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AGF Global Convertible Bond Fund

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5 Reasons to consider an allocation to convertible bonds

Convertible bonds (‘convertibles’) combine both debt and equity features and offer a compelling value proposition: to participate in the potential for equity price appreciation while retaining the downside protection provided by bonds.

In essence, a convertible bond is a hybrid financial instrument – a bond that pays fixed coupons but has a special option to convert into shares of the issuing company’s stock. As the company’s stock rises, so can the value of its convertible bond.

1. Upside potential of equities with the downside protection of bonds

Due to the embedded equity option with convertibles and the fact that most bonds typically pay the par value plus accrued interest at maturity, there is no other fixed-income security that offers as much total return upside potential.

In terms of downside protection, the bond’s investment value behaves as a ‘floor’ for the convertible bond price. Further, in the event of a bankruptcy, convertibles rank higher in the capital structure than common stock.

2. Lower sensitivity to interest rates

The ability to convert to equities enables the convertible bond’s price to be less sensitive to rising interest rates than a non-convertible bond. Historically, and unlike most traditional fixed-income securities, convertibles have performed strongly in rising interest-rate environments as higher rates typically indicate an improving economy and possibly rising equity markets.

Total return
June 13, 2003 – June 14, 2004
June 1, 2005 – June 28, 2006
Dec. 30, 2008 – Apr. 5, 2010
Jul. 24, 2012 – Dec. 31, 2013
Rise in U.S. 10-year yields (bps)
176
136
193
164
Global investment-grade bonds
0.2%
-1.6%
5.5%
-0.2%
Convertible bonds
12.7%
12.3%
62.4%
36.5%

Source: Bloomberg, JPMorgan, November 2014. Returns in U.S. dollars. Convertible bonds represented by Barclays Capital U.S. Convertibles Composite Index; Global investment-grade bonds represented by Barclays Capital Global Aggregate Bond Index. For illustrative purposes only. You cannot invest directly in an index.

3. Low correlation with other fixed-income asset classes

The low correlation that convertibles have exhibited with other fixed-income categories offers investors strong diversification benefits, making this asset class a great complement to a core bond portfolio.

5-year correlation
Canadian bonds
Global bonds
Canadian equities
Global equities
Convertible bonds
-0.35
-0.16
0.77
.0.95

Source: Morningstar Direct, November 30, 2014. Correlation is a statistical measurement of the relationship between two variables. A correlation of less than one is considered a favourable correlation. All indexes in base currency. Convertible bonds are represented by Barclays Capital Global Convertibles Hedged Index (US$); Canadian bonds by FTSE TMX Canada Universe Bond Index (C$); Global bonds by Barclays Global Aggregate TR Hedged Index (US$); Canadian equities by S&P/TSX Composite TR Index (C$); Global equities by MSCI (All Country) World GR Index (local currency). For illustrative purposes only. You cannot invest directly in an index.

4. Equity-like performance with lower risk

Importantly, the addition of convertibles can potentially reduce the risk profile of a portfolio of securities containing both stocks and bonds. This has been the case historically, with convertibles having generated strong risk-adjusted returns over time.

5 year chart

Source: Morningstar Direct, November 30, 2014. All indexes in base currency. Convertible bonds are represented by Barclays Capital Global Convertibles Hedged Index (US$); Global bonds by Barclays Global Aggregate TR Hedged Index (US$); Global equities by MSCI (All Country) World GR Index (local currency). For illustrative purposes only. You cannot invest directly in an index.

5. Global convertible bond market is well diversified

The convertible bond category is large, well established and represented by companies from countries all over the world and across all sectors.

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Source: Barclays Capital, Barclays Global Convertibles Index, November 30, 2014.

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Convertible bonds are a hybrid debt instrument that can be converted to a specified number of shares in the issuing company at a set conversion price. Convertible bonds offer the security associated with fixed-income investments and the upside potential of equities.
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Fund Facts document for AGF Global Convertible Bond Fund (MF).

Note: FTSE “All rights in the FTSE TMX Canada Universe Bond Index (the “Index”) vest in FTSE International Limited (“FTSE”). “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE under licence.

The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information.  Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (www.msci.com).

The information contained herein is intended to provide you with general information related to investment alternatives and strategies and is not intended to be comprehensive investment advice applicable to the circumstances of a specific investor. We strongly recommend consulting with a professional advisor prior to making investment decisions.

REASONS TO INVEST IN THIS FUND

The Fund seeks to generate long-term total returns by investing in convertible bonds, providing an opportunity for equity participation with the downside protection characteristic of bonds.

INVESTMENT PROCESS

The manager combines a top-down macro assessment with bottom-up fundamental research, including credit and security selection, focusing on conversion premium and total return potential.

Portfolio Managers / Advisors
Vice-President and Portfolio Manager
AGF Investments Inc.
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Date as of 10-31-2016

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Please refer to AGF.com for distribution information.

˜MER as of March 31, 2016. 1The distribution is not guaranteed, may be adjusted from time to time at the discretion of the fund manager and may vary from payment to payment. Amount shown, if any, is the most recent distribution amount. ¤Cash is not included. Note: numbers may not add up to 100% because of rounding. *TTM = Trailing 12-month.

The information contained in this fund profile is designed to provide you with general information related to investment alternatives and strategies and is not intended to be comprehensive investment advice applicable to the circumstances of the individual. We strongly recommend you to consult with a financial advisor prior to making any investment decisions. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in share and/or unit value and reinvestment of all dividends and/or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. The payment of distributions should not be confused with a fund's performance, rate of return or yield. If distributions paid by the fund are greater than the performance of the fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a fund, and income and dividends earned by a fund, are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base falls below zero, you will have to pay capital gains tax on the amount below zero. The performance of a Fund may have been different had events such as mergers, portfolio manager changes and investment objective changes not taken place.

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