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Reaping the benefits of asymmetric returns


The M&G Global Convertibles Fund was launched on 13 July 2007. During the subsequent 10-year period, fund manager Léonard Vinville and his team have successfully navigated through what, at times, have been very turbulent waters.

  • The M&G Global Convertibles Fund has navigated both rising and falling markets.
  • Fund performance depended on the team’s ability to analyse credit, identify undervalued equities and assess the best technical characteristics of convertibles
  • There are a number of reasons that suggest that convertibles remain well placed to perform well in the current investment environment

As is generally the case when a fund has been around for several years, the M&G Global Convertibles Fund has experienced both rising and falling markets. Soon after the fund launched, the global financial crisis began. Subsequently, valuations of convertibles came under massive pressure from the credit crunch and the demise of convertible arbitrage funds. A focus on convertibles with solid credit quality, as well as minimal exposure to bank-issued deals, cushioned the fund from the worst of the downward price movements. Governments and central banks then initiated stimulus measures to rebuild economies, leading to long-lasting rallies in the equity, bond and convertibles markets. The fund enjoyed strong performance as many of the convertibles held benefited from improvement in both their credit and equity profiles.

“By mid-2015, investors began to fear that slowing growth in China, allied to a collapse in the prices of oil and other commodities, could lead to global recession.”

Of course, it was not all one-way traffic and, in 2011, the European debt crisis led to some steep share price falls. Once again, the fund, and convertibles in general, were relatively insulated from the weakness, before participating in the recovery that followed the agreement of bailouts and more economic stimulus. By mid-2015, investors began to fear that slowing growth in China, allied to a collapse in the prices of oil and other commodities, could lead to global recession. Once again, the fund’s rigorous credit analysis process ensured that bond floors held firm, limiting price falls. As we approach the tenth anniversary, a synchronised global economic recovery seems to be taking place, boosting equities and those convertibles we have identified as giving a link to undervalued shares.

The strong past performance of the fund has depended on the team’s ability to analyse credit, identify undervalued equities and assess the best technical characteristics of convertibles. Thus, the fund has benefited from convertibles whose balance sheets are strong enough to give them robust bond floors, whose underlying shares have rallied, and whose risk/reward profiles have proved valuable.

A number of factors suggest that convertibles remain well placed to perform well in the current investment environment:

  1. Markets may not always be so calm
    Many equity markets around the world remain close to record highs and, although the improving economy could encourage further rallies, there are growing concerns about high share price valuations. There are also many potential events that could unsettle investors and increase the volatility of asset prices. These include geopolitical concerns and ‘unconventional’ action from President Trump, as well as a change in policy form the world’s central banks – or, indeed, a ‘black swan’ incident that nobody had predicted. It is at times like this that the inherent volatility dampening qualities of convertibles can become particularly worthwhile.
  2. Well placed for rising interest rates
    As other central banks seem to indicate that they might follow the US Federal Reserve and embark on an interest rate tightening cycle, it is worth noting that convertibles tend to do well when interest rates are rising. If stronger economic growth prompts higher borrowing costs then this should be reflected in higher equity prices, in which convertibles would participate. At the same time, the shorter duration of convertibles means that they should be better placed to withstand higher rates than other corporate bonds, which generally come under pressure as rates increase.
  3. Attractive relative to other assets
    Almost all industry sectors and geographic regions are represented in the convertibles market, although some sectors and countries have larger weightings than others. It is possible to gain balanced exposure across both growth and value stocks, to technology-linked issues and more defensive companies. In our view, the many attractive investment opportunities in that can be unearthed in the convertibles universe should contribute to the asset class maintaining its healthy performance record.

    The consistent investment process has delivered strong results in the first 10 years of the fund’s life. This approach, based on bottom-up stock selection, depends on rigorous analysis of credit, equity and technical characteristics to help the team select those convertibles they believe are most likely to generate asymmetric returns.

    It is clearly impossible to predict what will take place over the next 10 years in global financial markets. Since no one knows what is going to happen, investors should consider the use of convertibles, which are likely to perform well over the long term, whatever comes to pass. Finding the right balance between credit and equity is the best way to deliver favourable returns over the long term.


Léonard Vinville is fund manager of the M&G Global Convertibles Fund

Reaping the benefits of asymmetric returns 


Important information
The value of investments will fluctuate, which will cause fund prices to fall as well as rise and investors may not get back the original amount invested. For Investment Professionals and Institutional Investors only. Not for onward distribution. No other persons should rely on any information contained within. Distribution of this document in or from Switzerland is not permissible with the exception of the distribution to Qualified Investors according to the Swiss Collective Investment Schemes Act, the Swiss Collective Investment Schemes Ordinance and the respective Circular issued by the Swiss supervisory authority (“Qualified Investors”). Supplied for the use by the initial recipient (provided it is a Qualified Investor) only. In Spain the M&G Investment Funds are registered for public distribution under Art. 15 of Act 35/2003 on Collective Investment Schemes as follows: M&G Investment Funds (1) reg. no 390, M&G Investment Funds (2) reg. no 601, M&G Investment Funds (3) reg. no 391, M&G Investment Funds (5) reg. no 972, M&G Investment Funds (7) reg. no 541, M&G Investment Funds (9) reg. no 930, M&G Investment Funds (12) reg. no 1415, M&G Investment Funds (14) reg. no 1243, M&G Global Dividend Fund reg. no 713, M&G Dynamic Allocation Fund reg. no 843, M&G Global Macro Bond Fund reg. no 1056 and M&G Optimal Income Fund reg. no 522, M&G (Lux) Investment Funds 1 reg. no 1551. The collective investment schemes referred to in this document (the “Schemes”) are open-ended investment companies with variable capital, incorporated in England and Wales in respect of M&G Investment Funds and in Luxembourg in respect of M&G (Lux) Investment Funds. In the Netherlands, all funds referred to, are registered with the Dutch regulator, the AFM. This information is not an offer or solicitation of an offer for the purchase of investment shares in one of the Funds referred to herein. Purchases of a Fund should be based on the current Prospectus. The Instrument of Incorporation, Prospectus, Key Investor Information Document, annual or interim Investment Report and Financial Statements, are available free of charge, in paper form, from the ACD: M&G Securities Limited, Laurence Pountney Hill, London, EC4R 0HH, GB; or one of the following - M&G International Investments Limited, German branch, mainBuilding, Taunusanlage 19, 60325 Frankfurt am Main; the Austrian paying agent: Société Générale Vienna Branch, Zweigniederlassung Wien Prinz Eugen-Strasse, 8-10/5/Top 11 A-1040 Wien, Austria; the Luxembourg paying agent Société Générale Bank & Trust SA, Centre operational 28-32, place de la Gare L-1616 Luxembourg; the Danish paying agent: Nordea Bank Danmark A/S Issuer Services, Securities Services, Hermes Hus, Helgeshøj Allé 33, Postbox 850, DK-0900, Copenhagen C, Denmark; Allfunds Bank, Calle Estafeta, No 6 Complejo Plaza de la Fuente, La Moraleja, 28109, Alcobendas, Madrid, Spain; M&G International Investments Limited or its French branch; from the French centralising agent of the Fund: RBC Investors Services Bank France; or from the Swedish paying agent: Nordea Bank AB (publ), Smålandsgatan 17, 105 71 Stockholm, Sweden. For Switzerland, please refer to M&G International Investments Switzerland AG, Talstrasse 66, 8001 Zurich or Société Générale, Paris, Zurich Branch, Talacker 50, P.O. Box 5070, 8021 Zurich, which acts as the Swiss representative of the Schemes (the “Swiss Representative”) and acts as their Swiss paying agent. For Italy, they can also be obtained on the website: For Ireland, they are available in English language and can also be obtained from the Irish facilities agent, Société Générale SA, Dublin Branch, 3rd Floor IFSC House – The IFSC Dublin 1, Ireland. For Germany and Austria, copies of the Instrument of incorporation, annual or interim Investment Report, Financial Statements and Prospectus are available in English and the Prospectus and Key Investor Information Document/s are available in German. Before subscribing investors should read the Prospectus, which includes investment risks relating to these funds. The information contained herein is not a substitute for independent advice. In Switzerland, this financial promotion is issued by M&G International Investments Switzerland AG, authorised and regulated by the Swiss Federal Financial Market Supervisory Authority. Elsewhere, it is issued by M&G International Investments Ltd. Registered Office: Laurence Pountney Hill, London EC4R 0HH, authorised and regulated by the Financial Conduct Authority in the UK. Registered in England No. 4134655 and has a branch located in France, 6 rue Lamennais 34, Paris 75008, registered on the Trade Register of Paris, No. 499 832 400 and a branch in Spain, with corporate domicile at Plaza de Colón 2, Torre II, Planta 14, 28046, Madrid, registered with the Commercial Registry of Madrid under Volume 32.573, sheet 30, page M-586297, inscription 1, CIF W8264591B and registered with the CNMV under the number 79. The Portuguese Securities Market Commission (Comissão do Mercado de Valores Mobiliários, the “CMVM”) has received a passporting notification under Directive 2009/65/EC of the European Parliament and of the Council and the Commission Regulation (EU) 584/2010 enabling the fund to be distributed to the public in Portugal. M&G International Limited is duly passported into Portugal to provide certain investment services in such jurisdiction on a cross-border basis and is registered for such purposes with the CMVM and is therefore authorised to conduct the marketing (comercialização) of funds in Portugal. JUL 17 / 218210_233415


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