Lupus alpha, the Frankfurt-based asset manager launched its first convertible bond fund to the market. Launched at the start of February, the fund offers investors access to a diversified portfolio of global convertible bonds. As a hybrid asset class, convertible bonds combine the characteristics of bonds with a long call single stock option. They provide diversification for fixed income portfolios by enabling access to issuers not often active on the market as bond issuers, while at the same time opening up the upside potential of equities with limited risk. As a result, convertible bonds participate more strongly in rising equity markets than declining ones.
“With their asymmetric risk/return profile, convertible bonds are a valuable addition and diversification for any investor’s portfolio in an environment of low-to-rising interest rates and volatile equity markets,” explained Ralf Lochmüller, founding partner and spokesman of Lupus alpha, the benefits of the new fund.
The Lupus alpha global convertible bonds fund uses a variety of alpha sources. In addition to equity risk premiums and credit spreads, the fund exploits opportunities resulting from new issues, structural features of bonds as well as temporary market inefficiencies. An extensive bottom-up analysis identifies 250-300 investible convertible bonds with the best risk/return profile from a comprehensive investment universe of around 1,000 bonds. In addition to traditional convertibles, the fund also focuses on securities from high-growth issuers in the small and mid-cap segment. “We benefit particularly from the expertise of the Lupus alpha Small & Mid Cap team, whose company analysis produces synergies and complements our approach perfectly,” said Marc-Alexander Knieß, portfolio manager of the Lupus alpha global convertible bonds fund.
The Lupus alpha global convertible bonds fund can prove its strength even in the current market environment. “Convertible bonds are one of the few bond segments that can generate returns even when interest rates are rising. This is because they are uniquely equipped to use the positive performance of their underlying equities to overcompensate for losses on the bond side,” explained Stefan Schauer, also portfolio manager of the Lupus alpha global convertible bonds fund. Portfolio Management’s aim is to exceed the benchmark Thomson Reuters global focus convertible bonds hedged (EUR) index and achieve a better result than comparable products by using an actively managed strategy. At the same time, volatility should be limited to between 5 and 7 per cent p.a.
The commitment of experienced convertible bond specialists with an excellent track record extending over many years is a further part of the Lupus alpha growth strategy based on the focused expansion of the product range. Explaining the company’s next steps, Ralf Lochmüller said: “Although they are a niche market, convertible bonds offer clear growth potential for institutional investors. That’s why we will strengthen the Lupus alpha team with the addition of a junior portfolio manager in the summer.” The mediumterm plan is to expand the team to four convertible bond specialists.