Special Report:
The Subprime Crisis and Calvert's Response

A year after the subprime crisis began, the impacts of this market's implosion are still spreading throughout global financial markets.

Cathy Roy Steve Van Order
Cathy Roy,
Chief Investment Officer, Fixed Income
Steve Van Order,
Fixed Income Strategist

Calvert's fixed-income portfolio management teams have been closely monitoring the subprime situation and the ensuing credit crunch since the first quarter of 2007, when the increased delinquencies on subprime mortgages began to cause bond market volatility, to the Federal Reserve-orchestrated bailout of investment bank Bear Stearns in March 2008.  Throughout the subprime crisis, our chief investment officers for both fixed income and equities have provided written commentary on Calvert's website to keep financial advisors, institutional investors and fund shareholders abreast of developments in the markets and their impacts on Calvert funds.  We will continue to provide timely commentaries as this crisis continues to unfold.

From the beginning of the subprime crisis, Calvert has identified and reported on holdings in its funds that have direct exposure to subprime mortgages. Overall, Calvert funds have had very little direct exposure to securities related to the subprime mortgage market and indirect exposure has been modest. This is primarily the result of our unwillingness in recent years to buy higher-risk, complex securities such as collateralized debt obligations (CDOs) and structured investment vehicles (SIVs) backed by subprime mortgages-despite their higher yields. Of course, the subprime crisis has spread widely through the fixed-income markets, indirectly affecting security values in a broad range of sectors that our funds invest in.

Many new houses in the United States remain unsold.

The judgment behind the decision not to take on the significant additional risks of subprime-related investments came from Calvert's experienced team of fixed-income portfolio managers and credit analysts. Most individual investors building a portfolio of individual bonds do not have a comparable level of expertise - even many other professional managers of bond portfolios underestimated the risks associated with subprime-related debt. Calvert's bond and money-market portfolio managers specialize in weighing the risks and rewards available in different sectors of the bond market and making judgments about which offer more relative value at any given time.

On the equity side of the business, while the extent of economic duress and market uncertainty has left no one feeling confident, portfolio managers who favor quality companies and evaluate them on fundamental measures, such as earnings growth and product strength, may have an advantage. 

Investment in mutual funds involves risk, including possible loss of principal invested. 

Bond funds are subject to issuer default risk and interest rate risk. When interest rates rise, the value of fixed-income securities will generally fall. Conversely, a drop in interest rates will generally cause an increase in the value of fixed-income securities.


Publication Date: May 6, 2008

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Calvert Investment Management, Inc. serves as the investment advisor and provides sustainability research for the Calvert mutual funds and institutional investment strategies.

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