Convertible Bonds and the U.S. Recovery
Air Date: March 31, 2021
I am Al Kurtz, I'm a portfolio manager on Lord Abbett’s convertible strategy.
Market Backdrop: Vaccines and Interest Rates
So healthcare data is still very important, and while the rebound in case counts in the tri-state area [New York, New Jersey, and Connecticut] and some other areas of the country is concerning, no doubt, what's getting less attention, right now, in the press is how many folks have been vaccinated [against COVID-19]. So in the United States for people over 65, 69% have had one shot; 43% of people over 65 have had both of their shots. That's great. This is the highest-risk population, and that means that even if case counts continue to elevate here, we should see much fewer adverse outcomes, fewer hospitalizations, and certainly fewer deaths.
Away from that, like everybody else we're watching interest rates. We've had a very sharp move higher year to date. And that's had some pretty adverse impacts on some of the higher valuation stocks, particularly the ones have benefited from the “work from home” environment last year and were the big returners in the market.Returning back to my comments around accelerating volumes of vaccine administration, you know, I can see some scenarios where rates move higher from here, and to be fair, I don't see a lot of strategists out there, right now, calling for a 3% 10-year [U.S. Treasury] yield by year end. I'm not calling for that, but I don't dismiss that possibility.
More bottom line for us, I do think rates grind higher. But how they get there is more important to me. A slow grind higher can be good for a lot of parts of the equity market, but another violent move higher like we had is going to induce some more pain in those higher-momentum areas, no doubt about it.
Convertibles and the 2021 Reopening
So when we're thinking about the reopening …last year, a lot of these stocks were priced for, if it wasn't going to be be bankruptcy, it was going to be something pretty close to it. But then, a lot of those companies found ways to raise capital [and] get themselves a greater cushion to make it into this year and into 2022. Convertibles played a big part in that, but there was also secured lending and eventually, when a lot of these stocks bounced pretty hard off the bottom, these companies are able to issue equity as well.
So where does that leave us now? We're really encouraged by a lot of what we're starting to see. Now, relative to my earlier comments on the rollout of vaccines, [U.S. Transportation Security Administration data on airline passenger traffic] volumes are up. Online travel agencies are seeing a lot of activity and for anybody that's trying to book a flight recently, we can see a lot of capacity has been taken out. And the airlines are very good extracting price when and where they can get it. So we think there's pretty meaningful upside estimates near term for a lot of these consumer-facing industries, and to be clear, relative to the [Wall] Street numbers that are out there, we think that improvement happens sooner and a much greater magnitude and what's published for estimates out there right now.
Thanks for listening and thanks for your continued interest in Lord Abbett.________________________________________
A convertible bond is a fixed income instrument that allows the holder to convert the bond into equity under specific conditions. The basic structure of a convertible bond gives the holder the option to hold the bond until maturity and receive cash par value, or to convert the bond into a specified number of shares of stock of the same company.
Unless otherwise noted, all discussions are based on U.S. markets and U.S. monetary and fiscal policies.
Asset allocation or diversification does not guarantee a profit or protect against loss in declining markets.
No investing strategy can overcome all market volatility or guarantee future results.
Market forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.
Convertible securities are subject to the risks affecting both equity and fixed income securities, including market, credit, liquidity, and interest rate risk. Convertible securities tend to be more volatile than other fixed income securities, and the markets for convertible securities may be less liquid than markets for common stocks or bonds. High yield, lower-rated convertible securities carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal.
This broadcast may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.
This broadcast serves as reference material and is provided for general educational purposes only; does not constitute an offer to acquire, solicitation for an offer to acquire, an offer to sell or solicitation for an offer to buy, any securities, nor is intended to be relied upon as a forecast, research, or investment advice on any securities, and cannot be used for any of the foregoing.
The views and opinions expressed by the Lord Abbett speaker are those of the speaker as of the date of the broadcast, and do not necessarily represent the views of the firm as a whole. Any such views are subject to change at any time based upon market or other conditions and Lord Abbett disclaims any responsibility to update such views. Neither Lord Abbett nor the Lord Abbett speaker can be responsible for any direct or incidental loss incurred by applying any of the information offered.
The value of investments and any income from them is not guaranteed and may fall as well as rise, and an investor may not get back the amount originally invested. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon, and risk tolerance.
Please consult your investment professional for additional information concerning your specific situation.
The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett’s products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.
This broadcast is the copyright © 2021 of Lord, Abbett & Co. LLC. All Rights Reserved. This recording may not be reproduced in whole or in part or any form without the permission of Lord Abbett. Lord Abbett mutual funds are distributed by Lord Abbett Distributor LLC.
FOR MORE INFORMATION ON ANY LORD ABBETT FUNDS, CONTACT YOUR INVESTMENT PROFESSIONAL OR LORD ABBETT DISTRIBUTOR LLC AT 888-522-2388, OR VISIT US AT LORDABBETT.COM FOR A PROSPECTUS WHICH CONTAINS IMPORTANT INFORMATION ABOUT A FUND'S INVESTMENT GOALS, SALES CHARGES, EXPENSES AND RISKS THAT AN INVESTOR SHOULD CONSIDER AND READ CAREFULLY BEFORE INVESTING.