Convertible bonds : outlook and opportunities
Convertible bonds enable us to share in the dynamism of the equity markets while preserving a measured sensitivity to interest rates. However, these catalysts should not cause us to forget the political risk, which is still latent and is liable to trigger new spikes in volatility.
A proven investment process
We have developed a management structure that allows the main manager to cultivate all the various features that drive performance for this asset class. Through this management process, the main manager can draw support from Groupama AM’s specialized expert teams (small and mid caps, large caps and high-yield bonds). We select the convertible bonds that we judge to be the most attractive in the underlying pool and expand the investment universe by employing a replicating convertibles portfolio component. This replicating portfolio enables us to offset imperfections in the underlying pool of convertible bonds, such as the absence of certain issuers, or valuations that we sometimes consider to be excessive. We construct this portfolio internally with the aid of a credit (debt instruments) leg, for which we optimize the yield/duration ratio, and an equity options leg. Finally, we are reinforcing the convexity of our fund by implementing hedging strategies.
Two Open UCITS
In the domain of convertible bonds management, we have two distinct products to offer: Firstly, Groupama Convertibles (ISIN Code: FR0010758755), mainly invested in the Euro Zone, is a prudent fund with maximum equity sensitivity of 40%. Its objective is to outperform its benchmark index (Exane Convertibles Euro) in periods of declining markets. Secondly, G Fund European Convertible Bonds (ISIN Code: LU0571100584), invested in Europe, is an opportunistic fund with a maximum equity sensitivity of 60%. Its objective is to outperform its benchmark index (Exane Convertibles Europe). These two vehicles follow the same investment process.
Good 5-year performance for our two funds
The graphs below show the 5-year performance of our two open-end funds
(Data as of 31/12/16 for the MC EUR class in the case of Groupama Convertibles and for the IC class in the case of G Fund European Convertible Bonds). Past performance is not a reliable indicator of future performance
Pour information, les principaux risques associés au fonds sont le risque action, le risque de taux, le risque de crédit, le risque de liquidité et le risque lié aux instruments dérivés.
Outlook
2016 proved to be a complex year for this asset class, with significant redemptions on open-end European convertible bond funds (approximately 3.7 billion euros) and an abundant primary market, with 21 billion euros issued, bringing valuations back to more reasonable levels. Now, in these early stages of 2017 we are witnessing a continued improvement of the macroeconomic environment, and profit forecasts are rising. Convertible bonds enable us to share in the dynamism of the equity markets while preserving a measured sensitivity to interest rates. However, these catalysts should not cause us to forget the political risk, which is still latent and is liable to trigger new spikes in volatility. In this context, active management based on a proven investment process makes even more sense.
Before investing, each investor must read the prospectus or the key investor information document (KIID) of the UCITS. These documents and other periodical documents can be obtained free of charge on request from Groupama AM or on our website www.groupama-am.com
This non-contractual document does not, under any circumstances, constitute a recommendation, request for offers, an offer to buy or sell or an arbitrage offer, and may in no case be interpreted as such.
Past performance is not a reliable indicator of future performance