Convertible bonds set for success

A top fund manager has recommended investors seriously consider putting money into convertible bonds.

F&C's Tony Broccardo has said that global convertible bonds are the cheapest they have been for the last six years, despite performing better than most other asset classes for the last ten years.

Convertibles are a type of corporate bond that can be turned in to a set number of shares in a company at a prearranged time.

In the last ten years they have returned 11.5 per cent a year in US dollar terms, F&C points out, this compares with a 9.1 per cent return for global bonds and 7.6 per cent for equities.

"Convertibles combine the best features of equities and bonds," said Mr Broccardo.

"They give exposure to the long-term growth potential of equities with unlimited upside potential but they also carry the safety and protection of bonds.

"At a time when many investors appear reluctant to return to the equity market this asset class should appeal."

F&C said today that convertibles remain attractive to investors as the average convertible premiums have fallen from a high of 40 per cent over the last three years to current levels around 20 per cent.

"The fall in the premium means that if equities rise from here then convertible holders will participate in most of the upside. If equities fall, then the premium should widen meaning investors are protected from the worst of the downside," Mr Broccardo added.