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Institutional investors turn to convertible bonds

The majority of institutional investors in Europe plan to increase their allocation to convertible bonds in the next three years, according to a poll by NN Investment Partners.


PA Europe

The headaches the low-yield environment has been causing to fixed income investors have been well-documented, and have resulted in outflows from actively managed bond funds and consistently negative sentiment with fund buyers. Everywhere in Europe, those planning to decrease their exposure to investment grade government and corporate bonds greatly outnumber those who plan an increase.

In their pursuit of higher returns, investors have been increasing their exposure to riskier assets

such as equities and sometimes high yield bonds. They are also setting their sights on convertible bonds, according to a poll by NN Investment Partners among 103 institutional investors. Some 57% of those interviewed say they intend to increase their exposure to the asset class in the next three years, while less than in one in 10 plan a decrease.

The most important reason for institutional investors, who often have a relatively large allocation to fixed income, to invest more in convertible bonds is that it contributes to better portfolio diversification. The asset class tends to correlate negatively with government bonds, which is the least popular asset class with European investors at the moment, according to EIE data.