INSIGHTS

Convertible Bonds and Volatility

Convertible bonds and volatility go hand in hand given the optionality embedded in a convertible security. At times convertibles act more like stocks and at other times more like bonds. This paper explores that concept and the thesis that higher volatility as expressed by the VIX(1) has historically been a positive for convertible bond performance relative to the S&P 500 Index and a 60% equity/40% fixed income mix(2).

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High Yield – High Risk, Low Return

Greg Miller CPA, CEO & Portfolio Manager
Michael Miller, President & CIO
Jim Buckham CFA, Portfolio Manager
Howard Needle, Portfolio Manager

With high yield coupons or current yields at historically low levels, the perceived credit worthiness of high yield issuers is extremely optimistic as evidenced by historically tight credit spreads and Treasury rates at very low levels. As such it may be challenging for high yield investors to achieve attractive risk-adjusted returns over the foreseeable investment horizon.

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The Benefits of Convertible Arbitrage

Greg Miller CPA, CEO & Portfolio Manager
Michael Miller, President & CIO
Jim Buckham CFA, Portfolio Manager
Howard Needle, Portfolio Manager

There was time in the late 1980’s and early 1990’s when genuine arbitrage opportunities existed in convertibles as a large swath of the convertible bond market was mispriced.  The rapid development of the high yield market in the 1980’s and the disconnect between high yield and convertibles was the primary cause for that mispricing.  High yield investors typically ignored converts as the high yield market was being created and garnered the majority of investor attention.  High yield trading desks were part of fixed income divisions; whereas, convertible trading desks sat on the equity floor.

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The Benefits of Synthetic Convertible Bonds

Howard Needle, Portfolio Manager

Convertible bond investors are often frustrated with limited investment choices or options regarding convertible securities especially related to sporadic or narrow convertible issuance, or that the universe of companies and sectors with outstanding convertibles is not larger or more diverse. 30+ years of experience has taught that there are frequently times an investor wants to purchase a convertible bond in a great company only to discover that no convertible exists.

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Convertible Bonds and Rising Interest Rates: A Happy Marriage

Greg Miller CPA, CEO & Portfolio Manager
Michael Miller, President & CIO
Jim Buckham CFA, Portfolio Manager
Howard Needle, Portfolio Manager

For the better part of the past 40 years interest rates have been trending lower (1) (display #1 below). Ten-year U.S. Treasury bond yields peaked at 15.84% on September, 30, 1981. More recently, the trend of lower rates accelerated beginning November 8, 2018 when 10-year U.S. Treasury bond yields began a descent that saw their yield drop from 3.23% to a recent jaw-dropping all-time low of 0.40% on March 9, 2020. Although the recent bond sell-off beginning in August, 2020 saw yields jump to 0.95% on November, 10, 2020, interest rates remain at historically and incredibly low levels.

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Sweet Spot Investing with Convertible Bonds

Jim Buckham CFA, Portfolio Manager

Convertible bonds are sometimes considered the “Swiss Army knife” of financial products because they can provide investors with principal protection (barring default), income, and equity-like returns.

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Bull, Bear and Upside-Down Markets

By Jim Buckham CFA, Portfolio Manager

An informative historical review of bull and bear markets leading up to the present state of our global economy

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Wellesley Asset Management Named to PSN Top Guns List of Best Performing Strategies for Q3 2022

Wellesley Asset Management announced it has been named to the celebrated PSN Top Guns List of best performing separate accounts, managed accounts, and managed ETF strategies for Q3 2022. The highly anticipated list, published by Zephyr, remains one of the most important references for investors and asset managers.

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