Despite Outflows, Global Convertibles Worth a Second Look

For more than a year investors have been taking money out of global convertible funds after loading up the prior 2 1/2 years. A few of those who pulled out money could be having regrets, given that this asset class rebounded to higher levels after the turmoil in the bond and equities markets earlier this year and again in the aftermath of Brexit.

On Wall Street

August 10, 2016

By Robert Stowe England


The Bank of America Merrill Lynch G300 Index of global convertibles fell 6.8% from the beginning of the year through Feb. 11 before bouncing back into the black with a 3.6% gain as of June 23, the day of the Brexit vote.

The index then fell 2.5% the following day, and then moved up again to reach a level on July 14 that represented a 4.3% gain from beginning of the year.

This year’s performance demonstrates one of the hallmarks of global convertibles – their ability to buffer market moves. A look back over the last 10 years, the volatility of the G300 index, as measured by the standard deviation in monthly returns, is lower than the volatility for the MSCI All World Equities Index.

“Convertibles are an all-weather instrument,” says Stefan Schauer, Frankfurt, Germany-based senior portfolio manager at the Deutsche Invest I Convertibles Fund, which has £2.3 billion in assets under management with a 10-year annualized return of 4.7% as of the end of July.

The all-weather performance of this asset class is one reason why AUM for global convertibles has risen to $290 billion worldwide with $175 billion in the U.S., $73 billion in Europe, $17 billion in Asia (excluding Japan) and $25 billion in Japan, according to Michael Youngworth, convertibles strategist at Bank of America Merrill Lynch.

“Since convertibles are not perfectly correlated with either stocks or bonds, their addition to a portfolio can dampen overall volatility,” he says.

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Robert Stowe England is an author and financial journalist who has specialized in writing about financial institutions, financial markets, retirement income issues, and the financial impact of population aging.

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