High income (or "busted") convertibles offer a unique combination of high current yields and yields to maturity, plus the potential for significant equity-driven capital appreciation. When their underlying stocks collapse, the prices of convertible bonds stop falling when they find yield support. These busted convertibles lose the attention of equity-oriented convertible investors while remaining largely unwelcome in the fixed income mainstream.
"As a neglected niche within the already-neglected convertible universe," says portfolio manager Andrew Watts, "high income convertible securities are often available at attractive prices."
Drawing on Oaktree's expertise in convertibles and high yield bonds, we attempt to exploit the inefficiencies of this market. We seek to capture a significant portion of equity market returns over full market cycles, while providing levels of current income and volatility closer to the fixed income market.
Our bottom-up approach focuses on minimizing risk through credit analysis, diversification, and a focus on attractively valued issues with stable-to-improving fundamentals. Since 1989, Oaktree's High Income Convertible portfolios have captured the performance of stocks with much lower volatility.