Convertible Bonds as an Asset Class: 1952 - 1992

By Scott L. Lummer (PhD., CFA) & Mark W. Riepe (CFA), September 1993

Ibbotson Associates , established by Professor Roger Ibbotson in 1977, offers consulting and training services as well as software, research, data and presentation products.

Executive Summary

Convertible bonds are an important asset class, but its risk and return performance and suitability as an asset class for different types of investors has received insufficient attention. We attempt to rectify this neglect by evaluating the unique characteristics of convertibles and documenting the convertible bond market in terms of its historical return performance.

We find that convertibles allow the investor to experience the benefits from both a fixed-income and equity investment, have favorable features for issuers who are consequently motivated to price the bonds attractively, and are ideally suited for an investment in firms whose future risk is difficult to assess.

With respect to performance, convertibles had a compound annual total return of 8.3 percent over the years 1957 to 1992 compared with 6.8 percent for long-term corporate bonds, 7.3 percent for intermediate-term corporate bonds, and 10.5 percent for stocks.

Updates

• Convertibles as an Asset Class - 2000 Update
• Convertibles as an Asset Class - 2001 Update
• Convertibles as an Asset Class - 2002 Update