Sean H. Reynolds, Managing Director, Portfolio Manager/Analyst and Sarah M. George, Senior Vice President, Client Portfolio Manager at Lazard Enhanced Opportunities, Lazard Asset Management make the case for convertible arbitrage.
Convertible arbitrage, or hedged convertible bonds, has the potential to generate attractive absolute returns with significantly lower credit and duration risk than those of other fixed income asset classes. A convertible bond is a corporate issued debt security that offers the ability to convert the bond into stock at or above a predetermined price. A convertible arbitrage strategy typically goes long on the convertible securities of a company and simultaneously shorts the same issuer’s common stock. Convertible arbitrage strategies exploit potential mis-pricing of the credit component, income component, equity component and/or volatility component of the convertible bond.
To learn more on this topic, register and watch Lazard’s webcast – Convertible Arbitrage: A Timely Solution for an Uncertain Market Environment.
In today’s markets, identifying an investment opportunity that can offer compelling return potential without undue risk is challenging. Convertible arbitrage—or hedged convertible bonds—has the potential to provide attractive absolute returns with significantly lower credit and duration risk than those of other fixed income asset classes. Because of its historically low correlation to traditional fixed income, it can also provide unique diversification benefits within a balanced portfolio. In the current environment, uncertainty has led to higher market volatility, which can increase both the return potential and relevance of a hedged convertible bond strategy, creating an opportunity that we have seen only a handful of times in the last 25 years. This investment approach deserves a closer look.
Our experts will discuss:
- Drivers of return in a convertible arbitrage strategy
- Current market backdrop and potential for return generation
- Unique sources of potential alpha within the space
- Long-term diversification benefits and how to position a convertible arbitrage strategy within a portfolio
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