• Multi-Strategy Fixed Income
  • Fixed Income
  • Convertibles

The case for global convertibles in the new YFYS regulatory environment

The global pandemic created uncertainty in markets. With many investors on edge, the defensive qualities and equity risk exposure of convertible bonds proved particularly attractive. Our global convertibles team look at the market outlook and examine the specific characteristics of the asset class.

After the excellent performance of the asset class in 2020, with relative outperformance compared to other risk asset classes including equities and credit, we continue to see a positive market backdrop for convertible bonds. This is despite the recent valuation compression across the investable universe following record issuance in the last twelve months. While the extent of the relative success may have been extraordinary, and may not be repeated every year or throughout an economic cycle, there is a compelling case for convertible bonds to continue their equity-like returns with significantly reduced volatility.

The natural asymmetry of convertible bonds make them well equipped for a wide range of scenarios. In our view, the unique characteristics of balanced convertible bond portfolios, particularly when actively managed in an unconstrained investment approach, remain an attractive investment proposition that is well-equipped for the current volatile and uncertain market environment.

The paper covers:

  • The market context
  • The natural asymmetry of the asset class
  • The role of convertibles as a low-volatility alternative to equities
  • Diversification
  • The benefits of active management

Past performance is not indicative of future results. Client outcomes are not guaranteed.

Key risks

The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested.

Convertible bonds can earn less income than comparable debt securities and less growth than comparable equity securities, and carry a high level of risk.

Bond values are affected by changes in interest rates and the bond issuer’s creditworthiness.

Bonds that offer the potential for a higher income typically have a greater risk of default.

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