Amid volatile markets and concerns over the global economic outlook, how can investors mitigate the risk of capital loss while keeping the door open to capital gains? The answer lies in convertible bonds strategies, given the specific risk-return profile of this asset class.

After a strong start into the year, doubts have returned to the financial markets, primarily driven by central banks’ rhetoric and developments in the US–China trade conflict. Against this challenging backdrop and with an ultra-low-yield fixed-income environment, the traditional “equity/bond” allocation is constantly being put to the test. On the one hand, there is still upside potential for equities: so far, global growth has been resilient and central banks have maintained their accommodative stances; nevertheless, short-term corrections are to be expected given the lingering uncertainties.

On the other hand, yields have decreased substantially year-to-date and are not sufficient to deliver attractive long-term returns.

In this context, convertible bond strategies constitute a solid alternative for investors thanks to their convexity: their ability to limit downside risk due to their bond floor while benefitting from a substantial part of stock market rallies. Whereas some see this as complicated, we see it as an asset.