Convertibles beat stocks and bonds. Can they continue to do so?

In the past 12 months, convertible bonds have proven that they can deliver more than traditional asset classes in a challenging market environment.

CBs gained from the momentum of the equity markets, particularly in high-growth segments, such as technology and artificial intelligence, while also benefiting from the stability of their bond component, which limited drawdowns.

This asymmetric structure – participating in the uptrend, limiting exposure in the downturn – was key to the recent outperformance.

And the outlook remains promising:

• The growth of CB issuers remains priced at a large discount, driven by secular themes such as AI and China/Asia revaluation.
• The primary market for convertible bonds is more active than ever before and is enriching the investment universe.
• Fixed income features and lower drawdowns in times of stress provide more relief to bubble fears.
• While stock prices-driven returns can benefit from rising inflation and weakening US Dollar.

In this paper, Ivan Nikolov, Head of Convertible Bonds, explains why the asset class remains attractive even after its strong outperformance – and where the most exciting opportunities lie.

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