July 2021

The Convertible Market generated positive returns and outpaced major fixed income asset classes in the first half of 2021. As represented by the ICE BofA ML All US Convertible Index (VXA0), the asset class returned 6.90%. This was primarily driven by strong performance of the underlying equities at 12.45%. Convertibles benefited from strong returns in cyclical market segments, while balanced Convertibles outperformed equity like Convertibles and yield alternatives.

As we approach mid-year, a convergence of factors has helped the Convertibles market maintain its status as a formidable asset class:

Allocators and consultants continue to seek out alternative options to a core fixed income allocation as concerns grow over rising rates and the possibility of heightened volatility. As rates have continued to rise, investors are turning to less liquid or non-core options and one of the asset classes that is commonly utilized is the high yield market. This has led to yields of high yield bonds steeply declining to all-time lows of sub 4% and when you combine that with rising interest rates and impending inflation fears, the outlook for the asset class is in question. We believe that this is an opportune time to seek alternatives and one of the optimal allocations given the current environment includes actively managed convertible strategies.