RWC Partners’ convertible, convex creation
RWC’s conservatively run RWC Global Convertibles fund had minimal losses in 2011 losing only 3.3%. One of the sector’s better performers in 2011, it has been able to cope with 2012’s volatility, demonstrating an appealing return profile.
Such a pattern – protecting from the full brunt of the market’s downside while benefiting in happier markets – is a key characteristic investors want from convertible bonds, and from funds that invest in them.
The instruments should offer some of the characteristics of regular corporate bonds, to an extent – as they have a ‘bond floor’ – as markets fall, but they should also have some sensitivity to shares as equity markets rise.
RWC’s fund run by Davide Basile ranked first of its peer group last year, falling by 3.3%. Many equity markets dropped by over 10%, and corporate bonds lost about 4% of their value.
This year Basile’s product is up 1.91%.
He says convexity is a cornerstone of convertible investing. “Our product offers a strong asymmetry of returns, we are looking to outperform over a cycle and a particular feature of our approach is protecting when markets are on their way down.”
He describes much selling of convertibles last year as indiscriminate and involving “a lot of high quality material and lower quality too, before this year brought a rally often in lower quality names.”
“Because we tend to be conservative last year was a very good year,” says Basile.
The resilience of Basile’s strategy has helped it attract more than $400m fresh business, growing to just over $1bn, since he joined in 2010. RWC are seeing increased interest in both the strategy and the asset class from institutional investors across Europe as investor consider how to take low volatility exposure to equities.