Changing the overused phrase just a bit, "If you don't like the convertible bond market, just wait a minute, it will change."
Alistair MacDonald at the Wall Street Journal reports that the convertible bond market is experiencing a rebound in 2006 with issuance up and convertible hedge funds up some 5% this year after a down year in 2005.
"Hedge funds are making more money," said Michael Hintze, chief executive of London-based CQS, one of the world's largest hedge-fund investors in convertibles, with $5 billion bet on the strategy. "The equity markets have done well and the volatility has returned to the market, all of which has helped trading."
This is one area where individual investors can play as well. As of April 21st, Morningstar.com reports that the average convertible bond fund was up 5.97% for the year-to-date.
Market Particpant at the US Market Blog is also attracted to convertible bonds for a slightly different reason. They look to convertibles as a way to ratchet down their market exposure in light of an extended stock market.
Convertible bond funds are a good way to reduce portfolio risk while still participating in the market. The non linear nature of convertible bonds suggests that active management is useful so long as it is not too expensive.
Whether convertibles are right for you depends in part on the composition of your portfolio and your desired market exposure. Given the run in the markets they may be worth a look as we head into the summer months.