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Converts champions: top risk/return managers over five years

DISCOVERY: Citywire tracks the three best performing managers over the past half-decade on a risk/return basis in the Bonds – Convertibles Global sector

Convertible bond strategies have sat firmly at the top of investment agendas over recent years as fixed income investors seek a flexible way to navigate uncertain times.

For those investors who believe equity markets may prove volatile convertibles offer excellent downside protection, from their bond component, and upside participation, from the equity component.

With bond yields remaining low, global convertible bonds has been attracting increased attention among investors. Out of the 200 sectors covered by Citywire, over the past year, convertibles global have attracted +$4.58 billion USD flows into the sector, which is the 33rd largest level of inflows out of all sectors we cover.

However, are these new investors being adequately rewarded for the risk they are assuming? In this gallery, Citywire Discovery, the desktop analysis insight tool tracking over 13,000 fund managers, uncovers the best risk/return managers in the Bonds – Convertibles Global sector of the past five years.

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Bonds – Convertibles Global

Five year total return vs five year standard deviation

Sector stats:

  • Number of managers with five year track record: 56
  • Average five year Total Return: 13%
  • Average five year Standard Deviation: 13.2

The bubbles highlighted show the best three managers in the sector for their five year risk/reward profile against their peers in the Bonds - Convertibles Global sector.

Click through to see what these managers are doing to lower risk and bump up returns.

Bubble size represents the managers’ market share. Base currency for analysis is USD. Source: Citywire Discovery. Date: 31.03.2015.

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Tom Wills of Morgan Stanley comes in at third position for his risk/return profile over the last five years in the Bonds – Convertibles Global sector. He manages the Morgan Stanley Global Convertible Inv Grade Bond fund which he has managed since March 2010.

Wills had a tough period of performance in 2012, when he underperformed the market due to his underweight allocation to Europe when a strong recovery in this region was taking place. However, he bounced back in 2013, helped by his holdings in US convertible bonds.

Wills has continued his strong performance and for the year to March 2015, he has generated returns of 4.56% in US dollar terms when the average manager has lost 11.36%.

Wills has significant allocation to the US, which is just under 50% of total exposure, while he is also bullish IT. He has 2.17% invested with is top holding in the portfolio comprising the IT giant, Intel Corp.

He actively managers his portfolio by participating in equity market rallies and offers downside protection provided by the bond element of the fund. He started in a risk-off mode during 2013 which he also follows today, reflecting his low volatility compared to his peers.

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Günter Bitschnau has the second best risk/return profile in the Bonds – Convertibles Global sector over the last five years. His five-year total ranking position against other managers in the sector is 2/56 and five-year ranking based on volatility compared to his peers is 5/56.

Bitschnau has managed the LGT Select Convertibles (USD) B fund since it was launched in June 2009. The fund is registered for sale in Austria, Germany, Liechtenstein and Switzerland.

On a country basis, a large proportion of his fund is invested within the largest markets for convertible bonds, the US. Bitschnau has more than 53% invested in the country. This is while having relatively smaller position in Japan (7%) and Germany (5.4%).

He has a preference for issuers within the IT sector, with bond issues here making up 20.5% of his portfolio. Following closely behind is financials, which is 18.6%.

Bitschnau takes a long-term approach to investing and has outperformed the average manager in the Bonds – Convertibles Global sector over one, three and five years. He has achieved this though lower volatility in comparison to his peers and is ranked in the top decile for lowest volatility over three and five years.

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Boasting the best risk/return performance over five-years is Ferox Capital’s Rupert Mathews. The boutique co-founder has over 16 years’ experience in convertibles trading and co-manages the Salar A1 USD Acc fund which he launched in March 2008 and is registered for sale in the UK, Ireland and Austria.

In the Salar fund, Mathews’ investment strategy is to invest in convertible bonds that are trading close to their fixed income value, which prove to be less sensitive to share price movement and are more bond-like in their risk profile offering protection if share prices fall.

If share prices do rise, the convertible bonds can still participate in this rise as they become increasingly equity-like.

Over the last five years, Mathews returned 33.07%, which compares to the average manager’s return of 10.38% in US dollar terms. The last 12 months in particular has been a rough ride for most managers in the sector with the average manager losing 11.36%.

Mathews has been able to outpace his peers during this time and, over the year to the end of March 2015, has returned positive figures of 5.35%. This was achieved with the lowest volatility compared to all his peers in the sector over one year.

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