Calamos Wealth Management was born out of Calamos Investments, which now has about $36 billion in total assets. Calamos’ history dates back to the 1970s when John P. Calamos Sr. founded the firm. He started the organization managing money for friends and family, as well as fellow Air Force pilots; he was a fighter pilot in Vietnam.
Now, its RIA arm serves families with a combined $3.75 billion in assets. But the firm has ambitious growth plans, according to Jon Adams, senior vice president and chief investment officer at Calamos Wealth Management. That will likely be through a combination of organic growth, expanding wallet share with existing clients and acquisitions.
Adams recently spoke with WealthManagement.com about the RIA’s tailored asset allocation approach, its model portfolios and how the firm’s asset management ownership benefits advisors.
The following has been edited for length and clarity.
WealthManagement.com: What’s in your model portfolio?
Jon Adams: We run everything in a very customized way here at Calamos Wealth Management. We don’t have, for example, just five model portfolios for clients to choose from. We customize each allocation for each individual client, but I can definitely speak broadly as far as how we think about a more balanced type of allocation.
For us, a 60/40 portfolio is more like a 50/30/20 portfolio, with about 50% in equities, 30% fixed income, and 20% in alternatives. Our heritage is as a liquid alts manager, so we incorporate a number of diversifiers in our portfolios like infrastructure, convertible bonds, hedged equity and market neutral. For liquid alts, we’re using primarily mutual funds and ETFs.
But we’re incorporating both liquid and private alternatives in client portfolios.
We’re using private alts as well, where it makes sense. In those we're typically leading with evergreen funds like tender offer or interval funds, although we also use drawdown funds for clients where we think it's appropriate.
Within the equity bucket, we’re using ETFs, mutual funds and SMAs. One benefit that we have being part of the Calamos Investments organization is that we have a number of internally run separately managed accounts that we’re using for some client portfolios. Those include a U.S. large cap strategy, international equity strategy, municipal bond strategy, as well as a corporate bond strategy.
WM.com: What are the benefits of using those internal SMAs versus others?
JA: Number one, it is cheaper. We’re not charging a management fee to use our own SMAs, only an advisory fee. And then secondly, it gives us access to a portfolio management team within the organization. We’ve had calls with clients where our equity portfolio manager or our municipal bond PM will get on with individual clients, give them an update as far as where they see opportunities, give them an update in the markets, etc.
We do selectively use Calamos funds in some client accounts where we feel it’s appropriate. Those are funds like our market neutral fund, convertibles, hedged equity—the funds that we’re really known for, long distinguished track records, long manager tenure, those types of factors. But then within the individual equity buckets, I would say we have some core mutual fund holdings. We also supplement those with ETFs, for example, growth and value ETFs. We use those to also take tactical tilts in portfolios. Right now, we’ve had a modest growth tilt in portfolios since the middle of last year.
WM.com: What does the fixed income portion look like?
JA: For a taxable account, we’re typically incorporating currently roughly about half municipal bonds, half taxable bonds, depending on the investors' circumstances, such as tax bracket. We use a core fixed income manager and supplement that with the plus sectors, so areas like corporates and high yield as well.
One notable differentiator is that we use a market-neutral fund as a fixed-income substitute. We’ve used that for about a quarter of our fixed-income exposure over the last couple of years. That’s been a way to really diversify the fixed-income exposure and portfolios and keep duration down in the rising-rate environment that we’ve seen.
WM.com: Do you hold anything in cash?
JA: We have a very small cash allocation at the portfolio level to cover fees and expenses, typically around 1% of the portfolio. We feel that cash can be a drag over time. There’s an opportunity to lock in relatively high rates in fixed income. So if we do have clients that have a higher cash balance, we’re encouraging them to get fully allocated in the portfolio.
WM.com: Does Calamos Investments run any alternative products?
JA: On the public alternative side, we have a hedge equity capability, market-neutral and convertible bonds. We also launched a private credit interval fund a year ago with our partners at Aksia.
WM.com: Have you made any big investment allocation changes in the last six months to a year? If so, what changes?
JA: We typically make between three to six tactical shifts per year. We meet monthly as an investment committee meeting or more frequently as market circumstances dictate. We did add that growth bias last year. We also added high-yield bonds last fall. That’s been a value add to portfolios as spreads have narrowed. And then one other tactical change that we made was to add duration midway through last year. We remain modestly underweight relative to the Aggregate Bond Index, but we did add significantly to duration as we gained increased confidence that rates were nearing a peak.
WM.com: What’s the mix of active versus passive in the portfolio?
JA: We don’t think it's an either-or question. It’s being selective and intentional about where you’re using active management. We use active management in areas like U.S. small-cap, international equities and core fixed income, for example. We’re using passive more in U.S. large cap as well as areas where we might take tactical views. That growth versus value, for example, is done through ETF exposure. We’re active in our high-yield exposure as well.
WM.com: What differentiates your portfolio and investment philosophy?
JA: The access we have to internal portfolio managers and internal capabilities is one. Secondly, the way we use alternatives in portfolios, both on the liquid side as well as on the private side, is another. And then finally, the tactical views we’re taking in portfolios, in an average year, three to six, depending on the opportunity set, where we’re seeking to add value for individual clients.
WM.com: Do you think that’s more or less than other firms do in a year?
JA: That’s probably more than most firms are implementing. We’re not taking extremely large tactical views typically; we’re typically taking modest views, trying to add value at the margin in portfolios, but we have a buttoned-up risk management process ensuring that we’re not deviating too far from the bands that we have for portfolios for an individual investor.
Another differentiator is our use of Calamos’ structured protection ETFs. They can be thought of as a type of structured note from one perspective but with lower fees and 100% downside protection in the way they’re structured.
Those are Calamos ETFs that have been launched on the S&P500, the NASDAQ and upcoming on the Russell 2000. But all of those ETFs have 100% downside protection with upside up to a cap over a 1-year outcome period. The first of those was launched in May, the second of those in June, and Calamos is launching one per month for the next year.
Those are options for clients who have large cash allocations, are close to retirement, or might be looking to take some chips off the table given strong equity market performance.
WM.com: Does the RIA have any kind of influence over the products that come out of the asset management side?
JA: Absolutely. We do have a seat at the table as far as what products Calamos Investments is looking to launch. Some of those discussions revolve around what clients are asking about, what clients are concerned about, what gaps clients are concerned about in their portfolios, and then it’s about really being creative from a product perspective on looking to advance our solution set for our clients.
WM.com: Do you use direct indexing?
JA: We are actively exploring direct indexing capabilities as we speak. I will say the SMAs that we run internally are optimizing for tax loss harvesting, so we are implementing tax loss harvesting throughout those SMAs and are actively considering adding on direct indexing capability as well.
WM.com: What’s your due diligence process for choosing asset managers?
JA: We have an investment committee within the RIA incorporating a number of members across the organization. We have a manager research committee sitting inside of the investment committee, but I would say it’s first a function of our asset allocation decision. That’s where the level one decision is.
Then the second level is really how we implement that view in portfolios through which manager, but we would typically conduct a screen when we’re looking to add a manager and a new capability, typically through Morningstar, flagging, say, four to five managers on average. Then we’re doing in-depth due diligence on those managers, meeting with them in person, going through those strategies in detail, and then recommending one particular manager for our investment committee to vote on for inclusion on our approved list. That’s the same procedure for internal and external capabilities.
WM.com: Any interest in Bitcoin ETFs? Crypto?
JA: We don’t have anything on our platform in Bitcoin or crypto or digital assets. We are exploring the space, conducting analysis, and determining whether it potentially makes sense for some client portfolios. Some of our clients do hold digital assets in accounts of their own, but currently no capabilities on our approved list.
WM.com: Are you incorporating ESG into the portfolio? If so, how?
JA: We do have models that incorporate ESG and sustainable investing depending on client preferences, and we do have an ESG team with a long track record within Calamos Investments.
WM.com: Does Calamos have ESG products?
JA: Yes, mutual funds and ETFs. We use those selectively in client portfolios.
