Stressjahr 2022: Bei Aktien und Anleihen gerieten die Kurse gleichzeitig unter Druck. Wandelanleihen als Aktien-Anleihen-Hybride konnten sich dem nicht entziehen. Marc-Alexander Knieß, Portfolio-Manager im globalen Wandelanleihen-Team, sieht nach den Entwicklungen in den ersten drei Quartalen 2023 jetzt eine geänderte und grundlegend bessere Ausgangssituation.
A quick look back at 2022: what's the summary?
Convertible bonds - hybrid fixed-income securities that can be converted into shares - can deliver the "best of both worlds". They offer investors the coupon of the bond and at the same time the opportunity to participate in the upward movements of the company's share.
It is well known that the stock markets struggled in the past calendar year. At the same time, bond prices came under enormous pressure due to the rapid interest rate hikes and, with coupons still extremely low, could do little to counteract this in terms of returns. So when things get difficult in both the equity and bond markets, convertible bonds cannot escape the effects.
And so far in 2023: What stands out from your perspective as a convertible bond investor?
The "natural" focus in the universe of convertible bond issuers contributed to the relatively weak performance: Companies that want to finance growth, often with a focus on technology from the high-yield - small cap sector. These tended to be sectors and areas that came under particular pressure as a result of the interest rate hike and risk aversion on the markets. The temporary stock market recovery in the current year, on the other hand, was largely driven by mega caps (FAANG+), which generally do not issue convertible bonds.
What is fundamentally different going forward?
Fundamentally - we have an interest rate again! For newly issued convertible bonds, we are once again talking about significant coupons. This increases the convexity in the payout profile of convertible bonds. This means that you can participate much more strongly in rising prices on the stock markets than you are affected by falling prices through your option to convert into shares. Ultimately, if you invest in convertible bonds, you now have the coupon or interest payment again, which cushions price losses and, conversely, comes on top of price gains.
In addition, the primary market is really picking up speed again. With interest rates generally higher, more convertible bonds are being issued because companies are paying slightly less interest than with a comparable straight bond. We are taking advantage of the broader offering - also in order to critically select the most attractive securities worldwide as an active manager.
What role can convertible bonds play in investors' portfolios today?
Investors need to pay more attention than ever to diversifying the risks in their portfolios. As a result of equity market developments in recent years, many have a clear bias with an overweight in US mega caps and sometimes even cluster risks in relation to certain large tech stocks. Exposure to second-tier growth stocks outside the mega caps should then be increased. The starting point for this is not bad. In many cases, equity valuations here are historically favourable - a clear contrast to the ambitious valuations of the stocks that have recently been in focus and have driven the global equity markets. Convertible bonds are a strategic component of every portfolio. In the current interest rate environment, however, they are also characterised by the fact that investors are paid for "waiting" for an "automatic" entry into a possible catch-up rally. This is because they are entitled to the interest income from convertible bonds in any case.
They also occupy a special position in the bond allocation of a portfolio. In our view, they can be the "better corporate bonds". Anyone investing for the long term and assuming a generally positive stock market trend can expect better returns in the long term through share price participation than with corporate bonds of a comparable credit rating.
Your view on the foreseeable development of convertible bonds?
We have the Cinderella phase behind us. To stay in the picture: The shoe fits for convertible bonds today. In the medium term, we see significant catch-up potential for second-tier growth stocks. And we have an interest rate again. Nobody knows whether the interest rate hikes will continue. From the current interest rate level, we are more relaxed about the future. If interest rates rise, we will be better able to cushion price losses on the bond side with interest income. If they fall again in the foreseeable future, we should receive a significant tailwind on the price side.
Talk to us about your personal goals. Our experienced Clients & Markets team is always available for further information or personal discussions: Tel. +49 69 365058-7000.
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