Fidelity Convertible, Leveraged Funds Rebound

BOSTON (TheStreet) -- Thomas Soviero manages the Fidelity Select Convertible Securities(FCVSX Quote) and Fidelity Leveraged Company Stock(FLVCX Quote), two funds that benefited from the recovery in credit markets, financials and natural resources.

Normally, convertible bonds are a less volatile way to gain exposure to equity. Yields on the bonds pay less, but if the stock price doesn't rise, investors at least get their principal back. During the panic of 2008, many investors questioned whether these firms would be able to repay their bonds, and with their stocks well below conversion price, there was no help from the equity stub.

The recovery was just as swift. An improvement in credit markets and a sharp rebound in stock prices made convertible bonds attractive once again. Meanwhile, the stocks of many leveraged companies rebounded sharply as the specter of bankruptcy dissipated.

Materials and Financials drive FCVSX and FLVCX

The funds use some overlapping strategies, since companies with convertible bonds are leveraged. For instance, both funds hold assets from copper miner Freeport-McMoRan(FCX Quote) in their top 10, as well as coal miner Peabody Energy(BTU Quote), Bank of America(BAC Quote), ON Semiconductor(ONNN Quote), and chemical producer Celanese(CE-P Quote).

These companies were a hindrance in 2008, when materials and financials were hammered by falling asset prices. Fidelity Convertible Securities lost 47.8 percent last year, while Fidelity Leveraged Stock sank 54.5 percent. Leveraged companies were hard hit by the credit crisis because an inability to roll over debt could send an otherwise healthy company into bankruptcy. Nevertheless, the strategy has paid off in 2009. Through August 31, Convertible Securities gained 49.10 percent and Leveraged Stock advanced 41.97 percent.