As interest for the convertibles market continues to grow among investors.
Citywire Global spoke to a number of leading fund selectors to find out how they were tackling the sector and which funds they were backing.
Roberta Gastaldello, Euromobiliare Asset Management
After some difficult years, the primary market has reported a renewed interest in convertibles. The prospective return of this asset class is clearly linked to the equity component today. In addition to that, given the low levels of implied volatility, the premium that you pay for the optionality is low.
Today, the players involved in the market are mainly long-only funds with a less aggressive and more stable approach compared with hedge funds and investment banks.
Historically, we prefer funds characterised by a balanced profile (with a 0.5 delta) aiming to maximise the convexity. These funds represent a structural component of our allocation, which has remained stable throughout the year, with no increments being planned for the time being.
We have invested in portfolios managed by Miles Geldard, whose distinctive trait is to run convertible bonds with a solid macro overlay. We have also invested in the GLG Global Convertible fund, as the company has a consolidated experience of European convertible bonds fund management with a balanced-aggressive approach.
Gabriele Rossi – Copernico SIM
I think convertible bonds have been popular for some time now, and the mutual funds investing in this asset class have performed well even prior to 2013. It is, however, a complex asset, suitable only for the most experienced investors: when it comes to convertibles, investors can hardly go DIY.
This year, convertibles have presented good opportunities and I believe that - if handled properly -they will continue to offer value. I think the DNCA Invest Convertibles fund is quite balanced, with volatility rates that I find acceptable.
Having said that, I don’t think I will take an overweight in this asset class in the near future. Instead, I will be on the lookout for clearer indications from the Fed as to when tapering finally begins, to see how interest rates react, how it will reflect on the equity and fixed income markets, and whether the two asset classes will prove to be correlated or not.
Broadly speaking, I don’t think one should allocate more than 15% of the portfolio to convertibles
Francesco Fren - Family Advisory SIM
There are two reasons why a multi-asset manager may decide to invest in this asset class: either as a result of a bullish stance on convertibles - and this is not our case – or because one wants to add a little equity component to the portfolio, when it has already reached the maximum of the buffer.
From my point of view, the target is to always keep a small exposure to convertibles by drawing on the expertise of an active manager, who is able to guarantee a high turnover and the maximisation of the alpha component.
However, I would never take a big bet on convertibles as they are a rather illiquid asset class, which doesn’t allow selectors to enter and exit the market with ease.
In one of the most recent portfolios we’ve built, I have included a 2.5% exposure to the Amundi Convertible Europe fund - enough to add some equity to a standard risk-averse approach.
Other funds I have invested in the past include RWC Global Convertibles, managed by Davide Basile, Man Convertibles America, UBS (Lux) Bond Convert Europe and Fisch CB - International Convertible Expert.
This article was originally published in the Convertibles supplement of the December/January edition of Citywire Global magazine.