1. Newsroom
  2. No-coupon convertibles in demand
Menu
UBP in the press 14.02.2020

No-coupon convertibles in demand

No-coupon convertibles in demand

Allnews (07.02.2020) - 2019 was an excellent year for the primary market, says Marc Basselier, head of convertible bonds at UBP.


Whether for equity exposure with downside protection, for asset diversification, or for creating asymmetry, newly issued zero-coupon convertible bonds have been going like hotcakes because of their convexity. In the wake of quantitative easing, these hybrid assets – half-way between bonds and equities – can lead to negative yields if the conversion from bond to equity fails to materialise; a seemingly very unsatisfactory return given such bonds’ low ranking in the hierarchy of debt. “Yet they are not unattractive because their performances are linked to those of their underlying equities”, says Marc Basselier, UBP’s Head of Convertible Bonds.

A more diversified universe

Last year saw a clear trend for share buy-backs. Meanwhile the global convertible bond primary market was on fire, with new issues hitting USD 85 billion.

“2019 was an excellent year for the US primary market with USD 60 billion worth of new issues, and one of the best years since 2001 in Europe once it picked up again in the second half of the year”

states Marc Basselier. He adds that in fact some issues were used to optimise balance sheets by financing share buy-backs.

In the past four years some hitherto unrepresented sectors, including takeaway food, software and semiconductors as well as growth companies, have been added to the investment universe. Even some green convertible bond issuers have emerged: Marc Basselier says wind power start-up NeoN’s first small batch in the second quarter got off to a strong start.

Selective bond-picking

But although conversion premiums are way above 20%, are convertible bonds still worth considering given that equities are at all-time highs? “Convertibles have a lifespan of five to seven years, which makes the premiums more than fair”, explains Marc Basselier. There are more important criteria, such as the bonds’ equity-sensitivity and downside protection, he says. “In the European universe, equity exposure is 40% with the bond floor 12% lower. Equally attractive exposure can be found in the luxury sector, for example, with LVMH’s latest issue maturing in 2022, offering a conversion premium of about 20%.”

Convertible bonds

Interview of Marc Basselier by Salima Barragan from Allnews


Basselier_Marc_150x150_2.jpg
Marc Basselier
Head of Convertible bonds

Expertise

Impact investing - Contributing to a more sustainable future

What are the key features of impact investing?

Read more

Most read

UBP in the press 28.04.2020

How to hedge when volatility itself becomes volatile

Professional Pensions (24.04.2020) - The fastest bear market in history ends one of the longest-ever bull markets

UBP in the press 12.05.2020

“UBP trusts in private markets, less correlated with traditional assets”

Monaco For Finance (23.04.2020) - Sérène El Masri was appointed Site Manager of UBP’s Monaco branch one year ago. Monaco For Finance spoke to her about her impressions of Monaco as a financial centre.

UBP in the press 21.08.2020

Does private education generate positive impact?

Environmental Finance (14.08) - There is a strong argument for saying that private education has no place in impact investing because education is a basic public good that should be freely accessible to all. 

Further reading

UBP in the press 12.10.2020

The private banker’s metamorphosis

Le Temps (12.10.2020) - Few have been forced by their environment to go through such a deep professional change as private bankers. While relationship-building and advising remains their core role, their job today does not have much in common with what it was before the 2008 slump.

UBP in the press 09.10.2020

FRNs: an attractive medium-term opportunity

Institutional Money (08.09.2020) - FRNs offer an attractive risk/reward profile at the effective lower bound

UBP in the press 29.09.2020

Adrian Kuenzi: «I Wanted This Rupture»

Finews (28.09.2020) - Adrian Kuenzi has taken his next career step at Union Bancaire Privée, he told finews.com in an interview. The bank will keep investing, because the best of cost-cutting program won't help it win new clients.