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.
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