“The average price of the portfolio is 108, which is a bit lower than we have historically owned,” says Van Ingen. “We are wary but our positioning is not reactive. If something happens tomorrow, we believe you have either positioned for it today or you should sit it out.
“We own issues of fairly high credit quality that are not too far from their bond value. So, unless the thesis changes dramatically, we are comfortable. It is conservative enough to harness any shocks you may get and it is aggressive enough to benefit on the upside. It sounds cheesy but we try to be as all-weather as we can.”
Different strokes
Van Ingen also points out that the fund’s thematic structure provides it with an inherent level of diversification, despite its small number of holdings.
“We are investing in the same number of themes as funds that have 100 to 150 names. In practice, we have a 20% limit on sectors and we tend to stick to a 20% limit on themes but are usually far below that,” he says.
The other factor that differentiates the fund from some of its peers, Saber says, is that it does not try to involve itself in the risk-on/risk-off trade.
“It is a mug’s game, especially now. In the current environment, there is not an economic trend you can easily get your head around. Today it is, ‘What did Yellen say? What did Draghi do? Is Greece going to stay in or go out?’ For example, we saw a year ago that Greece was looking shaky, so we decided then we wouldn’t own any Greek converts, because if a country defaults it will be messy.”
He adds that discipline is important to make the most of the options provided by convertibles.
“If a bond gets above 130, we start to sell out as the distance to bond floor is very high. By 140 we will be out, because at that stage we are effectively owning pure equity. Likewise, below 90 and the premium is so big it does not make sense to hold it.”
That said, Saber believes the current environment suits convertible bonds very well.
“You get managers who say, ‘Why waste time buying a convertible bond? I know where equities are going and I am going to buy them’.”
If you can do that, then it makes sense to buy equities.
“Likewise, in times of much greater volatility and conservatism, people move into fixed income. We believe that convertible bonds sit nicely in the middle.”
