Convertibles' February returns remain positive: Citigroup report

By Rebecca Melvin

New York, March 7 - Convertibles continued their uphill climb in February, marking the sixth straight month of positive performance for both outrights and hedged investors, with outrights slightly outpacing hedged players, according to a report published by Citigroup's convertibles trading desk.

Outright convertibles funds returned 0.8%, according to Bloomberg Markets, while convertible arbitrage, according to HFR, brought in roughly 1.7%. The CWB convertible ETF was nearly 1.9% better, the Citi monthly report stated.

A gap of roughly 16 basis points between outright and hedged performance was even narrower than the 35 basis point performance gap in January, the report stated.

"The asset class performed well relative to fixed income benchmarks and several major hedge fund strategies," the report stated.

Convert universe shrinking

There were nine new convertibles issued in February for a total raised of about $1.5 billion, which compared to just four convertibles hitting the tape, generating proceeds of roughly $0.9 billion in issuance in February 2010.

On the other side of the ledger, convertible maturities, repurchases, calls, exchanges and other redemptions totaled about $8.1 billion last month, putting net organic growth at negative $6.6 billion.

In addition to the Amgen Inc. 0.125% convertibles and PNC Financial Services Group Inc.'s 4% bonds, which both matured, Ford Motor Co. called its 6.5% preferred shares, removing another $2.9 billion from the convertibles market.

About $1 billion is already on its way out of the market in March, including a call of the $329.23 million of Thermo Fisher Scientific Inc. Co.'s 3.25% bonds.

The average convertibles issuer market cap last month was just $1.3 billion, and all but one had a market cap of below $2 billion.

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