The Case for Convertibles
Historical performance indicates that convertible securities have performed better, relative to most equities classes, over the recent 3, 5 and 10 year periods with substantially less volatility.
|Indices||One Year*||Three Years*||Five Years*||Ten Years*|
|Total Rtn||Volatility||Total Rtn||Volatility||Total Rtn||Volatility||Total Rtn||Volatility|
|BAML All Converts Index (VXA0)||-2.3%||10.9%||8.8%||17.3%||2.2%||15.9%||5.2%||12.7%|
|Underlying Equity of VXA0 Index||-9.7%||21.0%||2.5%||32.2%||-3.8%||27.1%||2.5%||24.7%|
|S&P 500 Index||1.1%||13.7%||1.2%||21.2%||-1.2%||18.3%||2.8%||15.7%|
|Russell 2000 Index||-3.5%||19.8%||-0.4%||28.2%||-1.0%||23.7%||6.1%||20.8%|
|*Annualized returns/Volatility based on Monthly Data (as of 9/30/11)|
The Efficient Frontier for Stocks, Bonds and Convertibles
Investing in convertible bonds can expand the efficient frontier of a portfolio as compared to investing only in bonds or in a blend of stocks and bonds. The chart below displays the efficient frontier of a hypothetical portfolio that combines convertible securities and bonds, compared to one that combines stocks and bonds. As the chart shows, the hypothetical portfolio with convertibles shows a greater return for the level of risk.