INSIGHTS

Understanding the Basics of Convertible Bonds

Created By: Michael Foley, Senior Vice President

Wellesley Asset Management Surpasses $3 Billion in Regulatory Assets Under Management as They Celebrate Their 30th Year Anniversary

By: Business Wire

WELLESLEY, Mass.–(BUSINESS WIRE)–Wellesley Asset Management is pleased to announce it has surpassed $3 billion in Regulatory Assets Under Management* this summer. This milestone was accomplished as Wellesley celebrates its 30th anniversary as a nationally recognized Registered Investment Advisor and Asset Manager with a singular focus on convertible bonds. Wellesley’s Founder and CEO, Greg Miller, who was recently named as Forbes #3 ranked Investment Advisor in Massachusetts for 2021** has utilized a conservative approach to convertible bonds since 1991.

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The Convertible Investor : Summer 2021 

Greg Miller CPA, Founder, Chairman and CEO
Jim Buckham CFA, Portfolio Manager
Howard Needle, Portfolio Manager
Dennis Scarpa CFA, Senior Analyst
  1. INFLATION IS REARING ITS UGLY HEAD- IS YOUR PORTFOLIO READY?
  2. DOWNSIDE PROTECTION: A CASE STUDY OF WAM’S RETRUNS IN 2008
  3. THE RATIONAL INVESTOR?
  4. Q&A WITH THE PORTFOLIO MANAGERS

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The Benefits of Convertible Arbitrage

By: Greg Miller CPA, CEO & Portfolio Manager
Michael Miller CFIP, President, CIO
Jim Buckham CFA, Portfolio Manager
Howard Needle, Portfolio Manager

There was time in the late 1980’s and early 1990’s when genuine arbitrage opportunities existed in convertibles as a large swath of the convertible bond market was mispriced.  The rapid development of the high yield market in the 1980’s and the disconnect between high yield and convertibles was the primary cause for that mispricing. High yield investors typically ignored converts as the high yield market was being created and garnered the majority of investor attention.  High yield trading desks were part of fixed income divisions; whereas, convertible trading desks sat on the equity floor.

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The Convertible Investor : Spring 2021 

Greg Miller CPA, Founder, Chairman and CEO
Jim Buckham CFA, Portfolio Manager
Howard Needle, Portfolio Manager
Dennis Scarpa CFA, Senior Analyst

This year marks Wellesley Asset Management’s 30th anniversary! We are extremely proud of our history, the tremendous effort of employees and the trust and confidence our clients have placed in us over the years to grow and protect their assets.

The first quarter of 2021 has been a busy start to the year for new convertible bond issuance with 81 new deals with a value of over $41 billion. This ranks as one of the strongest starts to the year in recent memory, continuing the trend of robust issuance from 2020. The year is shaping up to be a monster for convertible new issuance and may shatter all previous records.

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The Benefits of Synthetic Convertible Bonds

Howard Needle, Portfolio Manager

Convertible bond investors are often frustrated with limited investment choices or options regarding convertible
securities especially related to sporadic or narrow convertible issuance, or that the universe of companies and sectors
with outstanding convertibles is not larger or more diverse. 30+ years of experience has taught that there are
frequently times an investor wants to purchase a convertible bond in a great company only to discover that no
convertible exists.

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Convertible Bonds & Rising Interest Rates: A Happy Marriage

Greg Miller CPA, Founder, Chairman and CEO
Michael Miller CFIP, President, CIO
Jim Buckham CFA, Portfolio Manager
Howard Needle, Portfolio Manager

For the better part of the past 40 years interest rates have been trending lower (1) (display #1 below). Ten-year U.S. Treasury bond yields peaked at 15.84% on September, 30, 1981. More recently, the trend of lower rates accelerated beginning November 8, 2018 when 10-year U.S. Treasury bond yields began a descent that saw their yield drop from 3.23% to a recent jaw-dropping all-time low of 0.40% on March 9, 2020. Although the recent bond sell-off beginning in August, 2020 saw yields jump to 0.95% on November, 10, 2020, interest rates remain at historically and incredibly low levels.

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The Convertible Investor: Winter 2021

Greg Miller CPA, CEO & Portfolio Manager
Michael Miller CFIP, President, CIO
Jim Buckham CFA, Portfolio Manager
Howard Needle, Portfolio Manager
Dennis Scarpa CFA, Senior Analyst

 Why Wellesley’s Convertible Bond Strategy Now?
 Wellesley Asset Management’s Investment Process: The Three Legs of the Stool
 The Traditional 60/40 Portfolio is DEAD
 Got the Need for Income in Retirement

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The Convertible Investor: Fall 2020

Greg Miller CPA, Founder, Chairman and CEO
Michael Miller CFIP, President, CIO
Jim Buckham CFA, Portfolio Manager
Dennis Scarpa CFA, Senior Analyst

The Fall Investor Issue includes articles such as, Where to Put Your Next Dollar, Why Companies Issue Convertible Bonds, Convertible Bond Investing: Don’t Try This at Home, and “Do You Know What’s in Your Index Fund? – The “Anti-Quality” Factor Exposure”

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August Commentary 2020

Greg Miller CPA, CEO & Portfolio Manager
Michael Miller CFIP, President, CIO
Jim Buckham CFA, Portfolio Manager

On the heels of an abysmal February and March for equity-centric investors, market participants were rewarded during the second quarter.

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The Convertible Investor: Summer 2020

Greg Miller CPA, Founder, Chairman and CEO
Michael Miller CFIP, President, CIO
Jim Buckham CFA, Portfolio Manager
Dennis Scarpa CFA, Senior Analyst

The Summer Investor Issue includes articles such as, The Sweet Spot Investing with Convertibles, Record Issuance in the Convertible Bond Market, Buyers Beware of Your Index, and The History of Convertible Bonds.

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The Convertible Investor – Spring 2020

Greg Miller CPA, Publisher and Michael Miller CFIP, Editor

An Informative Guide for Investors Who Seek Growth and Preservation of Wealth. The Markets and Convertible Bonds: A Plan to Stay the Course.

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A Genius, an Investment Guru, and a Golfer Walk into a Par

By Michael Foley, Senior Vice President

Take a look at the two investments below. Which would you prefer? The simple average of returns in Investment A would be 10% (29+20-30+21=40/4=10). The simple average of returns in Investment B would be 10% (19+11-4*14=40/4=10). Unfortunately, simple averaging does not paint a clear picture nor is it appropriate to use with market returns. Annualized averaging is a far more accurate gauge due to the concept of compounding.

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What Keeps Me Up at Night

By Jim Buckham CFA, Portfolio Manager

As a follower of the markets, I am often asked “What keeps you up at night”? This is another way of asking what concerns me about the current state of the capital markets. I would like to share some of my observations about the stock and bond markets and why I feel that, going forward, investors should proceed with caution.

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Sweet Spot Investing with Convertible Bonds

Jim Buckham, CFA, Portfolio Manager

Convertible bonds are sometimes considered the “Swiss Army knife” of financial products because they can provide investors with principal protection (barring default), income, and equity-like returns.

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Sequence-of-Returns Risk

By Michael Foley, Senior Vice President

At Wellesley Asset Management, we have found that investing in convertible bonds issued by companies with high-quality balance sheets, purchased near their par value, and with a properly structured maturity schedule may assist in managing sequence-of-return risk.

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Convertible Bonds: The Advantages of Synthetics

Greg Miller CPA, Founder, Chairman and CEO
Michael Miller CFIP, President, CIO
Jim Buckham CFA, Portfolio Manager
Dennis Scarpa CFA, Senior Analyst

Unlike traditional convertible bonds, the credit exposure of a synthetic remains with the issuing company, typically a bank. The equity exposure, however, is tied to the underlying company’s stock.

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Why Convertible Bonds

Michael Miller CFIP, President and Chief Investment Officer
Dennis Scarpa CFA, Senior Analyst

Convertibles are a unique asset class that is often overlooked by many investors. They can offer the best of both worlds, combining desirable features of both stocks and bonds.

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Bull, Bear and Upside-Down Markets

By Jim Buckham CFA, Portfolio Manager

Bull and bear stock markets have been around since the beginning of stock indices in 1896. Currently, we are in the longest bull market for stocks on record. What people forget is bear markets can last a long time or they can wipe out significant amounts of wealth quickly. This paper looks at severe bear markets throughout history. In addition, it looks at the current state of the global economy, central banks’ reactions to slow growth, and what this may tell us about future stock performance.

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