INSIGHTS

The Convertible Investor : Fall 2022

Greg Miller CPA, Founder, Chairman and CEO
Jim Buckham CFA, Portfolio Manager
Howard Needle, Portfolio Manager
Dennis Scarpa CFA, Senior Analyst
  1. Higher Interest Rates May Provide Opportunity
  2. The Benefits of Using Convertible Bonds in Rising Rate Environments
  3. Heed the Inverted Yield Curve
  4. Synthetic Convertibles go Mainstream

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Commentary – Q2

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

The first quarter of 2022 was painful for financial markets and heartbreaking for those watching the tragic events unfolding in Ukraine. The bond market massacre, beginning last year, accelerated with 10-year U.S. Treasury yields jumping to 2.32% from a low of 0.51% in early August 2020.

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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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Commentary – Q1

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

The first quarter of 2022 was painful for financial markets and heartbreaking for those watching the tragic events unfolding in Ukraine. The bond market massacre, beginning last year, accelerated with 10-year U.S. Treasury yields jumping to 2.32% from a low of 0.51% in early August 2020.

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Wellesley Asset Management Surpasses $3 Billion in Regulatory Assets Under Management as They Celebrate Their 30th Year Anniversary

By: Business Wire

WELLESLEY, Mass.–(BUSINESS WIRE)–Wellesley Asset Management is pleased to announce it has surpassed $3 billion in Regulatory Assets Under Management* this summer. This milestone was accomplished as Wellesley celebrates its 30th anniversary as a nationally recognized Registered Investment Advisor and Asset Manager with a singular focus on convertible bonds. Wellesley’s Founder and CEO, Greg Miller, who was recently named as Forbes #3 ranked Investment Advisor in Massachusetts for 2021** has utilized a conservative approach to convertible bonds since 1991.

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The Convertible Investor – Summer 2021

Greg Miller CPA, CEO & Portfolio Manager
Jim Buckham CFA, Portfolio Manager
Howard Needle, Portfolio Manager
Dennis Scarpa, CFA Senior Analyst
  1. INFLATION IS REARING ITS UGLY HEAD – IS YOUR PORTFOLIO READY
  2. DOWNSIDE PROTECTION: A CASE STUDY OF WAM’S RETURNS IN 2008
  3. THE RATIONAL INVESTOR?
  4. Q&A WITH THE PORTFOLIO MANAGERS

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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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Convertible Bonds: The Advantages of Synthetics

Greg Miller CPA, Founder, Chairman and CEO
Michael Miller, President & CIO
Jim Buckham CFA, Portfolio Manager
Dennis Scarpa CFA, Senior Analyst

One type of convertible bond that you may be unaware of is called a synthetic convertible bond (“synthetic”). Synthetics offer a different take on this hybrid product by potentially adding more protection and differentiation to the asset class.

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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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