Sheridan Admans, investment adviser at The Share Centre, explains how investors could benefit from the features of both bonds and stocks during uncertain times, by investing in a convertible bond fund like the M&G Global Convertibles.
 
A convertible is essentially a bond – which is a unit of debt. As such, they are often viewed as relatively low risk because, if a company goes bust, the bonds have to be repaid before any money can be given to shareholders.
 
However, unlike a traditional bond, a convertible can be changed into shares. Convertibles can therefore offer the upside potential of equities with the downside risk protection of bonds, delivering risk-adjusted returns that are significantly ahead of both asset classes.
 
In July 2007, M&G launched its Global Convertibles fund with an aim to maximise long-term total return by predominantly investing in convertible loan-stock. As at 28 February 2010, the fund size stood at £341.6 million.
 
The fund has been managed by Leonard Vinville since its inception. Vinville manages the fund without reference to any benchmark, expected yield or target return. He focuses purely on delivering the best possible risk-adjusted total returns.
 
Vinville employs a bottom-up, global approach to selecting convertibles based on the assessment of company fundamentals. In terms of performance the fund has returned 68% on a cumulative basis over the last five years.
 
M&G is well respected for its bond funds. Despite this fund’s short history, we believe M&G’s experience in the fixed interest securities market will help benefit the Global Convertibles fund over time.
 
The M&G Global Convertibles has an annual charge of 1.5 per cent and an initial charge of 4 per cent. The minimum initial investment is £1,000.
 
However, as the fund features in The Share Centre’s Platinum 120 range, customers wishing to invest in the M&G Global Convertibles will not have to pay the initial charge or purchase dealing commission. Customers can also invest in the fund from as little as £10.