October Convertible Commentary

20.11.2020 14:22 - GAMCO International SICAV

October Convertible Commentary

In the world of Convertible Bonds, October proved to be a highly volatile month as investors weighed the looming US presidential election and rising COVID-19 cases in both Europe and the US. This considered, outright global CBs excelled as the ICE BofA Global Convertibles G300 (VG00) added more than 0.8% on a local currency basis last month, outperforming all other global asset classes and bringing its year-to-date total return to +14.5%.

Regionally, the US, Europe, Asia, and Japan Euro CBs returned -0.8%, +0.3%, +5.0% (due mostly to the rally in Nio Inc), and -0.1% respectively.

Within US market sectors, it is evident that the cyclical rotation remains intact. In fact, value CBs (+1.0%) comfortably topped growth CBs (-2.7%) in October, and value-heavy sectors including utilities (+4.0%), consumer staples (+3.5%), materials (+3.3%), and energy (+2.0%) outperformed growth-heavy sectors such as t ech (+0.1%), healthcare (-0.9%), and consumer discretionary (-6.8%).

Recent economic data may be suggesting that inflation has begun to rebound from its post-COVID lows, and inflationary concerns have begun to manifest in the prices of various assets, including gold and TIPS but our analysis of both convertible bond floors and cross-asset performance suggests that CBs are much less negatively impacted by rising inflation as traditional fixed income assets.

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