Convertible bonds are a form of financing arrangement that allows investors to begin as a lender and potentially end as a shareholder due to their embedded equity option. They have earned dedicated allocations in institutional portfolios and, as such, we believe these securities start to represent a distinct asset class.

The risk-return profile of convertible bonds stands out versus other asset classes. Their fluid identity is their strength, as they generally exhibit bond-like characteristics in declining equity markets, and equity-like characteristics in rising ones. It follows that the bond should be analysed in the market environment context to determine its investment profile at a particular time and relevance to an investor’s objective. This analysis requires skill and experience, as it calls for technical, fundamental, and tactical analysis. Done well, the potential benefits to investors can be consistent and meaningful.

The global universe of convertible bonds currently consists of about 1,000 securities valued at $400 billion to $500 billion, with issuances focused on the United States and Europe.

In the session, we will start by reviewing the convertible bond market characteristics and its specific features. We will comment on the convertible bonds year-to-date behaviour and explain their strong performances. We will focus on the primary market and its potential evolution, accelerating or slowing down, as well as its impact on the valuation in the secondary market. Part of the presentation will address the management of the asset class at LAZARD.  Then, we will focus on the current positioning of our portfolios regarding the main performance drivers of the asset class, the different geographical areas and sectors, as well as the rating and nature distributions. We will finish the session on the valuation of the convertible market and on our outlook for the asset class in the coming months.

About the speaker

Arnaud Brillois

Arnaud Brillois began working in the investment industry in 2000. Arnaud joined Lazard in Paris in 2008 as the Head of Convertible Bonds before relocating to New York in 2017. Previously, he was the Director of Alpha Fixed Income and Convertible Bonds Management at Natixis.