In the current market environment convertibles are well positioned.
Adding convertible bonds to a traditional portfolio of shares, bonds and alternative assets has several advantages, especially in the current economic environment, estimate the experts of NN Investment Partners, which in recent weeks have detected a growing interest of investors in these strategies.
The NN (L) Global Convertible Opportunities fund , managed by the team formed by Tarek Saber and Jasper van Ingen, reminds that historically convertible bonds have generated very attractive risk-adjusted returns.
“Its long-term performance is similar to that of stocks, with very low volatility. And this means that in a portfolio context, convertibles can be a powerful diversifier , with a high correlation with equities, but a limited correlation with high yield debt and even a negative correlation with government bonds, “Saber said. Van Ingen.
Both managers believe that in the current market environment – with healthy economic growth and upward pressure on interest rates due to the gradual elimination of monetary stimulus measures around the world – convertibles are well positioned.
Effective duration
“Through their participation in equities, they will benefit from a positive performance in the stock market, while they will only be modestly affected by higher rates due to their low effective duration,” they explain.
But while the effective duration of the convertibles as an asset class is 1.8, the effective duration of the Global Convertible Opportunities Fund (GCO) is even lower and stands at 1.5.
“Our outlook for the global convertible bond market is positive. We expect convertibles to benefit from healthy global economic growth, while having a limited negative impact due to the increase in rates, “the managers added.
The truth is that the new global issues of convertibles are experiencing a strong positive momentum: 2018 is so far the best year since 2007 from one perspective, which provides more investment opportunities for the fund fund NN (L) Global Convertible Opportunities, which It has more than six years of history.
“We are seeing a good rate of entries in this asset class,” they conclude.
