In its weekend edition at the end of April 2023, the newspaper "Le Monde" reports on the advantages of the convertible bond asset class. With stock markets in turmoil, it may be appropriate for investors to take an interest in this hybrid financial product.
Le Monde mentions the words of Nicolas Schrameck, co-head of the Convertibles & Credit division at Ellipsis AM.
"It is in the conversion option that the performance potential of the convertible bond resides"
* The above article is reserved for Le Monde subscribers. You will find below a complete summary of this article. Notice for Italy & Spain: Ellipsis AM is not responsible for the translation of this document which is provided for information purposes only. Please refer to the original document in French available on the website www.lemonde.fr.
While bank failures in the US have raised the spectre of a global financial crisis - particularly that of Silicon Valley Bank (SVB) on 10 March - the convertible bond market seems to be gradually regaining favour with investors in Europe.
The benchmark index for these financial products in the euro zone, the Exane ECI Euro, has risen by almost 5% since the beginning of the year. This performance can be explained by the hybrid nature of convertible bonds, which makes them a relatively attractive investment medium for all investors looking for a compromise between security and performance.
Convertible bonds (CBs) theoretically offer investors the possibility of benefiting from the performance potential of the equity market while protecting them against a fall in the stock market through their bond component. (...)
In practice, as with a traditional bond, the CB distributes regular income to investors until the final redemption date of the bond. With one specificity: "It is in the conversion option that the performance potential of the convertible bond resides", explains Nicolas Schrameck, co-head of the convertible & credit division at Ellipsis AM. It gives investors the right to convert, at their convenience, their securities into a predetermined number of shares of the issuing company throughout the life of the CB, at a price fixed at the outset.
This is the median annual management fee for the European-domiciled convertible bond fund category, according to Morningstar. This compares with a median annual management fee of "0.81% for traditional euro bond funds", according to Mara Dobrescu, head of bond fund research at Morningstar.