Like most other things these days, convertibles funds aren’t doing great, but they’re not doing as badly as they could be. In an article for Morningstar, Miriam Sjoblom cites the Merrill Lynch All U.S. Convertible Index which shows convertible funds lost 11 percent in the last nine months compared with the 17 percent the S&P 500 lost. While their relatively low risk-high reward profile makes them attractive assets, Sjoblom warns they don’t have as much protection as straight bonds or government-backed debt, so their yields may be lower than those assets.
Investors who need a more aggressive substitute for bonds, or a less aggressive substitute for equities, may be interested in convertibles funds, Sjoblom says. Make sure the fund has an even balance of equity and bonds, or risk losing the downside protection that makes these funds popular in the first place. The market is small — just a little over $300 billion in the United States — and the limited number of new issues can influence prices.