Asian convertibles offer positive returns on equity, says RWC

RWC has highlighted that demographics and higher growth rates are among the factors that drive investor interest in Asian Equities.

Yet whilst finding outperforming Asian equity managers can be rewarding, this often comes with the undesirable by-product of high volatility, RWC also pointed out.

Davide Basile, head of Convertible Bonds at RWC, commented that it is surprising that more investors do not use the convertible bond market to access the Asian market: “When we compared the performance of Asian convertible bonds with global convertibles and equities over the past decade we found that the asset class can offer investors a number of benefits. Asian equities outperformed global equities substantially over this period, which is part of the reason why Asian convertibles outperformed global convertibles. However, the convertibles market in Asia shows some notable features.

“It is fair to say the asset class has performed well through the business cycles of the past decade beating global equities and delivering returns similar to Asian equities, however if you look at that outperformance it comes with much lower volatility. If you look at the period from 2000 to October 2013 the MSCI Asia ex-Japan Total Return index returned 139.9% with annualised volatility of 21.7%, whereas the UBS Asia Focus Convertible Bond Index returned 133.2% over the same period but with only a third of the volatility at 6.9%.”

RWC launched the RWC Asia Convertible Fund two years ago for investors who wanted exposure to the region via the convertible asset class given the advantages discussed above.

Since inception June 2011 to end October 2013, RWC said that the fund has returned 7.9% with a volatility of 5.0%, again outperforming Asian equities by 3.2% with under a third of the volatility (MSCI Asia ex-Japan TR index had 18.7% volatility over the same period), as well as outperforming the UBS Asia Focus Convertible Bond Index which returned 4.9% over the period.

James Tollemache, head of Sales at RWC said: “The numbers show that the use of convertibles is a solution worth exploring for investors interested in exposure to Asian equities. The RWC Asia Convertible Bond fund offers daily liquidity, has holdings that are of B- quality or above and is purely long-only with no hedging instruments.”

RWC said it has recently reached AUMf $7.3bn across equity income, equity long/short, activist equity and convertible bond strategies having started 2013 AUM at $5bn.

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