Money managers under the microscope
Convertible arbitrage is the hedge fund trade of the moment, with top-ranking returns of 12.58 percent so far this year, but there could be more to come.
The strategy, in which managers usually buy a convertible bond and short the underlying stock, is proving particularly profitable because the bonds are rebounding from the battering they took last year. The strategy lost 31.59 percent, the second-worst performing strategy, in 2008 as funds scrambled to sell their positions in what had become a crowded trade.
Such is the scale of the rebound in convertible bonds now that simply buying the convertible, without shorting the underlying stock, is proving very profitable.
Paul Compton, head of product management at software group Sungard’s alternatives business, thinks the outlook is positive.