President Trump’s pro-growth policies and rising concerns about the fixed income outlook could prove an ideal backdrop for convertible bonds.
The asset type, which proved popular during a similarly uncertain two years ago, offers investors access to the defensive qualities of bonds while also allowing them to tap any equity upside.
But who has proved their mettle in this competitive sector, and who could emerge as a leading light over the coming years? With that in mind, Citywire Selector took a closer look at three global convertible bond managers who have consistently outperformed their peers over the past five years.
James Peattie, CQS
Best year of outperformance vs. average manager: +8.07% in 2015/16
The first of our three outperformers is James Peattie of hedge fund group CQS. Peattie was previously recognised in similar analysis undertaken in mid-2016 and this latest assessment shows he has continued to produce outstanding performance in this sector.
His performance is based on his tenure in the sector as a whole, as it is stitched together from his seven years on the CQS Convertible Opportunities fund, which was closed in May 2016, and the CQS Global Convertible fund, the launch of which he oversaw in April 2015.
In terms of absolute performance to the end of December 2016, Peattie is ranked first on a one-year basis, second over three years and sits top of the 69-strong sector for his five-year total return. He has returned 51.7% while the average peer returned 21.9%.
Rupert Mathews, Ferox Capital
Fund: Salar A1 USD Acc
Best year of outperformance vs. average manager: +4.65% in 2013/14
Also producing consistent outperformance for investors is Citywire AAA-rated Rupert Mathews of London-based Ferox Capital. Mathews has overseen the Dublin-domiciled fund since its inception in February 2008. He currently sits third on a five-year, total return basis, having returned 41%.
According to November data, the fund currently has £850 million (€990 million) in assets and is primarily targeted at mid-cap issuers from the global convertibles market.
It is a hugely diversified approach with no sector accounting for more than 5% of investments. The single largest allocation is to a short-dated issue from global tech giant Siemens, which matures this year.
Leonard Vinville, M&G Investments
Best year of outperformance vs. average manager: +2.5% in 2012/13
Posting similarly strong consistent returns but far down the pecking order in absolute terms is M&G Investments’ Leonard Vinville. He has overseen the £1.8 billion (€2.1 billion) strategy since its launch in July 2007. He is supported on the fund by David Romani and Yannis Karachalios.
The main focus of the fund is technology, which accounts for 22% of exposure, which is ahead of financials (13%) and industrials (12.5%). In terms of currency, almost two-thirds of investments are in US dollar-denominated debt, with Citrix Systems being the largest single position, accounting for 4.6% of allocations at the end of December.
On a five-year, total return basis, Vinville returned 29% against an average peer performance of 21.9%. His greatest year of outperformance came in 2012/13 when he beat the average manager by 2.5 percentage points, which is a much tighter margin than the two other managers analysed here.