Convertible Bonds experienced an incredible 2020 and start to 2021. The Bloomberg Convertible Index outperformed both the S&P 500 and Nasdaq indices in 2020. We can’t mention CB’s without highlighting Tesla which attributed approximately half of the 2020 convertible bond index return in 2020. The Bloomberg Convertible Index is off to a hot start in 2021, up over 10% through 2/16/21.
Adding convertibles to allocations during times of market turmoil can position investors to clip income and potentially capture equity market upside as the market recovers, while also incorporating minimized downside. But with convertibles specifically…context, valuation and timing are everything.
Right now, given the backdrop of the convertible sector from a pricing perspective, we believe investors utilizing convertibles exposures in their portfolios, specifically in lieu of traditional fixed income, could be injecting significant risk into their clients’ portfolio.
Read here for a breakdown of the risks and (lack of) rewards in today’s convertible market.
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