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Convertibles set for revival

Once the risk-averse investment climate subsides, the convertible bond space could witness a revival, says Credit Suisse multi-manager co-head Aidan Kearney.

He says convertibles are currently being priced below their intrinsic bond values following fire sales from deleveraging in October and November and the sector could yield opportunities for investors in the years ahead.

Kearney says: “A huge proportion of the convertibles’ market has dropped through the bond floor because it is a sector which is laden with hedge fund activity. If you are picking these up at less than the bond floor, you are picking them up with implied yields of double digits and they come with almost a free offering in terms of converting into the equity.”

Kearney favours the “very conservatively” run RWC glo-bal convertibles fund managed by Miles Geldard and Lee Manzi as it avoids synthetics and only deals in “real” convertible bonds via the cash market.

Standard convertibles are bonds which can be conver- ted into the equity of a firm’s stock, often at a pre-announced ratio, whereas synthetics combine a non-convertible debt instrument with an option or warrant to mimic the characteristics of a convertible.


Trampled in U-turn

Aifa director general Chris Cummings says advisers will feel “let down and trampled on” by the FSA’s RDR U-turn and accused the regulator of caving in to heavy pressure from the banks.

Providers passed for advice stakes

The FSA says it did not find enough evidence of provider bias to prevent them taking stakes in advisory businesses but will keep this under review and will monitor the situation closely.

A clear divide

For those who wanted a political choice, you have it. The Government has opted for borrowing, tax cuts now, particularly for the less well-off and tax increases after the next election for the rich.

Watch out for traps

As macro economics dominates, it is no wonder that many clients will fail to see the benefits for them. It is clear that the Chancellor, if not the Prime Minister, hopes the proximity of Christmas will mean the main beneficiaries – those on lower incomes – will feel they can again spend and this infusion of cash into the retail sector will help the country get going.


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