Why and How to Use Convertible Securities in Client Portfolios

Welder, Margie C.
August 1997
Journal of Financial Planning;Aug1997, Vol. 10 Issue 4, p78
Academic Journal
This article discusses how financial planners use convertible securities in client portfolios. In the past, financial advisors typically have not used convertibles in their client portfolios for a variety of reasons. Given the increased level of sophistication among financial advisors and their clients, and the growth that has taken place in the convertible market, there are several reasons it might be a good time for advisors to take another look at convertible securities. The risk/reward characteristics of convertibles are unique, and justify classifying them as a separate asset class. The historical risk-adjusted returns of convertibles relative to their fixed income and equity counterparts have been excellent, and their correlations to these other asset classes have been low to moderate; therefore, even if they are not considered a separate asset class, there are still benefits to adding them to client portfolios. The growth of the convertible market over the past years has been phenomenal, providing a substantially different market today for the convertible investor. The flexibility available from convertibles make them an excellent customization vehicle for client portfolios.


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