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Convertible bonds

Convertible bonds

Convertible bonds combine the defensive qualities of straight bonds with the upside potential of equities, which gives them an asymmetric risk/return profile. This characteristic is a considerable advantage in the long term, as it enables this asset class to deliver equity-like performances with significantly lower volatility.


Investment case

  • Convertible bonds have a long track record of delivering equity-like returns with much lower volatility, improving the risk/return profile of a diversified portfolio.
  • Being partly sensitive to equity, convertible bonds have lower interest-rate sensitivity than straight bonds with identical duration.
  • Additionally, European convertible bonds currently exhibit cheap options features compared with listed options, which makes them a good alternative for investors seeking optionality.
  • The outlook for the asset class is highly favourable:
    More companies are turning to convertibles for their financing needs.
    Investors are increasingly seeing them as a valid alternative to both equities and bonds.

A long-term commitment to the asset class

  • UBP has managed convertible bonds since 1999 with top-quartile performances
  • UBP has EUR 3.8 bn (as of 30.09.2016) under management in convertible bonds

Investment team

  • The UBP Convertible Bond team is composed of 12 investment professionals, all dedicated to the asset class.
  • Jean-Edouard Reymond, head of the Convertible Bond team, has appointed four region-specific portfolio managers who act as his back-up in the daily management of the funds.
  • Beyond their geographical specialisations, they also act as contributors throughout the range on credit, volatility and option-related matters.
  • The team can rely on a senior convertibles and credit adviser, a senior quantitative analyst, a junior trader, a front developer and two investment specialists.
  • The team also has access to a strong network of resources within UBP, including:
    • A global asset-allocation team (Geneva);
    • A credit research team (Geneva/Zurich);
    • European equity and emerging equity analysts (London).

Investment process

A five-step, bottom-up process to filter the European convertible bond universe from 250 securities to around 65.

  1. Investment Universe
    Minimum size and liquidity filters – ± 200 securities
     
  2. Convertible Bond Analysis
    Assessment of credit spread, implied volatility and convexity – ± 110 securities
     
  3. Equity & Credit Analysis
    Analysis of the underlying equity's upside potential and of the issuer's credit – ± 65 securities
     
  4. Portfolio Construction
    Weights driven by credit quality – convertible bond portfolio
     
  5. Exposure Management
    Discretionary management of equity, interest rate and sensitivity when appropriate – final portfolio

Fund concept

Our funds are designed to capitalise on the most attractive features of convertibles, using an objective, bottom-up process with no equity or bond bias.

 

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