Improving on the performance trends in straight debt, all of our convertible strategies outgained their benchmarks by wide margins. Our composite of U.S. convertibles accounts (we called them domestic convertibles until going global taught us that the word “domestic” has different meanings depending on where one sits) returned 19.4% before fees (18.8% after) versus 16.8% for the BofA Merrill Lynch All U.S. Convertibles Index. Convertibles continued their recovery from the undervaluation relative to equities caused by the collapse of convert arbitrage funds in 2008, and they also benefited from investors’ increased desire for yield. Thus our U.S. convertible composite outperformed the S&P 500, which rallied strongly in December to gain 15.1% for the year.
Our portfolios of non-U.S. convertibles also reflected the above trends. Thus they continued their incredible string of outperformance, with a composite gain of 12.0% before fees (11.2% after), dramatically ahead of the 6.4% gain on the JACI Global portfolio of non-U.S. convertibles and trouncing the gain of only 2.8% on the MSCI EAFE hedged index.
Finally, as is often the case, our high income convertibles (or “busted” convertibles) were again our top performing marketable securities strategy, a few basis points ahead of the other U.S. convert portfolios. The high income composite returned 19.4% before fees (18.9% after) versus 14.3% on the Citigroup High Yield Market Index. Searching among the unloved paid off again.
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