Those who withstood the rout have stellar returns this year, but will the run continue?
Last year's rout of convertible bonds prompted Silverback Asset Management to ask "Are convertibles dead?" on the cover of a special December 2005 investor communication, spoofing the iconic 1966 Time magazine cover that asks the same question about God. In the case of convertibles, Silverback asserted, the answer was clearly "No."
As this year's turnaround has shown, Silverback was right. Although the equities surge of October slowed momentum for convertible returns this year, the strategy is still one of the top-performers of 2006. A composite group of convertible arbitrage funds compiled by Absolute Return returned 9.54% through October, outpacing AR's composite index, which reached 8.49% during the same period.
"Convertibles were never dead. They'll never die unless companies stop issuing them," says Elliot Bossen, Silverback's chief investment officer. That clearly hasn't happened. This...