The best asset class in uncertain times

Convertible bonds have long been overlooked by investors - but they have outperformed both conventional bonds and equities on an annualised basis over the past ten years.

If you haven't heard of convertible bonds before, don't be surprised as the FT's Matthew Vincent points out, these instruments have "long been overlooked in the UK as an asset class for uncertain times". This is a pity as they have outperformed both conventional bonds and equities on an annualised basis over the past ten years.

In 2007, convertible issuance hit an all-time high of $183bn, up 47% on 2006 as firms struggled to raise debt capital in the wake of the credit crunch, and investors demanded instruments capable of profiting from market volatility and uncertainty. Like any other corporate bond, convertibles offer regular interest and a redemption payment. The added attraction for investors is the possibility of exchanging the bond at a later date for a predetermined number of shares, which offers an investor the bonus of benefiting from a strong rise in an issuer's share price.

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