Convertibles split investors, says NN research

Investors are still split in their view on the merits of convertibles, according to the findings of research among some 105 institutional investors done in October 2015 on behalf of NN Investment Partners.

According to the findings, investors are fairly evenly split on the question of when convertibles are most likely to ‘flourish’ as an asset class:

  • 39% believe convertibles flourish in flat markets
  • 34% cite bear markets
  • 23% say bull markets

There is also a split in terms of how investors define convertibles:

  • 39% see convertibles as a fixed income asset
  • 30% alternatives
  • 10% equities
  • 21% an asset class in their own right

Tarek Saber, lead portfolio manager on the $275m (€256m )NN (L) Global Convertible Opportunities fund, said: “We were quite surprised by the differences in opinions about convertible bonds. It is still an unfamiliar asset class to some and in many respects some degree of education needs to be implemented to help investors feel comfortable with the role CBs can play in their portfolios.”

“A key point to understand about (CBs) is that they provide equity participation – around 90% correlation to equities but with around half the volatility. So they do well in equity rallies but when these falter the benefits of the fixed income element come into play. Allocating between 3% and 10% of portfolios to convertibles can certainly enhance the risk-adjusted returns.”


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