Global Convertibles fund moves to balanced profile

F&C Global Convertible Bond Fund has moved back to a 'balanced' profile as conditions normalise in the convertibles market.

After an unprecedented sell-off in the second half of 2008, positive momentum has returned to the market and convertible valuations have benefited to a great extent from rising equity markets as well as tightening credit spreads, in particular since March.

Anja Eijking, manager of the Luxembourg Sicav, said the pricing of the underlying shares was likely to be a greater influence on convertibles going forward than the tightening of credit spreads, which has been an important driver for returns in recent months. Since the lows of the equity markets in March, many convertibles have been issued by good quality companies. New issues have thus been priced off low share price levels with low conversion prices and relatively high coupons, offering compelling long term investment opportunities. Recovering share prices and new issues have driven the move back into 'balanced' convertibles, which are those that are expected to participate in 40-50% of the upside movement in the underlying shares, but with limited downside if the shares fall in value.

"By focusing on the balanced part of the market, the best advantage is taken of the asymmetrical risk (limited)/reward (unlimited) profile that convertibles offer," said Eijking.

Year-to-date the fund, which has a diversified portfolio holding typically 150-200 names, has returned 25.95% net of fees, putting it 4.8% ahead of its benchmark, the UBS Customised Global Focus index (source: F&C, period to 31 August 2009).