Top Performers in Equity and Fixed Income Markets
In the midst of the Corona crisis, opportunities arose for savvy investors, such as with Carnival Cruises. One such opportunity was capitalizing on convertible bonds, a hybrid of corporate bonds and stocks that offer regular interest payments and the possibility for investors to exchange the bond for shares in the company.
Two top-performing convertible bond funds in the global market are the Flossbach von Storch - Global Convertible Bond Fund and the Virtus Diversified Income & Convertible Fund. Both funds demonstrate robust strategies for achieving high returns.
The Flossbach von Storch Global Convertible Bond Fund invests worldwide in convertible bonds with an actively managed approach focused on fundamental analysis and in-house valuation models. It seeks to profit from equity market rises while limiting downside risk, employing a convex profile inherent to convertible bonds. If no suitable convertible exists for a security, the fund managers can synthetically create similar exposure combining bonds and call options. They also incorporate ESG criteria and currency hedging to manage risks effectively.
The Virtus Diversified Income & Convertible Fund aims for total return through a combination of income and capital appreciation by dynamically allocating across convertible securities, equities, and income-producing instruments. It typically invests at least 80% in convertible securities with the ability to write covered call options to moderate volatility. The fund attempts to benefit from convertible bonds' asymmetric risk/return profile, reducing volatility relative to equity-only portfolios, while still capturing upside potential.
In the case of Carnival Cruises, these funds would capitalize on market dislocations and distressed convertible bonds of companies facing temporary challenges. Managers would apply bottom-up fundamental credit analysis to identify undervalued convertible bonds with strong recovery potential or mispriced equity upside. Hedging currency risk and using derivatives like call options help enhance returns while limiting downside risk. By actively managing exposure and reading economic/business cycles, they seek to exploit rebounds in companies hit by sector-specific events, such as the travel industry's recovery post-pandemic.
The minimum investment amount for convertible bonds can be over 100,000 euros, making an investment via a fund almost inevitable. The Convertible Global Diversified (ISIN: DE000A0M9995), managed by Holinger Asset Management, shows a good relationship between return and risk with an 80% growth over the past ten years and 8% return at the beginning of the year.
When selecting a convertible bond fund, investors should focus on the volatility, maximum drawdown, and delta (stock sensitivity) instead of previous performance. Holinger Asset Management, a fund boutique specializing in convertible bonds located in Zurich, analyses up to five new papers daily.
Convertible bonds offer an option to participate in stock gains, but their value decreases less than stock if prices fall due to a "Bond Floor." regional focuses include Europe (30%), America (20%), and Asia (30%), with investments in companies like China Yangtze Power and Singapore Airlines.
Carnival Cruises' convertible bond rose to 116% within two days and closed the week at 138%. The team at Holinger Asset Management, led by Alexander Müller, focuses on finding convertible bonds trading at a discount, primarily from high-quality papers with supplementary speculative investments. Convertible bonds often outperform stocks in the long run with lower volatility, but they are still a niche product that receives little attention.
[1] Flossbach von Storch - Global Convertible Bond Fund: https://www.flossbach-von-storch.de/en/investment-products/funds/global-convertible-bond-fund/ [5] Virtus Diversified Income & Convertible Fund: https://www.virtus.com/funds/diversified-income-convertible-fund/overview
- For individuals interested in personal-finance and investing, considering the Flossbach von Storch - Global Convertible Bond Fund or the Virtus Diversified Income & Convertible Fund could be an other opportunity to achieve high returns, as these funds invest in convertible bonds with robust strategies that aim for both income and capital appreciation.
- In the wake of the Corona crisis, opportunities were uncovered in the finance sector, such as with Carnival Cruises' convertible bonds. These funds, such as the Flossbach von Storch - Global Convertible Bond Fund and the Virtus Diversified Income & Convertible Fund, offer a chance for personal-finance investors to capitalize on market dislocations and distressed convertible bonds of companies facing temporary challenges.
