Though growing rapidly, the market for international convertibles remains relatively inefficient. An overlooked asset class with little systematic coverage by Wall Street firms or organized institutional demand, its infrastructure is relatively undeveloped as to trading and communication, databases, benchmarks and performance histories. Over the long term, international convertibles have delivered the majority of the performance of international equities with greatly reduced risk.

"Historically, international convertibles have been more attractive than their U.S. counterparts in terms of fixed income characteristics, equity participation and quality of issuer," says Abe Ofer, who leads Oaktree's international convertibles team along with Jean-Paul Nedelec.

Our research process identifies statistically cheap convertibles, which are further scrutinized for low-to-moderate conversion premiums, meaningful yield, call protection and creditworthiness.

"We place a heavy emphasis on issues with substantial downside protection," says Nedelec, "and diversify by region, sector, and industry. Holdings of a single issue seldom exceed three percent."

Other aspects of risk control include currency hedging on an as-needed basis. The team regularly reviews holdings to confirm the initial investment thesis and compares them to other available opportunities in terms of relative attractiveness.

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