Convertible Securities Offer Good Yields, Less Volatility but Some Analysts Complain That They Are Neither Stocks nor Bonds Series: YOUR MONEY

By Guy Halverson, writer of The Christian Science Monitor | The Christian Science Monitor, June 26, 1995 | Go to article overview

Convertible Securities Offer Good Yields, Less Volatility but Some Analysts Complain That They Are Neither Stocks nor Bonds Series: YOUR MONEY


Guy Halverson, writer of The Christian Science Monitor, The Christian Science Monitor


QUESTION: When is a bond a stock and a stock a bond?

Answer: When it's a convertible security.

Convertible securities - both convertible bonds and preferred stock - are being rediscovered in the current economic setting of rising stock prices and confusion about the future direction of interest rates in the United States.

Convertible bonds are bonds that can be converted into fixed amounts of the issuer's common stock under certain conditions, such as when the common stock reaches a specific price. Convertible bonds pay interest but also gain appreciation in value along with the issuer's underlying common stock.

Preferred stock is a class of stock that can be converted into common stock. The preferred stock also usually pays a fixed dividend, like a bond. And it tends to rise in value along with the firm's common stock. More than $100 billion worth of convertible securities exist in the US, along with another $100 billion in convertibles outside America.

"Historically, high-grade convertible bonds {having a rating of BBB minus or above} have been able to match the returns of the {Standard & Poor's 500 index}, yet with a lot less volatility" than registered stocks by themselves, says Richard Janus, managing director of convertible securities for the investment firm Society Asset Management Inc. of Cleveland. The firm manages $550 million in convertible securities.

In terms of price volatility, convertible bonds rank almost exactly in between bonds and stocks. During the period 1960-94, convertible bonds were 24 percent more volatile than the former and 25 percent less volatile than the latter, according to The Carmack Group.

In terms of return, interest plus capital gains, convertibles beat out high-grade, long-term corporate bonds over time, he says. (See box.)

Convertibles are "a total return investment," Mr. Janus says. That means an investor can receive "a good cash flow" from the bond side of the instrument while also watching the security appreciate in value as the stock of the company rises.

Some 25 of 30 blue-chip stocks listed in the Dow Jones industrial average have used convertible bonds for financing, Janus says; and more than one half of all convertible bonds sold in the US "are investment-grade bonds, not junk bonds."

"Many investors don't pay enough attention to capital appreciation, yet people are living longer than ever," says Steve Savage, editor of the Value Line Mutual Fund Survey.

Still, many investment analysts do not like convertibles. These instruments, they maintain, are a little of both worlds and not enough of either to satisfy them. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Convertible Securities Offer Good Yields, Less Volatility but Some Analysts Complain That They Are Neither Stocks nor Bonds Series: YOUR MONEY
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.