicle for capturing return across two strategies at once: the high yields available in corporate debt markets and the upside participation that convertible bonds offer when the underlying stocks rise. The fund is managed by the Calamos team, which oversees several other strategies across alternative investments, hedge strategies, and traditional equity and fixed-income management.

As a closed-end fund, CHY issues a fixed number of shares (unlike an open-end mutual fund that creates new shares on demand) and trades on an exchange like a stock. The number of shares outstanding does not change except through planned share buyback programs or occasional new offerings. This structure gives the manager a stable pool of capital to work with, though it also means the market price of the fund’s shares can diverge from its net asset value—the intrinsic value of the underlying holdings divided by the number of shares.

How the fund generates returns

The portfolio holds three main ingredient types. Convertible securities make up the bulk: bonds or preferred stocks issued by corporations that carry an option to convert into a fixed number of common shares, usually at a preset price. These securities offer the income of a bond plus the potential for capital gains if the underlying stock rises and the conversion option moves into the money. High-yield corporate bonds (sometimes called junk bonds) fill much of the remainder—debt from companies with lower credit ratings that pay higher interest to compensate for their greater default risk. A smaller allocation may include investment-grade bonds, equity securities, and other instruments.

The fund’s income stream comes primarily from the coupon payments on its bonds and the yields on its holdings. This income is distributed to shareholders monthly, a feature that attracts income-focused investors. The manager’s job is to find convertibles and high-yield bonds trading at discounts to their intrinsic value, time the market to sell when prices rise, and manage the portfolio’s duration and credit-quality exposure to navigate changing interest-rate and economic environments.

The mathematics of distributions and discounts

A closed-end fund’s most visible metric to investors is its yield—the annualized distribution divided by the current market price. Because CHY trades at a price set by market supply and demand, that price can fall below or rise above the underlying net asset value of the portfolio. When the market price falls below NAV, the fund trades at a discount; when it exceeds NAV, it trades at a premium. Discounts are common and create a built-in advantage for new buyers: purchase at a discount and you own assets worth more than you paid. However, discounts also mean the fund’s shares are perceived as less attractive than the portfolio itself warrants—a signal that investors are skeptical of the manager’s skill or the underlying holdings.

The fund’s ability to sustain distributions depends on the income generated by its portfolio and the pace at which it sells holdings at gains. If portfolio income alone falls short of the announced distribution, the manager may liquidate positions at gains to bridge the gap—a practice called “return of capital.” Over time, excessive reliance on this can erode the capital base. The prospectus will disclose whether distributions are paid from income, realized gains, or returns of capital; this distinction matters to a shareholder’s tax bill and the fund’s long-term resilience.

Risks and considerations

Interest-rate risk is central: when rates rise, bond prices fall, and convertible securities (which carry embedded bond-like characteristics) decline in tandem. Credit risk matters too—a spike in default rates among the high-yield bonds in the portfolio would hurt both income and price. Equity risk plays a role as well, particularly if the convertible feature is exercised en masse or if the stocks underlying the convertibles fall sharply. Concentration risk, where a meaningful fraction of assets rests in a small number of names, can amplify losses if those names stumble.

The fund also faces structural risks. A wide and persistent discount to NAV can signal investor skepticism about the portfolio or the strategy, potentially forcing the manager to liquidate holdings at unfavorable prices or sparking calls for a merger with another fund or even a restructuring. Management fees, though disclosed, are still a drag on returns relative to what the underlying portfolio might generate on its own.

How to research the fund

The prospectus and annual report provide the most complete picture: they lay out the portfolio holdings, the breakdown by asset class and credit rating, the fee structure, the distribution policy, and the manager’s strategy in plain language. CHY is filed with the SEC (CIK 0001222719) and its most recent annual report (10-K) and semi-annual reports (N-CSRS or N-CSRS/A) are available through the SEC’s EDGAR database. The fund’s own website publishes a factsheet with current holdings, performance, and NAV pricing.

The key metrics to watch are the yield relative to comparable closed-end funds, the size and direction of the discount or premium to NAV, the composition of the distribution (how much comes from income versus return of capital), and the portfolio’s weighted-average credit rating. Over time, track the manager’s ability to generate total return—price appreciation plus distributions—relative to a reasonable equity or hybrid benchmark. Be aware that past performance does not predict future results, and the fund’s returns depend heavily on the manager’s skill in selecting convertibles and high-yield bonds and timing their sale.