Technology issues help lift convertibles 3.6% in October, Merrill says

New York, Nov. 6 - U.S. convertibles gained 3.6% in October, helped by a strong performance in technology issues, according to Merrill Lynch & Co.

The upward move takes the year-to-date performance to 21.4%, as measured by Merrill's All U.S. Convertibles index.

But convertibles' October rise lagged equity markets; the Nasdaq Composite Index was up 8.2% in the month and 45.3% for 2003 so far while the Russell 2000, Dow Jones Industrial Average and S&P 500 also performed strongly in October and are now up 39.4%, 21.2% and 19.8%, respectively, for the year to date.

Technology was the biggest contributor to the convertible index's rise, according to a report by Merrill Lynch analysts Marc Malloy and Yaw Debrah. The sector moved up 6.6% as the underlying stocks rose 13.4%. Names gaining included Lucent Technologies Inc., Advanced Micro Devices and Nortel Networks.

So far this year, technology convertibles are 39.3% higher, while their underlying equities have soared 97.2%. The convertibles have contributed 879 basis points to the overall index's rise so far this year.

In absolute terms, the materials sector was the best performer, with gains in Freeport McMoRan Copper & Gold Inc., U.S. Steel and Inco Ltd. The group rose 9.8% in October compared to 12.7% for the underlying stocks. But as it only makes up 2.9% of the overall index, it only contributed 115 basis points of the year-to-date performance.

Speculative-grade convertibles outperformed high-grade names in both October and 2003 so far. For the month, they rose 5.4% while their underlying stock added 10.0%. Year to date they are 33.6% better compared to 71.2% for the corresponding equities.

High-grade convertibles were up 2.0% in October while their equities rose 4.2%.

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