Colloquium “Convertible Bond Funds”

By Christian Michel, Justus Liebig University Gießen, Prof. Dr. Wolfgang Bessler, Professor of Finance and Banking, 2004

The colloquium takes a close look at valuation methods and specific features of convertible bond funds, examines the possibility of portfolio optimization through the addition of convertible bond funds and outlines their advantages compared to investing directly in convertibles.

Executive summary

The colloquium concludes that convertibles are dynamic financial instruments which should be viewed as an independent asset class. Given the asymmetric risk-return profile of convertible bonds and their imperfect correlation with other asset classes, investors can structure their portfolios more efficiently by including convertibles. Of particular interest is the hybrid area, whose combination of capital protection and participation in rising prices produces an especially marked asymmetric profile.

In view of the attractiveness of hybrid financial instruments, particularly in the current interest rate climate, the investment fund industry should remain in a position to benefit. Especially for investors who are conservative but still do not want to completely forgo the upside potential of equities, convertible bond funds represent an interesting alternative. The significance of this asset class for investors and investment fund companies can be expected to keep growing.