Our U.S. Convertible Securities strategy emphasizes identifying the greatest bargains – securities likely to capture a high percentage of any appreciation of the underlying stocks while being exposed to a much lower percentage of declines that may occur. Through this approach, Oaktree-managed portfolios have delivered most of the return of common stocks with reduced volatility and risk since 1987. The objective is to capture the greater portion of equity performance over full market cycles with reduced volatility, or to substantially outperform straight bonds with similar levels of risk.
"Our primary focus is on convertibles that have a clear imbalance of upside potential to downside risk, with this superior imbalance being a function of their credit profile and the convertible structure and pricing," says Stu Spangler, co-portfolio manager. "We then look at the potential for capital gains from the underlying equity story," adds Andrew Watts, co-portfolio manager.
We aim for broad diversification to protect against the impact of poor performance by a particular issuer or industry. To further minimize risk, we emphasize convertible securities with loss-preventive features such as short maturities or the right to "put" a security back to the issuer within a few years.