INSIGHTS

Understanding the Basics of Convertible Bonds

Created By: Michael Foley, Senior Vice President

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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