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Top-performing converts manager: my biggest opportunity

Top-performing converts manager: my biggest opportunity

Convertible bond managers should target smaller players and takeover candidates to unlock real alpha.

That is according to Citywire A-rated Claude Chambre, who runs the €55 million Harvest Investment Global Convertible fund.

Chambre currently has main country allocations in Europe (39%) and North America (31%), and said the best opportunities in the sector are coming from small and medium sized companies (SMIDs).

‘The biggest opportunity in the space, and it makes sense when you look at the economic situation, is to invest in SMIDs that could be the target of mergers, acquisitions, or could be acquired.

‘At the moment, we have around 20-25% of the portfolio invested in companies that could be bought out,' Chambre said.

The fund currently sits top spot of the convertibles global sector on a three-year absolute return basis to the end of June 2017, where Citywire tracks 108 funds.

Chambre said the size of the fund is a plus point for investors, as he believes this allows the team to operate nimbly.

‘Our focus allows us to really exploit the asset class, especially if you consider that convertibles may be classed as overvalued.

'However, some people have also said the equity market is overvalued due to interest rate moves and changing policies from the central bank.’

Think global

Commercial travel website Priceline is a company Chambre has been invested in for several years. He said this sort of longevity is something convertible bond managers should consider.

‘Investors need to consider that these companies are long-term bets and when you see the return on equity compared to bonds and real estate, then this is the place to be.

‘When investing in the space, investors should have a global reach, being global is a huge advantage to this fund as the sector is so small. So it’s important to not be marginal and avoid investing just in Japan, Europe or the US.

‘Recently we have focused on opportunities in equity convertible bonds. The whole asset class is expensive at the moment and we don’t want to play too much volatility, as the market could come back as overpriced. We don’t want to run into issues if the market is shocked by a surge in volatility,’ he added.

The Harvest Investment Fund Global Convertible strategy returned 15.19% in euro terms over the three years to the end of July 2017. This compares with a 12.17% rise by its Citywire-assigned benchmark, the Thomson Reuters Global Convertibles EUR hedged, over the same time period.

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