Convertible bonds still represent an attractive play for investors trying to diversify away from traditional fixed income allocations.
Converts - a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company - are often regarded as ‘best of both worlds’, as they offer an equity upside as well as the bond protection.
The asset type has proven particularly popular among fund selectors in recent years and the index performance has been particularly strong, but how have active managers fared?
There are 73 global convertible bonds managers with a track record of at least three years, out of which, the average manager returned 21.38% to June 2015. This compares to a solid rise by the Thomson Reuters Global Focus Convertible USD index, which rose 50.24% over the same timeframe.
While nobody in the peer group can attest to outperforming the benchmark performance, who are the three best converts managers to go above and beyond their peers over the past three years?
3. Damien Vermonet, Schroders
Total return (June 2012-June 2015): 42.43%
Damien Vermonet manages the €1.9 billion ISF Global Convertible Bond fund with Citywire + rated Peter Reinmuth. Vermonet joined in December 2013 and his strong performance in the sector is partly attributed to his track record for French boutique Acropole AM.
The fund’s top three holdings are the telecommunication company Telecom Italia (2.6% of the portfolio), the materials firm Newmont Mining (2.4%) and the Italian energy corporation Eni (2.3%). Vermonet’s portfolio is heavily exposed to Americas (30%), followed by Europe ex-UK (26.2%) and emerging markets (18%).
2. Stefan Meyer, Fisch Asset Management
Total return (June 2012-June 2015): 44.67%
Citywire AAA-Stefan Meyer returned 44.67% over the past three years through his FISCH CB Global Opportunistic fund, which he co-manages with Stephanie Zwick. Zwick is not featured in the analysis as she was only named as a manager on the Zurich-based group's fund in April 2013.
According to the latest factsheet, the global portfolio is hedged in CHF, EUR or USD and maintains the greatest possible flexibility. The fund is 37% exposed to Europe, 28% to North America, 20% to Japan and 14% to Asia.
1. Daniel Björk, Swisscanto
Total return (June 2012-June 2015): 48.57%
Topping the rankings is Daniel Björk, manager of the Swisscanto (LU) Bond Fund COCO fund, who returned 48.57% over the past three years to June 2015. The fund is 55% invested in contingent convertibles (CoCos) – 18.9% in the US%, 15.7% in the UK and 11.2% in France.
Among its top ten holdings are three banks: the Spanish BBVA (3.36% of the portfolio), the Belgian KBC Groep (3.14%) and the Danish Danske Bank (3%).
In his latest commentary, Björk said he believes the CoCos market is still in a sweet spot as it is somewhat protected from a regulatory perspective. ‘Several banks still need to come to the CoCos market, allowing us to increase the diversification score in the portfolio,' he said.