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Convertible Securities - Safer Than Stocks & Higher Returns Than Bonds?

Wednesday, October 5, 2011 - 7:30 AM
From the Wall Street Journal
[Convertible securities] tend to lose less value than stocks in a downturn and continue to pay interest

When stocks rise, these securities usually capture around 70% of their gains

However, they might not be as safe as advertised:
In 2008, the average convertibles fund fell 33%

Ken TuminKen Tumin5,471 posts since
Nov 29, 2009
Rep Points: 125,634
1. Wednesday, October 5, 2011 - 8:28 AM
I guess "safety" is a relative term when talking about anything other than FDIC insured cash accounts. In 2008, the average convertibles fund may have fallen 33%, but the average large-cap stock fund fell by about 50%! So, compared to stocks, convertibles were fairly "safe," even in 2008! I personally like the Northern Income Equity Fund (NOIEX), which is a unique "balanced" fund holding a portfolio balanced between mainly dividend-paying stocks and mostly convertible bonds. In a down market it will suffer somewhat greater losses than a "plain vanilla" balanced fund, but in a rising market it leaves the others behind in the dust, long-term returns surpass the S&P 500 with less volatility.
WilWil242 posts since
Feb 26, 2010
Rep Points: 1,285