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Morningstar, Inc. Commentaries

Should You Become a Convert to Convertibles Funds?

Feb 14, 2014
Click here to access Should You Become a Convert to Convertibles Funds?

As a steady economic recovery pushed equity securities higher in 2013, convertible securities also benefited. A convertible security is a bond that also carries the right to buy the stock of the issuing firm once it hits a certain (conversion) price. As a result, convertibles funds tend to provide much, but not all, of equities' upside with less of their downside risk. For example, last year,  SPDR S&P 500 (SPY) gained 32%, the typical open-end convertible fund gained nearly 22%, and the typical convertibles closed-end fund gained nearly 20%. In an equity bear market, convertible securities should provide some downside protection--in 2008, SPY dropped nearly 37%, but the typical open-end convertibles fund lost 26% and the typical CEF lost 34%. 

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Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individuals, financial advisors, and institutions.

Morningstar provides data on more than 385,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 8 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services and has approximately $195 billion in assets under advisement or management as of Sept. 30, 2012. We have operations in 27 countries.