Q. What factors support the case for convertible securities today?

Convertible security strategies are best viewed as strategic allocations to be held for full and multiple market cycles, but there are factors that make convertibles especially compelling today. As equity-sensitive instruments, convertibles have historically fared well during periods of rising equity markets, economic expansion, and increasing interest rates. Convertibles have also historically helped mitigate the impact of downside volatility in the equity markets.

We believe these are key considerations for investors today. The global economy is enjoying a period of expansion, with favourable trajectories in Europe, the United States and many emerging markets. A stabilising dollar, contained inflation and an increased emphasis on fiscal policy – most notably but not exclusively in the United States – can provide tailwinds to sustain this economic growth and additional equity market upside.

Against this backdrop, we expect the Federal Reserve to continue gradually tightening short-term rates. Looking further out, as economic growth continues globally, the historically low-to-negative rates to which investors have grown accustomed eventually should give way to a more normal interest rate environment worldwide. This more normal rate environment is positive, both from an economic standpoint as well as for equities and equity-sensitive convertible securities.

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