In the latest issue of his industry leading No-Load Fund Investor, fund expect Mark Salzinger reviews convertible bond funds, highlighting his two favorites.
Here, the leading fund authority looks at Fidelity Convertible Securities (FCVSX) and the "more conservative" favorite, Vanguard Convertible Securities (VCVSX).
"Convertibles are hybrid securities, often slight below investment grade, which can be redeemed for stock at a predetermined price and quantity.
"Because their values are often closely correlated to the value of the underlying equities, convertible bonds have more capital appreciation potential also more volatility than plan vanilla corporate bonds. However, because the value of their interest payments creates a floor of value, they tend to be less volatile than stocks.
"Our top convertibles pick is Fidelity Convertible Securities. The fund has been managed by Tom Soviero since 2005, since when it has generated an annualized return of 11.7% vs. 5.7% for Merrill Lynch All Convertible Index.
"Soviero is one of Fidelity's best portfolio managers. He favors convertibles that trade in line with the movements of the underlying equity's price and he wants the underlying equity to have an inexpensive valuation.
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