The convertible bond market has been fairly flat in 2015, closely following the slim returns seen in equities. Edward Silverstein, portfolio manager for the MainStay Convertible Fund (MCOAX), expects convertibles to shadow stocks again in 2016. ‘Credit spreads have tightened enough that you are not going to get performance from further credit spread tightening,’ said Silverstein. ‘And you are probably not going to get much in the way of downside from interest rates. So it’s really dependent on what stocks do from here.’ The MainStay Convertible Fund is down 85 basis points so far in 2015. The fund has returned 10.5% annually over the past three years, outperforming 97% of its peers in Morningstar’s convertible category. Silverstein pointed out that the convertible market received a shot in the arm when the Federal Reserve raised interest rates this week, mirroring the jump in stock prices in the wake of their decision. ‘Convertibles captured the majority of that upside when stocks moved higher and we would expect similar performance going forward,’ said Silverstein, adding that convertibles are defensive because simply by their nature ‘they pick up less of any downside move in equities.’
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